When Michael Gove said “the people of this country have had enough of experts” before the 2016 United Kingdom Brexit referendum, the government minister was tapping into a long history of anti-intellectualism in British politics. We don’t like know-it-alls and prefer old-fashioned common sense to highfalutin theory.
The party in which Gove was a key player now has fewer members of parliament than at any other time in its almost 200-year history, so maybe it is time for experts to make a comeback.
If so, we thought we would consult a few to ask what they made of the judgment in the Manchester City vs Premier League dispute over associated party transaction (APT) rules.
Our four very distinguished lawyers, answering questions individually rather than as part of a panel, are:
- Simon Leaf, partner at Mischon de Reya whose team wrote the chapter on financial regulation in industry bible Football and the Law
- Stevie Loughrey, partner at Onside Law who specialises in commercial litigation and arbitration
- Jack Williams, barrister at Monckton Chambers who specialises in competition law
- Jan Zglinski, associate professor at the London School of Economics Law School and a fellow at the University of Oxford’s Institute of European and Comparative Law
After a week of fevered reporting, most of you will have grasped that APTs are any agreement that a club might make with a third party with whom they share a connection.
That could be the loan of a player to another member of your multi-club family, a sponsorship deal from a company with links to your board or a “soft loan” from a director. But, if you are struggling with the terminology, we have written this piece about the APT row that should help.
So, let us dive into the complexity of competition law by asking our experts to boil down 175 pages of nuanced reasoning into something we can all grasp.
The Athletic: Who won?
Loughrey: The $64million question!
Manchester City will, and should be, happier. Although the vast majority of their challenges on competition law and procedural unfairness were not upheld, City are right to say they only needed to succeed on one ground, which they have. In fact, they succeeded on three.
First, the tribunal has found that the APT rules, which were introduced in December 2021, and the amended APT rules, introduced in February 2024, are unlawful because they breach competition law.
Second, the tribunal has found that the APT rules and the amended APT rules are procedurally unfair because they preclude a club having access to, and therefore ability to comment on, comparable transaction data relied upon by the league before its board determines whether a transaction is at fair market value.
Third, in relation to the First Abu Dhabi Bank transaction, the tribunal found that the decision was reached in a procedurally unfair manner in that the league did not provide City, prior to its final determination, with the comparable transactions the other clubs put into the league’s databank, which the league’s board referred to in its final determination.
Williams: This was a win for City. To put it in football terms, the league is trying to say that its goalkeeper faced 10 shots and saved eight of them, so it won, when in fact City scored two goals and won 2-0.
I accept that opinions can differ on the result but, at the very least, the ruling is a wake-up call for the Premier League in terms of its rule-making and decision-making powers. From a competition law point of view, the league has now been found to have a dominant market position and its APT rules have been found to be unlawful. The default position is that all decisions made under that regime are now voided. That is clearly significant and the implications go beyond APTs.
Leaf: It is rare that you get a situation where both sides can quite conceivably and arguably rightfully point to a victory. Whilst the outcome is clearly embarrassing for the league, it could have been a lot worse – especially given the criticism that it faced from the panel in the recent Leicester City case. It can also point to significant parts of the ruling being in its favour with respect to the essence behind the rules and also the outcome of the valuation exercises that took place.
Having said that, City are also clearly delighted. Not only can they legitimately say they were right to bring the challenge because elements of the rules have been found to be unlawful, but also the potential inclusion of shareholder loans into the profitability and sustainability regulations (PSR) will cause a number of their rivals headaches, as well as the fact it may now be easier for City to push deals through in the future.
If I had to pick one party that should be happier, I would say City but it was by no means a resounding victory.
Zglinski: The APT rules are found to be, for the most part, compatible with competition law. The award accepts they were adopted to make PSR effective, in order to promote financial sustainability and competitive balance.
The one exception was the shareholder loan exclusion. Why? The tribunal said it is “at odds with the whole rationale of PSR… the effect on competition… is the same whether the money is received in a transparent manner from the owner or in a non-transparent way from a third party”. Ouch.
Other than that, the tribunal criticises how the fair market value determination is made under the new APT rules — too many false positives — and the inability for clubs to access the databank before the board makes its assessment. Minor quibbles. The rest is fine.
