Annual report 2012/13 released (merged)

[Shirley]

A review by the financial expert Ian Herbert at the Independent.

<a class="postlink" href="http://www.independent.co.uk/sport/football/premier-league/how-are-bigspending-manchester-city-set-to-pass-uefas-financial-fair-play-rules-9097609.html" onclick="window.open(this.href);return false;">http://www.independent.co.uk/sport/foot ... 97609.html</a>

Sorry can't copy the article.

 

[oakiecokie]

A review by the financial expert Ian Herbert at the Independent.

<a class="postlink" href="http://www.independent.co.uk/sport/football/premier-league/how-are-bigspending-manchester-city-set-to-pass-uefas-financial-fair-play-rules-9097609.html" onclick="window.open(this.href);return false;">http://www.independent.co.uk/sport/foot ... 97609.html</a>

Sorry can't copy the article.

Herbert appears to be claiming that we are not telling the truth !!!

 

[waspish]

A review by the financial expert Ian Herbert at the Independent.

<a class="postlink" href="http://www.independent.co.uk/sport/football/premier-league/how-are-bigspending-manchester-city-set-to-pass-uefas-financial-fair-play-rules-9097609.html" onclick="window.open(this.href);return false;">http://www.independent.co.uk/sport/foot ... 97609.html</a>

Sorry can't copy the article.

How are big-spending Manchester City set to pass Uefa's Financial Fair Play rules?
A A A
They may have breezed to the top of the Premier League, but the club's attempt to pass Uefa's Financial Fair Play test looks far less simple

Garry Cook took a different approach to image rights






15
By IAN HERBERT
Friday 31 January 2014
They reached the top of the Premier League table effortlessly, barely breaking sweat at Tottenham on Wednesday and without the second-half presence of Sergio Aguero, who is targeting a recovery from his hamstring injury in time for the Champions League home tie with Barcelona on 18 February. But Manchester City's attempt to clear their biggest hurdle – Uefa's Financial Fair Play test – looks far less simple.
It certainly seems likely that the sums will add up. That much was clear when City revealed annual turnover up by almost £40m at £271m for 2012-13 on Wednesday, reducing losses to around the £50m mark, which – with Uefa allowing pre-2010 wages to be subtracted – was always considered enough to see them through. But it is equally clear that they will come under intense scrutiny from the European governing body for the two financial arrangements which helped them to that figure – one of which is unprecedented, the other eye-catching. Uefa will be interested. Its Club Financial Control Body is understood to have made the identification of "artificial" revenue streams a fundamental aim.
Experts agree that the Premier League leaders' £24.5m sale of player image rights to an external company – one of those two significant arrangements – has never been attempted by a football club before. Manchester United and Chelsea, two clubs big enough to consider such a strategy, both view image rights as an important part of their core business. City will not reveal the name of the company that has bought their image rights – and neither did they do so in their accounts – but the club has dismissed the notion, put to it by The Independent, that the buyers might be a subsidiary of the club.
It will be for City to demonstrate to Uefa that the image rights – which elite clubs generally negotiate a large slice of for themselves, with a percentage retained by the player and separated from his salary for tax reasons – are worth the £24.5m sum. There is certainly an irony about the club selling off those rights to another company, since their pitch to Kaka, when the then chief executive Garry Cook ambitiously but ultimately disastrously tried to sign him from Milan in January 2009, was that Cook's image rights expertise working with basketball's Michael Jordan at Nike would result in the Brazilian becoming a very wealthy man at the Etihad.
Even more closely scrutinised by Uefa will be the £22.45m City has revealed they effectively paid themselves by selling their intellectual property to "related parties". Who these are was not disclosed in the 2012-13 annual report either, but New York City FC – City's new Major League Soccer franchise – as well as Melbourne Heart franchise in Australia and Manchester City Ladies FC have been cited.
Since the Melbourne franchise was only announced last month, it means that City will have to demonstrate to Uefa that the New York and women's teams have received the multimillion-pound benefits of being affiliate City clubs. City have not detailed what the £22.45m figure has been paid to them for, though it is understood to be player scouting and commercial services. Since the establishment of City's scouting system cost a mere £4m, the value of commercial know-how and leads will need to be significant.
The £46.95m which these two arrangements help to generate are by no means the only aspect of City's revenue growth. The club has been commercially imaginative, securing several new partners last year. City's impressive London offices – at the 10 Brock Street building on Regent's Place – are testament to their ambition.
But the 2012-13 report does reveal other payments between parts of the club –City effectively paying themselves for their own services. There is a sale of "intangible assets" totalling £11.5m involving a subsidiary of the club, City Football Marketing, and another such sale totalling £10.87m involving a third subsidiary, City Football Services. Both of those subsidiaries have had their names changed and registered offices moved from the Etihad to London in the past 12 months. City Football Marketing's registered office changed only this month.
The significance of these subsidiary businesses is revealed by the fact that City's six main board members – Khaldoon al-Mubarak, Mohamed al-Mazrouei, Simon Pearce, Martin Edelman, John Macbeath and Alberto Galassi – sit on the boards of both.
It seems inconceivable that City will not have thought through and analysed the kind of scrutiny that the Club Financial Control Body will submit their accounts to. The expertise City have amassed includes Financial Fair Play specialists – Alex Byars and Martyn Hawkins joined from the Deloitte sports business, which helped Uefa set up the FFP legislation. But a pass or a fail by Uefa will provoke the same controversy which has accompanied City throughout their rapid journey to the top.

