Man City faces €30m fine over fair play rules
19 Feb 2020
Premier League club, Manchester City, faces a two-year ban and multimillion pound fine relating to overstatement of sponsorship revenue in its accounts in contravention of fair play rules
19 Feb 2020
The independent Adjudicatory Chamber of the Club Financial Control Body (CFCB) has ruled that Manchester City Football Club committed serious breaches of the UEFA Club Licensing and Financial Fair Play Regulations (FFP) by overstating its sponsorship revenue in its accounts and in the break-even information submitted to UEFA between 2012 and 2016.
Disciplinary measures against the Club include a two-year ban from European football for the 2020/21 and 2021/22 seasons, which would see them losing out on a valuable Champions League place and a fine of €30m (£24.9m).
The Club said it planned to appeal the decision, adding in a statement: ‘Manchester City is disappointed but not surprised by [the] announcement by the UEFA Adjudicatory Chamber. The Club has always anticipated the ultimate need to seek out an independent body and process.
‘In December 2018, the UEFA chief investigator publicly previewed the outcome and sanction he intended to be delivered to Manchester City, before any investigation had even begun. The subsequent flawed and consistently leaked UEFA process he oversaw has meant that there was little doubt in the result that he would deliver. The Club has formally complained to the UEFA disciplinary body.
‘Simply put, this is a case initiated by UEFA, prosecuted by UEFA and judged by UEFA. With this prejudicial process now over, the Club will pursue an impartial judgment as quickly as possible and will therefore, in the first instance, commence proceedings with the Court of Arbitration for Sport at the earliest opportunity.’
The fair play rules were first introduced in 2011 by the European football governing body, UEFA, to stop clubs from spending more than they earn. Since 2013, clubs have also been assessed against break-even requirements, which require clubs to balance their spending with their revenues and restricts clubs from accumulating debt.
Determining fair value
A detailed ruling has not been released but the ruling centres on over-reporting of sponsorship revenues. This is a complex area where valuations of sponsorship deals can be open to interpretation.
Andy Turner, partner at Mercer & Hole, said: ‘The question to ask is what is the fair value of any sponsorship deal and how is this determined, and would this be affected if the sponsor was a related party?
‘Generally, sponsorship is relatively easy and there is a market value for a lot of the commercial transactions clubs enter into with unrelated third parties. It gets more tricky when the sponsorship transaction is unique, large and complex.
‘To use the Manchester City example, how do you determine the sponsorship naming rights for their stadium? Clearly Etihad Airways paid a lot of money for this. There was probably little or no benchmark in terms of similar transactions and it was a unique transaction. Etihad Airways are owned by the Abu Dhabi government and therefore did this relationship affect the value of the sponsorship?
‘UEFA rules state that if an owner injects money through a sponsor with a company with which he is related (if greater than 30% of the clubs revenues) then they will investigate and have the power to adapt the FFP calculations if they deem a transaction not to be at fair value.
‘One way to help would be to have a pre-approval process of any such transactions by UEFA so that any sponsorship transactions of this nature can be discussed, challenged and the FFP value determined between the club and UEFA. This would avoid any potential disagreements after the event and provide a level of certainty.’
The latest ruling highlights the importance of taking FFP rules seriously, but there is a case for simplifying the rules and for UEFA to be more transparent about its hearings to improve understanding of the nuances of FFP.
Turner also suggests that UEFA should produce guidelines on calculating the fair value of sponsorship deals.
‘Any large complex sponsorship transactions need careful consideration to ensure that when subjected to scrutiny they stand up to a fair value test,’ Turner said.
‘UEFA should provide some guidelines for determining fair value – maybe accredited external valuers or auditors who could opine on the values in transactions as being at fair value.
‘It would be useful for both UEFA and Manchester City to conduct any appeal process in a transparent and open manner so the whole football world could understand the issues and learn from them.’
UEFA has wide-ranging powers to investigate clubs’ finances including the right under article 71 of their rules to perform a compliance audit to ensure clubs have fulfilled their obligations – such audits can involve investigating bank payment and receipt details.
By Sara White