Football Finance

[MomoWASright]

As a whole, Man City were told to fuck off.

The Tribunal rejected a range of arguments put forward by Manchester City relating to the framework of the APT Rules including: 
- It agreed with the Premier League that if the price of an APT is evidently not at FMV, competition will be distorted as the club would be benefitting from a subsidy.
- It found that the APT Rules include appropriately detailed criteria as to the determination of FMV and that the process for assessment of FMV is a clearly defined, transparent and non-discriminatory one (as required by competition law).
- It rejected Manchester City’s argument that the object of the APT Rules was to discriminate against clubs with ownership from the "Gulf region".
- More generally, except in two respects only (addressed below), it found that Manchester City’s arguments were unfounded, including on any alleged inconsistency in approach as between certain types of clubs

The Tribunal made two findings in favour of Manchester City:  
- That Shareholder loans should not be excluded from the scope of the APT Rules. By way of background, the exclusion of Shareholder loans from the APT Rules was a choice by the majority of clubs who wished to encourage transparent investment and 19 of them (including Manchester City) voted in favour of this approach.
- Second, that a limited number of amendments introduced to the APT Rules earlier this year should not be retained. In particular, the Tribunal found that the removal of the additional word "evidently" from the basis on which the Board will find an APT not to be at FMV, amendments to the definition of FMV, and shifting the burden of proof to a Club to show a transaction is at FMV could, when considered together, increase the risk of an APT being restated when a restatement is not, in fact, warranted (referred to in the decision as "false positives").

The Tribunal emphasised in its decision that it is only these two aspects of the Rules that are not compliant with competition law requirements.

 

[The Nomad]

In layman's terms..

The Premier league need to provide appendix and sources of data of fair market value material.

The Premier league need to treat shareholders loans with the same treatment as APTs.

Everything else City got told to shut up.

 

[white-sox]

Let them enjoy their little 'win'. Hopefully they come crashing down with the real tribunal!! Tossers

 

[Beamrider]

The full decision is 175 pages, although quite a bit has been redacted due to commercial sensitivity. The @MomoWASright post above is a fair summary of the lengthy PL press release, which I expect will prove to be a fair summary of the detailed judgment, but I'll work through it and comment here.
But it looks like their spin on this is up there with using the word "exonerated" when CAS allowed their UEFA FFP appeal on a series of technicalities rather than a finding of facts.
I did find it funny that City were moaning that the PL had taken too long to assess their transactions. This from the club facing multiple charges of not co-operating with PL enquiries, and which has obfuscated on the 115 for several years now.
What a foul organisation they are. It is no surprise that other clubs were willing to testify against them, including us.
EDIT: and remember they thought this was going to be the judgment that put a line in the sand and would pave the way to a crushing win in the 115 case. Unlucky....

 

[Beamrider]

Spurs are pussies

Spurs did put in written evidence AGAINST City. For some reason, the paragraph that recaps this misses them out (and that's what's been reported by some journos) but the section that lists the clubs making representations says:
Written statements from: West Ham, Man U, Liverpool, Spurs and Arsenal
Letters of support from: Brentford, Bournemouth, Fulham, Wolves
Factual witness supporting PL: Brighton
Factual witnesses supporting City: Chelsea, Everton, Newcastle (i.e. all the ones trying to bend the rules)
Written statement supporting City from Newcastle
Everyone else was sitting on the fence, including Forest (breached PSR), Leicester (breached but got off on a technicality) and Villa (sailing close to the wind).

 

[Beamrider]

OK, I've run through the decision.

@tombrown - City threw so much shit at the wall that some of it was bound to stick and boy does it stink.

To put it in football terms, City attempted 27 take-ons and were successful with 8 (there were 27 questions considered, only 8 went in their favour). The decision, in terms of weight of evidence, reads as a strong win for the PL. However, some of those 8 take-ons led to goals against the run of play.