 

[I'm no cynic but...]

A review by the financial expert Ian Herbert at the Independent.

<a class="postlink" href="http://www.independent.co.uk/sport/football/premier-league/how-are-bigspending-manchester-city-set-to-pass-uefas-financial-fair-play-rules-9097609.html" onclick="window.open(this.href);return false;">http://www.independent.co.uk/sport/foot ... 97609.html</a>

Sorry can't copy the article.

Herbert appears to be claiming that we are not telling the truth !!!

He's a right Herbert then...

 

[Prestwich_Blue]

Either it's not written that well or Herbert has made complete prick of himself.

Even more closely scrutinised by Uefa will be the £22.45m City has revealed they effectively paid themselves by selling their intellectual property to "related parties".

Then later on he goes on to say:

But the 2012-13 report does reveal other payments between parts of the club – City effectively paying themselves for their own services. There is a sale of "intangible assets" totalling £11.5m involving a subsidiary of the club, City Football Marketing, and another such sale totalling £10.87m involving a third subsidiary, City Football Services.

These are the same thing yet he implies they're completely separate. Ha ha.

Anyway, I hope he won't mind me stealing his thunder but petrusha of this manor has posted this on another forum he and I are both members of. It's very illuminating on the above.

This IP business has created a bit of a storm, and it seems to me that a lot of people think it's just a ruse City have plucked out of the air to cut down our losses. However, it’s quite common in the way that global holding companies run their business when they have subsidiaries in a number of different countries, and this is the set-up that City are creating.

In essence, what we’re dealing with here is a device where a company forms a subsidiary to carry out operations in another territory, and they enter into what's called a cost sharing arrangement (CSA). Under this kind of arrangement, the companies share intangible costs that will be separately exploited by each of the participants.

Thus, for example, where R&D is carried out by the head office but will benefit all group companies, they all chip in for it in proportions that are in line with the proportions of the anticipated benefits they can expect to derive. This, I think, is why Ferran specifically mentioned recently that NYCFC will have use of City's international scouting network and commercial operation. They'll pay for it too, and those areas of MCFC's activity are world leaders so the services in question probably won't come cheaply.

Secondly, when a CSA is set up, you'll quite commonly find that one company already owns intangible assets which it then makes available to the others, and those others will benefit when they carry out their operations in future. This is very frequently met in the context of intellectual property. Let’s say that company A sets up a subsidiaries B and C to manufacture and sell company A's products (whether that’s chocolates or cigarettes or cosmetics or something else) in territories D and E. If company A is a well-known global brand, subsidiaries B and C have much better prospects if they sell the goods under company A's trademark(s)than if they sell the same goods under completely unknown brand F. This will be reflected in revenues down the track.