The “tyranny of the majority” argument did not fly. Also, City’s lawyers did not manage to convince the arbitrators that the ATP rules limit the ability of clubs to engage in “dynamic competition on the merits” through “extensive multi-club models”.
Both parties claim victory. However, in the case of City, this feels distinctly pyrrhic. Yes, some transactions were unfairly assessed by the league but the APT system has survived. In fact, its rules need to be expanded and tightened.
The Athletic: The Premier League appears to think it can fix the issues raised by the ruling quickly and easily. City say otherwise. Who’s right?
Loughrey: The league can amend its rules, although it will require a two-thirds majority to do so. However, this would be high-risk and expose it to further legal challenge if the amendments are later found to be anti-competitive and/or procedurally unfair. The more prudent approach would be to await the further hearing clearly anticipated by the tribunal and by City.
Williams: I agree that the issues on procedural unfairness are easier to fix but there will still need to be a debate among the clubs about how they do that — I don’t think it’s just tweaking a few words. It’s not beyond lawyers to come up with rules that address the issues raised by the tribunal, I just don’t think it can or should be done quickly.
You will have heard lawyers talking about the “blue pencil test” (The Athletic: The idea that you can just cross out problematic parts of a contract or rule but leave the rest) but the problems are more fundamental. What rules are in place now? Can we just assume that the old PSR regime would stand up to a competition law test? The judgement has effectively told all clubs that they can have a crack at the rules.
The league is right to point out that financial fair play, or PSR, is not dead, and there is a way for it to emerge from this as a fair and compliant regulator. But it must proceed with caution.
Leaf: The honest answer is nobody can be quite sure what exactly will happen next. Whilst the PL may try to carry on with the existing rules and rely on the “blue pencil test”, where essentially they would argue that the rules should be read so that they are automatically reinterpreted in a lawful way, it would appear that City would challenge this strongly. They would no doubt try to argue that until formal changes to the rules are voted on and agreed by the other clubs, including changes to address the shareholder loans point, the APT rules cannot be enforced.
City may even try to suggest that the APT rules can only now work if the shareholder loan calculation applies retrospectively, which, again, is likely to be problematic for the league because several clubs are likely to oppose this, and may even try to challenge such a change themselves. In short, it is a mess.
Zglinski: Given the relatively clear and neatly defined aspects that were criticised by the arbitration panel, it should be possible to safeguard most of the 2021 rules, and even some of the 2024 rules, while making new provisions on access to data.
Still, I would not rush the reform process. The tribunal has expressed support for financial fair play. In fact, it has encouraged football’s governing bodies to adopt effective rules that will facilitate fair competition in football.
It is, in many ways similar to what is happening at FIFA after last week’s Diarra ruling. FIFA has announced it will just change the wording of two paragraphs in its player and transfer regulations. Instead, it should reflect on what a sustainable and fair transfer market could look like.
The Athletic: The league is effectively saying the APT regime is still in place while it fixes the rules. City disagree. City are right, aren’t they? And if so, does that mean APTs should be assessed only after a club has flagged them up in their accounts, as they were under the PSR regime before December 2021?
Loughrey: I draw your attention to the tribunal’s observation: “We do not understand it to be in dispute that if a rule is procedurally unfair it can be declared to be invalid.” My reading of this is more in line with City’s, though it remains to be seen whether the old related party transaction (RPT) rules under PSR, in place since April 2013, are to apply until such point as new rules are introduced.
It is true that it should not be particularly difficult for the Premier League to amend its APT rules to address areas where the tribunal upheld City’s challenges but, given the findings that the APT rules were unfair, and by extension seem invalid, any decisions made pursuant to them in the period since December 2021 are presumably also invalid.
Zglinski: The tribunal has made clear that the 2024 amended APT rules violate competition law in two regards: the shareholder loan exclusion and what it called “the pricing” changes. So the league’s first reaction will probably be to revert to the 2021 APT rules, not the original 2013 system.
Still, the 2021 rules are not lawful either because of the procedural deficits found in the second part of the award, especially the lack of access to the databank ahead of the board’s decision. This will need to be changed.
Finally, there is the issue of timing. The tribunal upheld the general rules on the amount of time the league can take to make a fair market value determination. Here, in fact, it accepted the longer 30-day period that was introduced in 2024. So that part of the amended rules might survive. But it should worry the league that the tribunal also found that the fair market value assessment took too long on a few occasions. The observations suggest the league is under-resourced.