The final summary states that:

- The rules (original and amended) were wrong to exclude shareholder loans
- The PL took too long in assessing the major transactions under consideration
- It was unfair that the PL did not allow City access to relevant underlying data so they could challenge the conclusions of the advisory reports issued to the PL.

All of these conclusions are limited by the words "and for no other reason" - which is to say that the rules contained some minor unfair terms, but were otherwise totally fine. And that the process contained some inefficiencies - it was in principle, a fair process, but the PL had dragged its heels.

The shareholder loan point is a non-issue. Reading between the lines, the PL had allowed shareholder loans to be interest-free on the basis that it encouraged owner funding of clubs. I think City tried to reverse argue that if loans were OK as subsidy, over-priced sponsorships should be too as the financial effect is similar. But the tribunal said loans were not OK. So in essence, the loans decision is really a loss for City (they wanted to say loans OK, over-valued sponsorships also OK, but the panel said neither were OK).

And the point about access to data is a little naive from the panel's part. Basically, the Premier League has a database of all of the major contracts entered into by all of the PL clubs. City said they should have had full access to it to defend their position (although in some cases, none of the data of other clubs was relevant as City's deals were totally out of kilter with what the other clubs were doing). The tribunal said they should have had limited access. The issue is that this would have led to City having visibility of the sensitive financial information of their competitors. I think the tribunal erred in this respect - confidentiality should over-ride so they should have held it was beyond the PLs authority to provide the data.

But here's why City are claiming a victory. The decision refers to three contracts which were the subject of dispute - the PL and their advisers were satisfied that they were significantly over-valued (and the tribunal does not find fault with the manner in which those conclusions were reached, but they do not give an opinion on whether the decisions were correct). However, because the PL (a) dragged their heels in the process (due to the complexity of the deals and their insufficient resources at the outset of the process); and (b) didn't give City access to the sensitive information used to reach their conclusions, the assessments should be set aside. Which is to say THEY GOT OFF ON A TECHNICALITY, again. And if the point about data disclosure holds, they could continue to do so - every time the PL tells them they're way off-base they demand sensitive financial info and either they get something they shouldn't see or they are re-buffed, in contravention of the ruling. Which is a problem. Because either they can use a loophole to have the PL ruling made void, or else they get info they shouldn't have access to.

These matters aside, the decision is a series of defeats for them, with the tribunal knocking back argument after argument and going out of their way to say they have made some isolated decisions in City's favour but otherwise the central thrust of their argument (that the rules are anti-competitive and that their contracts were fairly valued) is at best not proven and in most cases incorrect. But the impact of the small number of concessions made is significant for City.

God knows what it means for the 115, but I think there is still more than enough in those charges to fuck them good and proper if it's argued properly, even if the PL puts a valuation forward (to prove they fail FFP numerically) which could be disputed.

Little technical point, the PL used Slaughter and May, the firm who advised Broughton and Co in the case against Hicks and Gillett. Nice to see them still doing the Lord's work.

 

[Beamrider]

And an additional point on shareholder loans.
From a financial perspective, such loans are what we call "subordinated debt", which means that they are due for repayment after most other forms of debt, including bank facilities / loans (so if a club goes bust, the shareholder loans are unlikely to be repaid).
What this means for FFP purposes is that if you did have to charge interest, because the debt carries a higher risk of default than commercial debt from third parties, it should also carry a higher rate of interest.
So if we say, for argument, that bank loans would be at (say) 5%, you could argue that a shareholder loan should carry a rate of 8% or more.
So in the case of a club like Arsenal, which has £250m of shareholder debt per its last published accounts, that would convert to a charge of £20m a year, or £60m over a three-year period. Which would put them way over the old-style FFP limit of £105m losses over three years.
However, it would make no difference to the football costs ratio (the new-style UEFA measure which the PL is also moving to), as interest isn't included anywhere in those calculations (which suggests they're bullshit, right, because a club with loads of debt can still go bust, and the point of FFP is to stop that happening).
So even if the ruling on shareholder loans could be regarded as a victory for City (because it potentially shafts their competitors, whereas City have minimal loans), it will have little effect in the new era of football costs ratio.
And even if it did, clubs would just convert those loans to equity. It just makes it a little more difficult (but not impossible) for shareholders to pull their money back out (and in practice, it's unlikely they'd pull the money out anyway).
Hollow (not) victory for City.