The standard way of dealing with this is for company A along with subsidiaries B and C to create a CSA, and for subsidiaries B and C to do something that’s known as "buying in". This means that they pay a lump sum at the inception of the CSA for future use of the rights. And later, when the CSA is up and running, if company A develops and makes further intangibles available to the participants in the CSA, then a further buy-in (often called an “acquisition buy-in”) takes place.

The rationale of this is that by settling things in this way at the outset, the parties can move on knowing that they’re on an even footing with one another in terms of using intangible property belonging to one another. As they move forward, it’s therefore fair for the subsidiary companies to keep all the profit they generate rather than having to remit part of it to pay off a debt owed to the parent company.

I work for a big law firm and, trust me, we meet arrangements like this all the time for the local subsidiaries of multinationals. It’s absolutely the standard way to deal with the kind of situation City are now in where they’re trying to build up the ‘City Football Group’. I don’t see it as something we’ll have done simply to meet FFP, though of course the knowledge that we have this money coming in will no doubt have informed decisions about our levels of spending on transfer fees and the wage bill.

Obviously to the extent that sales are to related parties these must meet a fair value test under FFPR. However, this also mirrors something that our clients face when they use CSAs: these expenses are deductible for profit tax purposes but also, when with related parties (which they invariably are), only to the extent that they reflect the market value of the rights in question.

Here clients take advice from independent specialists who value the rights for these purposes. The valuations are subjective to some degree, of course, as these things always are. But generally if you follow the recommendations of recognised neutral experts and can provide detailed reasoning as to why the figure you’ve picked represents an arm’s length value, the tax authorities tend not to get very excited.

I find it very difficult to imagine that City aren’t doing something similar in relation to FFPR, and that should probably see us right when it comes to UEFA. And while we’re doing something that’s uncommon (maybe unprecedented) in the football industry, that’s because the notion of subsidiary clubs is new as well. However, ultimately I don’t think we’ll see a comeback from handling that in a way that’s entirely in line with standard global practice for similar undertakings.

It seems to be that there’s a lot of hysterical press about this – stories along the lines of “City cheat FFPR with huge IP con”. Actually, I think the truth is a little different.

 

[Chris in London]

Either it's not written that well or Herbert has made complete prick of himself.

Even more closely scrutinised by Uefa will be the £22.45m City has revealed they effectively paid themselves by selling their intellectual property to "related parties".

Then later on he goes on to say:

But the 2012-13 report does reveal other payments between parts of the club – City effectively paying themselves for their own services. There is a sale of "intangible assets" totalling £11.5m involving a subsidiary of the club, City Football Marketing, and another such sale totalling £10.87m involving a third subsidiary, City Football Services.

These are the same thing yet he implies they're completely separate. Ha ha.

Anyway, I hope he won't mind me stealing his thunder but petrusha of this manor has posted this on another forum he and I are both members of. It's very illuminating on the above.

This IP business has created a bit of a storm, and it seems to me that a lot of people think it's just a ruse City have plucked out of the air to cut down our losses. However, it’s quite common in the way that global holding companies run their business when they have subsidiaries in a number of different countries, and this is the set-up that City are creating.

In essence, what we’re dealing with here is a device where a company forms a subsidiary to carry out operations in another territory, and they enter into what's called a cost sharing arrangement (CSA). Under this kind of arrangement, the companies share intangible costs that will be separately exploited by each of the participants.

Thus, for example, where R&D is carried out by the head office but will benefit all group companies, they all chip in for it in proportions that are in line with the proportions of the anticipated benefits they can expect to derive. This, I think, is why Ferran specifically mentioned recently that NYCFC will have use of City's international scouting network and commercial operation. They'll pay for it too, and those areas of MCFC's activity are world leaders so the services in question probably won't come cheaply.

