The Impact Of Manchester City’s Legal Challenges On The Wider Game

The future of the Premier League could be drastically changed if Manchester City’s ongoing legal battles against the league’s financial regulations succeed. At the centre of these challenges is Manchester City’s attempt to dismantle key aspects of the Premier League’s rules surrounding financial transactions, including associated party transactions (APT) and related party transactions (RPT). If these legal disputes result in the removal of financial controls, the structure of English football and the competition within the Premier League could face a serious upheaval, fundamentally altering the way clubs operate.

The Competition Act 1998, which mirrors much of the EU competition framework, seeks to prevent anti-competitive agreements and abuses of market dominance that could harm consumers. In this case, the removal or loosening of financial controls on clubs would likely reduce the level playing field within the Premier League. This could lead to an even more pronounced concentration of financial power among a small number of clubs, raising the risk of breaching the Competition Act’s provisions on anti-competitive practices. For example, clubs with substantial financial resources, such as Manchester City or Newcastle United, could engage in market behaviours that distort competition, leveraging their financial dominance to engage in anti-competitive conduct, such as price-fixing or abuse of financial power in player transactions.

Similarly, if the Premier League were to remove financial regulations and, in effect, allow clubs to engage in unlimited spending without oversight, it could also undermine the principles of fair competition entrenched in EU competition rules. EU law prohibits practices that restrict competition or create an unfair advantage, including the distortion of market competition through unfair financial dealings, such as excessive sponsorship deals between associated entities. The APT regulations were designed to prevent exactly this, as they sought to ensure that financial arrangements between clubs and related parties, such as state-backed entities, were not manipulated to artificially inflate a club’s financial standing. Should these regulations be overturned, the Premier League’s financial structure could mirror what has been seen in other leagues, where the wealthiest clubs dominate by outspending their competitors, potentially leading to an imbalance that EU competition law might find problematic.

Further, this deregulation could have cross-border consequences for the application of EU competition law, as many Premier League clubs operate within the broader European football ecosystem. For instance, the EU has historically scrutinised large financial flows within football, particularly when they are seen as violating the principles of free and fair competition. The removal of financial controls in England could prompt further scrutiny of the impact on European-wide football competitions, such as the Champions League, where clubs benefit from significant commercial deals. The EU Commission could potentially investigate whether such deregulation undermines the competitive balance in European football as a whole, particularly in light of concerns around state-backed ownership and its impact on competition. Therefore, the potential overturning of financial regulations in the Premier League could have far-reaching consequences, extending well beyond English football into the broader EU regulatory framework.

Manchester City’s Legal Challenge

Manchester City has consistently contested the Premier League’s financial rules, particularly the APT regulations introduced to limit the potential for clubs to inflate their financial resources through deals with companies under the same ownership. The Premier League has questioned the commercial agreements between Manchester City and Etihad Airways, owned by the same parent company, Abu Dhabi United Group, arguing that these deals were valued beyond fair market rates.

City’s legal team has successfully argued that the APT rules, amended in November 2023, should be voided. Their case includes technical arguments, such as the failure to include shareholder loans in the regulations. With this legal challenge, Manchester City has created a path that could lead to a loosening of the financial restrictions placed on Premier League clubs. This would not only benefit City, but also other wealthy clubs like Newcastle United, which is owned by the Saudi Arabian sovereign wealth fund, allowing for unlimited spending without regulation.

The End of Financial Regulation?

Should Manchester City win their legal battles, the Premier League could find itself without any financial regulations limiting spending and overseeing commercial deals. If the current APT rules are eliminated, there would no longer be any requirements for clubs to justify the size of their commercial deals or limit how much they can spend on players, wages, or other aspects of their operations. This could mark the end of the financial framework that has allowed clubs to operate within the same set of rules, leading to an even greater disparity between clubs with substantial financial backing and those without.

For wealthier clubs such as Manchester City and Newcastle United, the removal of financial controls would allow them to vastly outspend their competitors. There would be no restrictions on the size of their commercial agreements or player acquisitions, enabling these clubs to dominate without limits. While this may seem appealing to fans of these clubs, the broader consequences for the Premier League would be severe.