 

[MomoWASright]

The Times running with the story “Victory for Man City over Premier League” was a piss take. The article, and follow up social media releases, doesn’t even go to explain how they won or the fact that Fair Market Value is legal and should be used.

 

[Brizzle]

It’s clear that city have spent money buying some stories. Maybe a PR campaign to get more support from fans who will only read a headline. Shame on every journo who has reported in that manner

 

[Brizzle]

@Beamrider do you think there’s a world where clubs would agree to share their contract details (only for use in a dispute) if they knew it would help the PL legislate?

 

[Hansern]

It’s clear that city have spent money buying some stories. Maybe a PR campaign to get more support from fans who will only read a headline. Shame on every journo who has reported in that manner

I was mostly impressed with Martin Samuel that 30 minutes after the 175 pages long document was released had read it, analyzed it and given such an objective insight into the verdict. Incredible work.

 

[Brizzle]

Does PR come under club spending for the FFP calculations?

 

[MomoWASright]

I was mostly impressed with Martin Samuel that 30 minutes after the 175 pages long document was released had read it, analyzed it and given such an objective insight into the verdict. Incredible work.

He is proper on the teat of the sheik.

 

[Hansern]

He is proper on the teat of the sheik.

He's such a massive cunt. He doesn't even hide his bias.

 

[Beamrider]

@Beamrider do you think there’s a world where clubs would agree to share their contract details (only for use in a dispute) if they knew it would help the PL legislate?

To clarify, that information has already been shared with the PL to, form the databank used, but it will have been shared on the assumption that only the PL and their advisers can see it. I’d be surprised if the bigger clubs in particular would be happy to make these details public, and in turn many of their customers wouldn’t want them published either. Theoretically, anonymised details could be provided, but I don’t think it would take a genius to work out whose deals were whose.

 

[Beamrider]

Does PR come under club spending for the FFP calculations?

The exclusions from FFP / PSR calls are very specific, but there is increasing evidence of clubs requesting, and being granted, exceptions. I don’t believe PR costs would be granted an exception, nor that they would be big enough to warrant consideration, even in City’s case. All clubs have fairly significant PR costs in their basic overheads and the kind of corporate messaging City are indulging in probably doesn’t trigger a lot of extra cost.
If you want to get Martin Samuel on side, you just buy the fat fuck a slap-up meal and give him early access to your press release.
And a lot of clubs will have journos they’re quite cosy with anyway. I remember our PR team being cosy with Oliver Holt, for instance. Fun fact - Oliver Holt’s mum is Eileen Derbyshire, who played Emily Bishop on Coronation Street.

 

[Beamrider]

I was mostly impressed with Martin Samuel that 30 minutes after the 175 pages long document was released had read it, analyzed it and given such an objective insight into the verdict. Incredible work.

The bigger surprise to me was that the PL took a while to put their full statement out as they’d have had time to consider it. They may have been getting in “lawyered” so they didn’t mis-represent things. City were obviously happy to go into PR overdrive.
But I think the PL statement is fair and measured.
If you recall, there were rumours about a month back that City had obtained “some concessions” in the case. That summarises it in a nutshell, and actually this feels like even less of a win for them than that rumour suggested. But the fact that those concessions led to the tribunal setting aside the PL’s assessments on two major deals is a big win for them, and I personally think the tribunal over-stepped and should have allowed for a re-assessment once the process is fixed.