Secondly, when a CSA is set up, you'll quite commonly find that one company already owns intangible assets which it then makes available to the others, and those others will benefit when they carry out their operations in future. This is very frequently met in the context of intellectual property. Let’s say that company A sets up a subsidiaries B and C to manufacture and sell company A's products (whether that’s chocolates or cigarettes or cosmetics or something else) in territories D and E. If company A is a well-known global brand, subsidiaries B and C have much better prospects if they sell the goods under company A's trademark(s)than if they sell the same goods under completely unknown brand F. This will be reflected in revenues down the track.

The standard way of dealing with this is for company A along with subsidiaries B and C to create a CSA, and for subsidiaries B and C to do something that’s known as "buying in". This means that they pay a lump sum at the inception of the CSA for future use of the rights. And later, when the CSA is up and running, if company A develops and makes further intangibles available to the participants in the CSA, then a further buy-in (often called an “acquisition buy-in”) takes place.

The rationale of this is that by settling things in this way at the outset, the parties can move on knowing that they’re on an even footing with one another in terms of using intangible property belonging to one another. As they move forward, it’s therefore fair for the subsidiary companies to keep all the profit they generate rather than having to remit part of it to pay off a debt owed to the parent company.

I work for a big law firm and, trust me, we meet arrangements like this all the time for the local subsidiaries of multinationals. It’s absolutely the standard way to deal with the kind of situation City are now in where they’re trying to build up the ‘City Football Group’. I don’t see it as something we’ll have done simply to meet FFP, though of course the knowledge that we have this money coming in will no doubt have informed decisions about our levels of spending on transfer fees and the wage bill.

Obviously to the extent that sales are to related parties these must meet a fair value test under FFPR. However, this also mirrors something that our clients face when they use CSAs: these expenses are deductible for profit tax purposes but also, when with related parties (which they invariably are), only to the extent that they reflect the market value of the rights in question.

Here clients take advice from independent specialists who value the rights for these purposes. The valuations are subjective to some degree, of course, as these things always are. But generally if you follow the recommendations of recognised neutral experts and can provide detailed reasoning as to why the figure you’ve picked represents an arm’s length value, the tax authorities tend not to get very excited.

I find it very difficult to imagine that City aren’t doing something similar in relation to FFPR, and that should probably see us right when it comes to UEFA. And while we’re doing something that’s uncommon (maybe unprecedented) in the football industry, that’s because the notion of subsidiary clubs is new as well. However, ultimately I don’t think we’ll see a comeback from handling that in a way that’s entirely in line with standard global practice for similar undertakings.

It seems to be that there’s a lot of hysterical press about this – stories along the lines of “City cheat FFPR with huge IP con”. Actually, I think the truth is a little different.

How dare you come on here with a detailed and knowledgeable explanation of how Intellectual Property rights are shared between members of a multinational group.

It's a cheat as is blatantly obvious to any sports journalist without any experience whatsoever of law or accountancy.

 

[Prestwich_Blue]

How dare you come on here with a detailed and knowledgeable explanation of how Intellectual Property rights are shared between members of a multinational group.

Well someone's got to talk some sense to balance that fuckwit who sings to his dog.

 

[Troubadour]

'City has revealed they effectively paid themselves by selling their intellectual property to "related parties'

This is perfectly legal and above board. I work for a very large mulit-national organisation and this is standard practice.
It is also approved by the HMRC.

Call it 'sleight of hand' if you will - but if its legal then it must surely pass any FFP scrutiny. We would almost certainly have a very strong legal
case if required.

It looks like we have out foxed them yet again and beat them at their own game.

 

[Chris in London]

How dare you come on here with a detailed and knowledgeable explanation of how Intellectual Property rights are shared between members of a multinational group.