The Competitive Balance at Risk

One of the main draws of the Premier League is the competition between clubs of various financial capabilities. Although clubs like Manchester United and Liverpool have historically been the top performers, the league has allowed smaller clubs to rise up through clever management, smart investment, and careful spending. Clubs like Brighton, which have benefited from astute decision-making rather than an unlimited financial reserve, have been able to challenge more traditional powerhouses, making the competition more exciting and unpredictable.

However, if financial controls are eliminated, clubs like Brighton will struggle to compete with the likes of City and Newcastle, whose financial resources could be limitless. The ability of smaller clubs to compete against wealthier ones would be significantly diminished, as they would not have the financial power to keep up with the spending of the richest clubs. The Premier League, once characterised by its unpredictability and frequent upsets, could become increasingly top-heavy, with a few ultra-wealthy clubs controlling the competition.

Moreover, the current financial regulations also help ensure that clubs operate within sustainable means, preventing reckless spending that could jeopardise their future. If these rules were relaxed or abolished, clubs would have fewer incentives to act responsibly with their finances, and could overspend on player acquisitions and wages with no long-term consequences. This could lead to instability within the league, where a few mega-rich clubs monopolise the competition, leaving others to struggle without the resources to keep up.

The Risks of Deregulation

The removal of financial regulations could have far-reaching implications for the Premier League. Without the current APT rules, the league could return to the old RPT rules, which were deemed ineffective after the Saudi takeover of Newcastle. Under these previous regulations, clubs could circumvent the system by failing to properly disclose commercial transactions, which created loopholes for clubs to inflate their financial standing.

While the RPT rules were revised after the takeover of Newcastle United, they were still considered insufficient in maintaining financial fairness and transparency. The Premier League has sought to ensure that clubs report their commercial deals honestly and in line with market standards, but these rules are vulnerable to legal challenges. If Manchester City succeeds in overturning the APT regulations, the league could regress to a situation where financial controls are easily bypassed, undermining the integrity of the competition.

Additionally, the potential relaxation of these rules could have a ripple effect on other European leagues, where similar regulations could also come under threat. In Spain, for instance, the dominance of Real Madrid and Barcelona has created a financial imbalance in La Liga, with the two clubs earning a disproportionate share of broadcast revenues. The Premier League risks following a similar path if financial regulation is dismantled, further entrenching the dominance of the wealthiest clubs.

Uefa’s Role and Broader Implications

If the Premier League’s financial rules are weakened or abolished, Uefa’s Financial Fair Play (FFP) regulations could step in as a safeguard. Uefa has a more comprehensive system in place, including provisions for shareholder loans, which might provide a level of protection against excessive spending. However, given Manchester City’s history of challenging Uefa’s rules and their successful appeal in 2020 to overturn a ban from European competitions, it’s unclear whether Uefa’s system would remain intact in the face of further legal challenges.

Uefa has already faced criticism for its inability to enforce its financial rules effectively, as evidenced by its eventual acceptance of clubs that had previously attempted to break away from the European footballing structure to form a Super League. If Manchester City’s legal successes embolden other clubs to challenge Uefa’s regulations, the European football system could face a similar destabilisation to what could happen in the Premier League.

The Future of the Premier League

The future of the Premier League depends largely on the outcome of Manchester City’s legal challenges. Should the club succeed in eliminating the current financial regulations, the Premier League could be left without the controls that have ensured some level of parity between clubs. The competition could shift from being a more unpredictable and exciting league, to one dominated by a handful of wealthy clubs with unlimited financial power.

While this might appeal to the owners of the wealthiest clubs, the long-term effects on the league could be disastrous. The Premier League’s popularity is not just based on the success of the biggest clubs, but on the competitive nature of the entire league. If financial regulations are removed, the gap between the richest clubs and the rest could become unbridgeable, causing smaller clubs to lose relevance. The competition would no longer be about sporting merit, but about financial clout, making the Premier League less exciting for fans. If you have any questions regarding this article, please call our office today on 02476 231000 or email enquiries@askewslegal.co