EDIT - this article in the Guardian suggests there will be a re-assessment, which will also find they are taking the piss, if it happens.

Manchester City’s tribunal verdict: the key questions answered

Champions are claiming success over Premier League and we look at what the ruling means and possible ramifications

www.theguardian.com

The delays were a major part of that decision (3 and 4 months’ unnecessary delay for the two main deals). In context, the average total time to do an assessment was 29 days. Those other assessments were evidently quicker because the other clubs weren’t massively taking the piss.
With this kind of benchmarking exercise, it’s quite easy to get a value range for a plain vanilla deal, and if the value of that deal falls within the range then you’re home and dry. It only takes a while when the value is massively beyond that range. Then you need to second guess the range, consider alternative valuation processes etc. It’s not an exact science, but you can tell when someone is taking the piss. Like the old story of describing an elephant to someone who’s never seen one. You can’t make them visualise exactly what an elephant looks like, but they will know an elephant when they see one.

 

[Beamrider]

Cue 10 pages of discussion about elephants.

 

[doctor_mac]

Beamrider thanks for unpicking all this. Top insights as always.

 

[tombrown]

To clarify, that information has already been shared with the PL to, form the databank used, but it will have been shared on the assumption that only the PL and their advisers can see it. I’d be surprised if the bigger clubs in particular would be happy to make these details public, and in turn many of their customers wouldn’t want them published either. Theoretically, anonymised details could be provided, but I don’t think it would take a genius to work out whose deals were whose.

So given the obvious difficulties for the PL and its members to comply with this part of the ruling, do you see the PL appealing that specific point?

 

[Cleric]

My understanding of the 'procedural unfairness' found by the tribunal is that, since Feb, clubs have had to evaluate their own deals for FMV instead of the PL doing it for them but City argued this is difficult without access to competitors sponsorship deals.

Instead of publishing the PL's commercially sensitive central database of deals, which is not going to happen, the PL simply need to bring the assessment of FMV back in hous to comply with the ruling. I'm guessing they only made the changes to try and cut down on the time and admin costs of doing this. Its actually an own goal for City.

The second 'win' for City about interest from owner loans being included at FMV is also ironic as they previously agreed the changes. Even more ironic is that Everton supported their case but they will now lose out massively as they have £400m++ owed to Moshiri. Arsenal and Brighton also significantly shafted by the ruling.

I don't get how City can argue any 'losses' from the rule changes as they've won bloody everything anyway, so haven't lost any prize money.

 

[Athens]

Beamrider thanks for unpicking all this. Top insights as always.

Pfft, Beamrider? More like Beambeliever!

We need the beady eyes of a proper legal genius to go through the decision. Perhaps one who has experiencing in taking on a mighty university for some Colombian totty.

 

[Cleric]

" In particular, [the tribunal] found that there was sufficient evidence to justify that the previous regime (whereby "related party transactions" could only be restated by the Premier League Board to FMV where they had first been identified in the club’s audited accounts) was ineffective in controlling APTs. Therefore, it was necessary to move to a system that allowed for assessment, by the Board, at the point of the transaction itself. "

I think this has a big bearing on the 115 charges - the tribunal found that there was enough evidence that clubs had been inflating deals in their accounts, forcing the PL to strengthen the rules.

 

[Beamrider]