Well someone's got to talk some sense to balance that fuckwit who sings to his dog.

there seem to be quite a few of them, you'll need to be more specific :)

 

[aulblue]

Petrusha's comments are accurate and helpful but I think saying they are the industry standard is a little much. CSAs are heavily used by IP dependent groups such as those in hi-tech and pharma (with US groups using them very frequently) but less IP rich groups (such as consumer products ones) more frequently keep the IP in one location and then license it to subsidiaries for a royalty (which is usually linked to turnover). I am not saying CSAs are never used but they are not as frequently used as licensing outside of the sectors I mentioned above. The net economic result should be the same as CSA participants own the IP therein and don't make the ongoing royalty payments that licensees do, as Petrusha points out. Obviously the issue with royalties based on turnover is that NYCFC et al would need to be earning in order to pay us, which they aren't right now. So a CSA buy in does accelerate MCFC income which might well have played a part in the decision to structure the deals in this way.

 

[Chris in London]

Petrusha's comments are accurate and helpful but I think saying they are the industry standard is a little much. CSAs are heavily used by IP dependent groups such as those in hi-tech and pharma (with US groups using them very frequently) but less IP rich groups (such as consumer products ones) more frequently keep the IP in one location and then license it to subsidiaries for a royalty (which is usually linked to turnover). I am not saying CSAs are never used but they are not as frequently used as licensing outside of the sectors I mentioned above. The net economic result should be the same as CSA participants own the IP therein and don't make the ongoing royalty payments that licensees do, as Petrusha points out. Obviously the issue with royalties based on turnover is that NYCFC et al would need to be earning in order to pay us, which they aren't right now. So a CSA buy in does accelerate MCFC income which might well have played a part in the decision to structure the deals in this way.

Surely there can be no possible criticism of the adoption of a perfectly conventional accounting policy?

To chop and change settled policies (e.g. how player amortisation is treated) to meet FFP would obviously be wrong, but where a group embarks on a new activity (such as developing overseas associated clubs) it has to select a new accounting policy. It's not as though we have a feeder club in Slovenia that has always been dealt with by way of licence fees and royalties. What on earth is wrong with adopting a cost sharing basis rather than a licence arrangement?

 

[aulblue]

Chris I wasn't saying it was wrong and any group has the clear right to structure its arrangements however it wants provided they are on an arm's length basis. As Petrusha says I am absolutely sure that the club will have had the valuations that sit behind any buy-in checked and re-cheked to make sure they are supportable if audited. I only wanted to point out that there alternatives that other groups have chosen to take.

 

[Chris in London]

Chris I wasn't saying it was wrong and any group has the clear right to structure its arrangements however it wants provided they are on an arm's length basis. As Petrusha says I am absolutely sure that the club will have had the valuations that sit behind any buy-in checked and re-cheked to make sure they are supportable if audited. I only wanted to point out that there alternatives that other groups have chosen to take.

Sorry, mate, I certainly wasn't having a go - the implication in the Herbert piece is that this is all very dodgy, as it was (the treatment of IP rights) in the Ed Thompson guff. Petrusha's piece to my mind makes it crystal clear that it's not only not dodgy, it's actually pretty unremarkable.

 

[blue ranger]

When will we know whether uefa will allow us to compete in their competition or not?

Assume PSG will be having some of the same issues that we are having?

 

[Chris in London]

When will we know whether uefa will allow us to compete in their competition or not?

Assume PSG will be having some of the same issues that we are having?

No.


Platini's son works there.

 

[Prestwich_Blue]

When will we know whether uefa will allow us to compete in their competition or not?

Hard to say. We have to submit our FFP return to the FA's Licencing Panel first as they act on behalf of UEFA in the first instance. FFP is about more than just finances and we have to meet minimum standards for all sorts of things.

The FA then submit their assessment to UEFA. The UEFA Club Licencing Control Panel have the ultimate responsibility to ensure that clubs are meeting the requirements and they can either decide on an ad-hoc check or act on a request. The Investigatory Board will then investigate and come to a conclusion. If the licencee feels the assesment is materially incorrect, they can appeal to the Adjudicatory Board, who will (as their name suggests) make a judgement.

So it could depend if UEFA are requested, or decide on their own, to audit our return. My bet is that they will.

 

[blue ranger]

When will we know whether uefa will allow us to compete in their competition or not?

