Manchester City have launched an unprecedented legal action against the Premier League in a move that has sparked civil war in English football’s top flight.
The dispute, which has become a battle between the most powerful clubs in the country, will be settled after a two-week private arbitration hearing starting on Monday.
The outcome could dramatically alter the landscape of the professional game and have a significant impact on a separate hearing set for November into City’s 115 alleged breaches of the Premier League’s regulations and financial rules. That hearing, expected to last six weeks, could lead to massive fines for the club owners and possibly even relegation for Pep Guardiola’s all-conquering side.
At next week’s hearing, which has provoked bitter divisions between clubs,
City will attempt to end the league’s Associated Party Transaction (APT) rules, which they claim are unlawful, and seek damages from the Premier League.
Introduced in December 2021 in the wake of the Saudi-led takeover of Newcastle United, the rules are designed to maintain the competitiveness of the Premier League by preventing clubs from inflating commercial deals with companies linked to their owners. The rules dictate that such transactions have to be independently assessed to be of “fair market value” (FMV).
But within an 165-page legal document City argue that they are the victims of “discrimination”, describing rules they say have been approved by their rivals to stifle their success on the pitch as a “tyranny of the majority”.
If City are successful in their claim — and some rival clubs fear they will be — it could enable the richest clubs to value their sponsorship deals without independent assessment for the league, vastly boosting the amount of money they can raise and therefore giving them far greater sums to spend on players.
The league’s other 19 clubs have been invited to participate in the legal action and The Times understands between ten and 12 have stepped forward, providing either witness statements or a letter detailing evidence in support of the Premier League’s defence against the claim. Those who have provided witness statements may be called by the tribunal to give evidence at the hearing.
As well as the impact it could have on the Premier League as a competition, clubs fear City’s claim could also be key to the outcome of the hearing into their 115 alleged breaches between 2009 and 2023, with sponsorship deals funded by companies linked to Abu Dhabi central to the accusations against them.
It has been alleged that City concealed payments made by their owner Sheikh Mansour through third parties and disguised them as sponsorship revenue, which in itself was inflated. Even before the more recent moves by the Premier League to tighten regulation around APTs, there was a requirement under the league’s rules that related party transactions must be of fair market value. If such rules are now deemed unlawful, it could significantly strengthen City’s defence at the hearing later this year. City have denied any wrongdoing relating to the 115 charges.
In February it was reported that the
Premier League had warned its clubs of the threat of possible legal action by a club against its APT rules.
Now, The Times can confirm, City carried out that threat, filing their claim on February 16, with the Premier League informing its member clubs in March that a date of June 10 had been set for the hearing.
City are suing the Premier League for damages, while arguing that the league’s democratic system of requiring at least 14 clubs, or two-thirds of those who vote, to implement rule changes gives the majority unacceptable levels of control. They accuse rival clubs of “discrimination against Gulf ownership”, citing the comments of one particular senior club executive.
City argue that sponsors linked to club owners — City’s are in Abu Dhabi — should be allowed to determine how much they want to pay, regardless of independent valuation. Four of City’s top ten sponsors have ties to the United Arab Emirates, including stadium and shirt sponsor Etihad Airways.
Newcastle, which is majority-owned by Saudi Arabia’s Public Investment Fund, have a shirt sponsorship deal with Sela, a Saudi sports rights company. Chelsea have a shirt deal with Infinite Athlete, a leisure company which counts the joint-Chelsea owners Todd Boehly and Behdad Eghbali among its investors.
While The Times knows of at least one club that has submitted a witness statement in support of City for next week’s arbitration hearing, sources believe more than half have sided with the Premier League. The Premier League invited clubs to submit their statements in a letter from their general counsel, Kevin Plumb, on March 1.
Despite just winning a record fourth successive Premier League title, City claim rules introduced two and a half years ago are restrictive and anti-competitive.
Their rivals believe what City are doing will actually destroy the competitiveness of the world’s most popular league, allowing clubs with super-rich owners to spend unlimited amounts of money on their playing squads and infrastructure and nullify Financial Fair Play rules.
Millions are being spent on legal fees to fight this case. One senior club source says the Premier League’s legal bill has more than quadrupled in the past year, from about £5million to north of £20million. They also point to the fact that since February the Premier League’s own legal department has been forced to shift its focus to this claim when it is also trying to prepare for the hearing into City’s 115 charges. “This is clearly a tactic,” the source said.