This area has a lot of overlap with tax law (transfer pricing) which is designed to prevent companies depressing the profits of entities in high-tax locations (i.e. what the likes of Amazon do by charging huge fees out of Luxembourg to their local operating companies). It's all subjective and can get very contentious in tax disputes. To be clear, these APTs would, theoretically, be subject to review by HMRC as well, but HMRC would only be concerned if they were UNDER-valued, which is clearly not the case here. So there won't be a parallel tax enquiry covering the same issues.
In tax law, there are two main ways of benchmarking a deal and proving that it is FMV.
Firstly, you can sense check it against other comparable deals entered into between third parties, which requires access to data. That is the process the PL are doing with support from advisers - this is a really technical and risky area, not something they could or should do in-house. Theoretically, City could do this with comparable public data, but the PL database will be much better suited as the data has a much better correlation with the subject of the test. Public data comparison would require finding companies with similar marketing characteristics and looking at their returns. Those comparisons will always be imperfect.
Secondly, and more compellingly, you can produce offers from other unconnected third parties which have a similar value. City could have done that, but they'd have had to find third parties who were prepared to partner with them. And, shock horror, there aren't many, if any, out there who want to touch their tainted brand, and certainly not at the kind of prices they are being offered by companies connected to Abu Dhabi.
What they should have done was go out to the market for offers, like everyone else does, and then ask their connected parties if they were willing to match those offers. They could then have put that to the PL as clear evidence that the contracts were FMV. But if they had done that, they wouldn't have achieved the numbers they wanted, because third parties would offer much lower fees (and there will come a time when those companies know they are being played and won't play ball any more).
As an example, a company I worked for approached a well-known investment bank to price up some finance options for a project they were doing. They were quoted 5.5% for a medium-term loan. They then borrowed from their parent company for less than 5.5% and HMRC was happy that the rate being paid was OK for their purposes as the evidence supported that we weren't suppressing our profits.

 

[Beamrider]

City have written to the other PL clubs saying the PL's statement about the case is misleading. The absolute whoppers.
I think they know the tide is turning against them and they are trying to galvanise their base.
If they lose on the 115 I reckon their fans will march on the PLs headquarters, January 6th style.

 

[MomoWASright]

City have written to the other PL clubs saying the PL's statement about the case is misleading. The absolute whoppers.
I think they know the tide is turning against them and they are trying to galvanise their base.
If they lose on the 115 I reckon their fans will march on the PLs headquarters, January 6th style.

I’m sure the met could handle all 16 of them.

 

[MomoWASright]

I think there could be some great importance on the Premier League dragging their heels points. Could this be used in the 130 charges case when it comes to dishing out a punishment?

There was no punishment attached but the fact city use it as part of their “win” could be something to make their upcoming loss even greater.

 

[rurikbird]

It’s clear that city have spent money buying some stories. Maybe a PR campaign to get more support from fans who will only read a headline. Shame on every journo who has reported in that manner

It reminded me of the much-hyped Mueller report in the US that was supposed to prove Trump-Russia connection - they leaked it in a selective fashion before the full report was released and took a victory lap, even though the reality was far more complicated (and damning, in fact). But all anyone remembers now is that Mueller “exonerated” Trump.

If you can’t win in court, controlling the media narrative is the next best thing.

 

[Beamrider]

I think there could be some great importance on the Premier League dragging their heels points. Could this be used in the 130 charges case when it comes to dishing out a punishment?

There was no punishment attached but the fact city use it as part of their “win” could be something to make their upcoming loss even greater.

I think that is countered by City failing to co-operate with the PL investigation. If anything, that would go against them. The PL didn't drag their heels investigating after Football Leaks gave them cause to do so. And again, there is no time-bar in the PL rules (expect City's lawyers to argue that there should be, but 20 years for fraud is standard so they'd struggle with that one).

 

[Beamrider]

It reminded me of the much-hyped Mueller report in the US that was supposed to prove Trump-Russia connection - they leaked it in a selective fashion before the full report was released and took a victory lap, even though the reality was far more complicated (and damning, in fact). But all anyone remembers now is that Mueller “exonerated” Trump.

If you can’t win in court, controlling the media narrative is the next best thing.

And partygate in the UK was the same. They raised the stakes through media narrative and made people think there had to be a party for them to be guilty. But the rules banned "gatherings", which could just mean a non-essential get-together, as opposed to a business meeting.
With Mueller, Trump managed to persuade everyone that Mueller needed to say there was "collusion" when his brief was "interference", which he found to be the case.