Hard to say. We have to submit our FFP return to the FA's Licencing Panel first as they act on behalf of UEFA in the first instance. FFP is about more than just finances and we have to meet minimum standards for all sorts of things.

The FA then submit their assessment to UEFA. The UEFA Club Licencing Control Panel have the ultimate responsibility to ensure that clubs are meeting the requirements and they can either decide on an ad-hoc check or act on a request. The Investigatory Board will then investigate and come to a conclusion. If the licencee feels the assesment is materially incorrect, they can appeal to the Adjudicatory Board, who will (as their name suggests) make a judgement.

So it could depend if UEFA are requested, or decide on their own, to audit our return. My bet is that they will.

Sounds like it could be a nervy period for city waiting to see whether they have passed or not?
Out of interest my point about PSG is a serious one. Forgetting the French thing, PSG have been on a similar journey to ourselves with questions asked about their deals. Are they also going to be in a similar position to us?

 

[Prestwich_Blue]

When will we know whether uefa will allow us to compete in their competition or not?

Hard to say. We have to submit our FFP return to the FA's Licencing Panel first as they act on behalf of UEFA in the first instance. FFP is about more than just finances and we have to meet minimum standards for all sorts of things.

The FA then submit their assessment to UEFA. The UEFA Club Licencing Control Panel have the ultimate responsibility to ensure that clubs are meeting the requirements and they can either decide on an ad-hoc check or act on a request. The Investigatory Board will then investigate and come to a conclusion. If the licencee feels the assesment is materially incorrect, they can appeal to the Adjudicatory Board, who will (as their name suggests) make a judgement.

So it could depend if UEFA are requested, or decide on their own, to audit our return. My bet is that they will.

Sounds like it could be a nervy period for city waiting to see whether they have passed or not?
Out of interest my point about PSG is a serious one. Forgetting the French thing, PSG have been on a similar journey to ourselves with questions asked about their deals. Are they also going to be in a similar position to us?

I've no idea what the French law is on related party transactions and what the ownership structure is at PSG. Are they owned directly by the Qatar Investment Authority? If so, it might be hard to argue that the Qatar Tourist Authority is not a related party. IAS 24 (as used by FFP) includes transactions between state-owned entities.

 

[petrusha]

Petrusha's comments are accurate and helpful but I think saying they are the industry standard is a little much. CSAs are heavily used by IP dependent groups such as those in hi-tech and pharma (with US groups using them very frequently) but less IP rich groups (such as consumer products ones) more frequently keep the IP in one location and then license it to subsidiaries for a royalty (which is usually linked to turnover). I am not saying CSAs are never used but they are not as frequently used as licensing outside of the sectors I mentioned above. The net economic result should be the same as CSA participants own the IP therein and don't make the ongoing royalty payments that licensees do, as Petrusha points out. Obviously the issue with royalties based on turnover is that NYCFC et al would need to be earning in order to pay us, which they aren't right now. So a CSA buy in does accelerate MCFC income which might well have played a part in the decision to structure the deals in this way.

Yes, I accept that this is absolutely fair comment. I see our people dealing with these things every day but there are other ways too, as you rightly point out. Your point that NYCFC isn't earning now so this is a way to bring forward receipt of that money is particularly valid. I was just rather peeved at a vehicle which I regard as pretty unremarkable being portrayed as something that by implication could only be some kind of diabolical ruse.

PB - fine for you to bring this over here. I did put it further up the thread myself as well.

Chris in London - Thanks for your kind words.

 

[Shaelumstash]

Either it's not written that well or Herbert has made complete prick of himself.

Even more closely scrutinised by Uefa will be the £22.45m City has revealed they effectively paid themselves by selling their intellectual property to "related parties".

Then later on he goes on to say:

But the 2012-13 report does reveal other payments between parts of the club – City effectively paying themselves for their own services. There is a sale of "intangible assets" totalling £11.5m involving a subsidiary of the club, City Football Marketing, and another such sale totalling £10.87m involving a third subsidiary, City Football Services.