The Athletic: How does the league fix the shareholder loans issue?
Loughrey: The exemption of shareholder loans was City’s big win on competition law. The potential impact is very significant. According to the ruling, City submitted that £1.5billion out of £4bn total borrowings in the league, 37 per cent, are made by club shareholders. It is not known what terms apply to those loans but if they now need to be recalculated at, say, 8 per cent interest, you can see the potential for many more clubs to be in breach of PSR.
The league will need to amend its rules to expressly include shareholder loans but it remains to be seen whether this is to be from December 2021 or just going forwards. If the APT rules are invalid, and we revert to the RPT rules, then it would seem shareholder loans do need to be factored in from December 2021.
All Premier League board decisions made since December 2021 on APTs may need to be revisited. Further, you can see that clubs such as Everton and Nottingham Forest may contend they have been subjected to punishments under an unlawful regime and seek compensation for that.
With regard to City’s claim that the league may face huge compensation costs for APTs they blocked or delayed, this does not appear to be dependent on whether the league assesses shareholder loans as APTs from December 2021. It is not known how many APTs were blocked or delayed for other clubs but, given the tribunal’s finding, if other clubs did have APTs blocked or delayed they may seek compensation.
Williams: The league’s current rules have just been found to break competition law so it must be careful not to create a new problem. The judgment has also given clubs the right to seek injunctive relief to prevent rules they might not like from coming in. But, on the other hand, the tribunal also relied on public law principles of due process and that rules out the retrospective application. So, the league is in a difficult position. It needs to create a level playing field.
Zglinksi: This is the trickiest part. I think the award is best read as saying that both sponsorship and loans need to be considered. Will this apply retrospectively to the 2021 rules? That opens a different can of worms. Contracts have been signed and realised based on the legitimate belief they were lawful.
The Athletic: Should we expect City to sue for financial damages for the delays in the two sponsorship deals it raised?
Loughrey: On the injunctive relief, this is more likely to be City seeking an order to prevent the league doing something — for example, charging the club with a breach of the APT rules.
But City are also seeking damages. Given the findings, it appears the league will have to conduct new assessments of the First Abu Dhabi Bank and the Emirates Aviation Group transactions. If the league then approves those it would appear that City’s claim for compensation may be limited to any prejudice it suffered from the delay in obtaining approval on those two deals and also on the Emirates Palace transaction. That is likely to be minimal, as it was only about two months.
Leaf: It is unclear what a claim by City for damages would look like. Bizarrely, in my view, Premier League Rule E67 suggests that rather than letting clubs keep the additional revenue that arises from an inflated deal — but just not let them use the inflated amount for the purposes of PSR — clubs either need to terminate the relevant agreement or pay back the additional amounts above fair market value. It is bizarre because had City been able to retain the additional amounts, it would be hard for them to demonstrate what actual loss or harm had been suffered.
In any event, City’s losses may still be hard to quantify if a deal could still progress and/or the league can show that it lawfully restated the contract to the right fair market value.
The Athletic: Lawyers often say you can’t tell who won until the court assigns legal costs. Will that be the case here?
Loughrey: True, to a degree. This, as stated above, is ultimately a success for City. They will seek their costs from the league. However, it is more likely the tribunal will follow the approach it did in its award and do it on an issue-by-issue basis. It will likely ask the parties to identify the costs they incurred on each of the 20 issues it was asked to make determinations, and then award costs based on which party succeeded on that issue.
Leaf: It is very hard to tell how that may pan out but I suspect that even if costs were allocated to one particular side, only a portion would be covered.
The Athletic: Finally, as many think this was just a prelude to the so-called 115 charges case, what impact will this ruling have on that?
Loughrey: This case is not linked directly, and does not impact directly, the circa 115 alleged rule breaches hearing. City will contend that they wished to right a wrong because they considered the APT rules to be unlawful and because it believed the league board was wrong to reach the conclusions it did on two particular transactions.
While that was, no doubt, a motivating factor, it would appear the challenge to the APT rules was also brought for tactical reasons – it seems with a view to tying up the league’s legal team in advance of the main hearing and with the hope of securing some form of PR win.
Leaf: It will inevitably give City more of a bounce than the league, as they will take heart from being able to give the league a bit of a bloody nose but also cause them a significant headache when it comes to reformulating those rules.