City have certainly spared no expense in their potentially groundbreaking legal fight. They have appointed three KCs, with Lord Pannick supported by Paul Harris and Rob Williams. A fourth senior barrister who specialises in competition and regulatory law, David Gregory, is also on City’s team.
In their claim City are seeking “damages for the losses which it has incurred as a result of the unlawfulness of the FMV [fair market value] rules”, in particular for costs resulting from delays, sums they claim were not paid under agreed deals and additional costs, including the club’s inability to generate revenue from delayed or cancelled projects. This, clubs believe, could potentially amount to tens of millions.
Indeed, City’s claim says the club are seeking a split trial, with the first part focused on the APT rules followed by a second to then determine damages.
In his letter to clubs on March 1, Plumb detailed the nature of City’s legal challenge under Section X of the Premier League rules.
Plumb explained how the Premier League had to secure an order that enabled it to disclose the details of the arbitration to its member clubs and confirm that it was indeed City who had filed a claim. “The purpose of this letter is to provide those further details, within the bounds of the confidentiality of the proceedings, and to confirm the process by which any club may participate in the arbitration,” Plumb states.
He explained to clubs the detail of City’s claim that the rules are contrary to the Competition Act 1998.
Plumb then said the Premier League’s independent legal counsel believes the rules are compatible with English law and that they will fight the legal action.
On February 26 a directions hearing in the arbitration took place, with the tribunal appointed to hear the case giving the Premier League permission to provide a redacted copy of City’s statement of claim to other clubs, because they may be affected by the outcome of the challenge.
The tribunal set a date for the final hearing to take place from June 10 to June 21, with all witness statements due to be submitted by March 28 in line with the deadline for the Premier League’s statement of defence.
Clubs were given the option of either intervening formally in the proceedings, upon receiving permission from the tribunal, or submitting factual evidence on relevant matters.
Within the City claim is a challenge to the voting system upon which the Premier League’s decision-making process has long been built, which requires two-thirds of clubs to support a rule change. They say this allows a majority of clubs to exert a “tyranny” that damages the minority.
City also claim the fair market value rules are intended to be discriminatory towards clubs with ties to the Gulf region.
The claim says the rules were imposed at the instigation of certain rival clubs reacting to the Saudi takeover of Newcastle, with the aim to “safeguard their own commercial advantages”. They say rivals were seeking to limit deals from companies in the Gulf region, citing a quote from a senior executive from another club.
They claim the rules were “deliberately intended to stifle commercial freedoms of particular clubs in particular circumstances, and thus to restrict economic competition”.
City also complain that, when it comes to negotiating any form of sponsorship agreement, clubs in the north are at a disadvantage to those in London, saying they can charge higher ticket prices. However, rival clubs estimate that, based on median ticket prices at the Etihad Stadium and the seven Premier League clubs in London, City are ranked third.
City blame the Premier League for not regulating spending when clubs such as Manchester United were more dominant, arguing they have been prevented from monetising their brand in the way United did. City also say the rules penalise clubs who have “lower-profile sporting histories”.
In their claim, City also dismiss concerns that an inflated sponsorship deal with a company linked to the club’s ownership could be vulnerable to a change of ownership.
“There is no rational or logical connection between a club’s financial non-sustainability and its receipt of revenues from entities linked to ownerships,” City’s claim states. They say companies would honour sponsorships even if the club was sold to new owners.
As one Premier League source observed, this overlooks the fact it is common for sponsorship contracts to have clauses that mean the terms change under new ownership.
City argue that the Premier League have failed to provide evidence that sponsorship deals with related parties give clubs an unfair advantage or distort the league’s competitive balance.
They also say that the Premier League, as an organisation, is a direct competitor for sponsorship and therefore claim they have a conflict of interest.
Further to that, City question the independence of Nielsen Sports, the data analytics company used to determine the fair market value of sponsorship deals, because it has been retained by the Premier League for more than two years.
City complain that FMV rules discriminate against clubs who form part of a multi-club ownership group, and only apply to commercial deals and not shareholder loans.
Ultimately, City stand accused of breaking financial rules to spend close to £2billion building a team that now dominates the Premier League and in the 2022-23 season won a European and domestic Treble.
In their claim, City argue that the current rules will limit their ability to buy the best players and force them to charge fans more for tickets. They say they may also have to cut spending on youth development, women’s football, and community programmes.
Premier League clubs have a scheduled meeting in Harrogate on Thursday.
Manchester City did not respond when contacted for comment. The Premier League has declined to comment.