These are the same thing yet he implies they're completely separate. Ha ha.

Anyway, I hope he won't mind me stealing his thunder but petrusha of this manor has posted this on another forum he and I are both members of. It's very illuminating on the above.

This IP business has created a bit of a storm, and it seems to me that a lot of people think it's just a ruse City have plucked out of the air to cut down our losses. However, it’s quite common in the way that global holding companies run their business when they have subsidiaries in a number of different countries, and this is the set-up that City are creating.

In essence, what we’re dealing with here is a device where a company forms a subsidiary to carry out operations in another territory, and they enter into what's called a cost sharing arrangement (CSA). Under this kind of arrangement, the companies share intangible costs that will be separately exploited by each of the participants.

Thus, for example, where R&D is carried out by the head office but will benefit all group companies, they all chip in for it in proportions that are in line with the proportions of the anticipated benefits they can expect to derive. This, I think, is why Ferran specifically mentioned recently that NYCFC will have use of City's international scouting network and commercial operation. They'll pay for it too, and those areas of MCFC's activity are world leaders so the services in question probably won't come cheaply.

Secondly, when a CSA is set up, you'll quite commonly find that one company already owns intangible assets which it then makes available to the others, and those others will benefit when they carry out their operations in future. This is very frequently met in the context of intellectual property. Let’s say that company A sets up a subsidiaries B and C to manufacture and sell company A's products (whether that’s chocolates or cigarettes or cosmetics or something else) in territories D and E. If company A is a well-known global brand, subsidiaries B and C have much better prospects if they sell the goods under company A's trademark(s)than if they sell the same goods under completely unknown brand F. This will be reflected in revenues down the track.

The standard way of dealing with this is for company A along with subsidiaries B and C to create a CSA, and for subsidiaries B and C to do something that’s known as "buying in". This means that they pay a lump sum at the inception of the CSA for future use of the rights. And later, when the CSA is up and running, if company A develops and makes further intangibles available to the participants in the CSA, then a further buy-in (often called an “acquisition buy-in”) takes place.

The rationale of this is that by settling things in this way at the outset, the parties can move on knowing that they’re on an even footing with one another in terms of using intangible property belonging to one another. As they move forward, it’s therefore fair for the subsidiary companies to keep all the profit they generate rather than having to remit part of it to pay off a debt owed to the parent company.

I work for a big law firm and, trust me, we meet arrangements like this all the time for the local subsidiaries of multinationals. It’s absolutely the standard way to deal with the kind of situation City are now in where they’re trying to build up the ‘City Football Group’. I don’t see it as something we’ll have done simply to meet FFP, though of course the knowledge that we have this money coming in will no doubt have informed decisions about our levels of spending on transfer fees and the wage bill.

Obviously to the extent that sales are to related parties these must meet a fair value test under FFPR. However, this also mirrors something that our clients face when they use CSAs: these expenses are deductible for profit tax purposes but also, when with related parties (which they invariably are), only to the extent that they reflect the market value of the rights in question.

Here clients take advice from independent specialists who value the rights for these purposes. The valuations are subjective to some degree, of course, as these things always are. But generally if you follow the recommendations of recognised neutral experts and can provide detailed reasoning as to why the figure you’ve picked represents an arm’s length value, the tax authorities tend not to get very excited.

I find it very difficult to imagine that City aren’t doing something similar in relation to FFPR, and that should probably see us right when it comes to UEFA. And while we’re doing something that’s uncommon (maybe unprecedented) in the football industry, that’s because the notion of subsidiary clubs is new as well. However, ultimately I don’t think we’ll see a comeback from handling that in a way that’s entirely in line with standard global practice for similar undertakings.

It seems to be that there’s a lot of hysterical press about this – stories along the lines of “City cheat FFPR with huge IP con”. Actually, I think the truth is a little different.

Many thanks PB and Petrusha for this. I posted some pages back about my concern over this transaction, but your explanation seems extremely sound and above board. Shame the journalists who's job it is to report accurately on these things don't bother to seek the advice of experts before going to print.