Annual report 2012/13 released (merged)

[BlueAnorak]

Manchester City FFP Series Part 2: Analyzing the controversial Etihad deal

In 2011, Manchester City signed a sponsorship arrangement with the Etihad Airways, a company owned by Sheik Mansour's brother and that has never made a profit.

Despite initial reports stating the contract will be worth £400 million for a ten-year period, Nick Harris of Sporting Intelligence reveals the real value is a "bit less than £350m over a decade".

For easy calculation, let's take it to be £35m per year.

The deal "includes a 10-year extension to their shirt sponsorship at City, as well as financial backing for what will be known as the Etihad Campus". The Eastlands was also to be renamed as the Etihad Stadium.

The deal came under widespread scrutiny. Arsene Wenger felt it tested the "credibility" of the FFP and Liverpool owner John Henry sarcastically tweeted, "How much was the losing bid?".

City had consulted UEFA to ensure the deal didn't break any rule, yet the Council of Europe termed it as "improper".

A statement read: "Clubs will no doubt try to supplement their income if possible. They could for example call on sponsors to invest more so as to reduce or eliminate their deficits.

"A case in point is Manchester City, which has entered into a contract estimated at £400m with the airline Etihad. Etihad belongs to the Abu Dhabi royal family, and the Abu Dhabi United Group...

"In order to avoid improper transactions of this kind, UEFA should prohibit clubs from sponsoring themselves or using associated bodies to do so..."

However, City responded: "For the sake of credibility, the Council would do well to seek primary evidence through engaging with organizations rather than taking a position based on speculation." In addition, it was also to be reminded, the Council is an independent body and their conclusion was not that of UEFA's, who have a clear agenda about "fake sponsorships".

"If suddenly Abu Dhabi Tourism Authority, one of City’s sponsors, decided to sponsor City to the tune of £100 million a year. Then UEFA can clearly say that that is not the market value and [that] it’s not real and genuine," a report stated.

UEFA Can't Investigate City

Let's put it this way. Even if City did something wrong, UEFA can't investigate the deal. Period.

This is because, it "is the club - not UEFA - which must demonstrate whether a sponsorship deal represents 'fair value' if the club itself flags up the deal as a 'related party' transaction'".

And as per the UEFA Club Licensing and Financial Fair Play Regulations, Edition 2010, a 'related party' transaction is the one when "a close family member to club executives";

a) Has control or joint control over the reporting club;

b) Has significant influence over the club;

c) Is a member of key management personnel of the club or a parent of the club.

Hence, only if Manchester City report the deal as a 'related party' transaction, will they need to show that it represents fair value or else UEFA "will have no information to work with".

Not Just a Shirt Deal

As stated above, the Etihad deal is not just a shirt deal. In fact, it is described as a 'partnership' in the official lease.

Moreover, Etihad will also pay for the naming rights of the stadium and "sponsor the development of the Etihad Campus around its stadium", with the latter "exempt from UEFA's Regulations in terms of assessing the 'fair value' of a sponsorship".

Hence, as Andy Brown quotes, "City could claim that the deal is split into a shirt and stadium sponsorship that represents 'fair value' under the Regulations, and a 'partnership' to develop the Etihad Campus, which falls outside of the Regulations".

i. How does the shirt deal represent fair value?

It is believed that City will earn around £20m for the shirt deal.

If we compare this value to clubs like Manchester United (£25.4 million), Liverpool (£25 million), Barcelona (£26m) and Bayern Munich (£24m), it's not really a steep sum.

City are a global brand now. They are contesting for four trophies this season.

There has been an increase of 133 percent in global TV audience for live matches featuring the club and a 57 percent increase in the live City games telecasted across United Kingdom since 2008/09 season. In addition, on Twitter, they are the most followed Premier League club and on YouTube, their account garnered the maximum views of all clubs last term. Not to forget, the club has the maximum number of followers of European teams on the two main micro-blogging sites in China.

The £20m fee seemed inflated when it was signed but the Sky Blues' fan-base and presence in the football community has grown very quickly over the years and at present, it surely looks as a "fair value". Moreover, in the next two to three years, the £20m may become less than what City are capable of.

They are plying trades with the best clubs in the world, defeating them and hence, merit a shirt deal that matches their counterparts'.

ii. How does the stadium naming ights represent fair value?

This is basically something I have understood from Harris' report and will quote directly from his article.

Via Sporting Intelligence:


There is little or no value in naming rights for old venues with well-established historic names. (Emphasis on history).

There simply isn’t any major economic value in such rights – and I’ve been told this by more than one person linked to more than one of the clubs above by people who’ve explored this issue in the past.

There is a value in naming rights for a new stadium, that’s self-evident. The Emirates, The Ricoh, The Britannia and The KC Stadium are examples.

And there is a value in naming rights – albeit limited – for stadiums that are not particularly long-established.

The question, though, is how to put a price on the renaming of Manchester City’s stadium, to the Etihad Stadium, as it has become from this season?

Opened in 2002 as the City of Manchester Stadium, it was main venue the 2002 Commonwealth Games. CoMS never really caught on. It’s too long a name. And ‘Eastlands’ has always been colloquial.

So the venue does fall into the category of non-established, name-wise.

On that basis, using benchmarks from other sports (and rare cases in football), I think City could probably argue that naming rights for Etihad are worth around £5m a year, perhaps a little more.

Dortmund’s Westfalenstadion, home of the famous Yellow Wall, is now the Signal Iduna Park in a deal earning the club £3.5m a year. City could easily argue the Premier League attracts a premium, and also that their new name is already being used routinely, which can’t be said for Dortmund.

Further afield, naming rights for FedEx Field (formerly the Jack Kent Cooke Stadium) earn the Washington Redskins of the NFL £4.6m a year, while in Miami, Sun Life pay £4.5m a year for naming rights to a venue already on its seventh different name.

In Australia, the ANZ Stadium in Sydney – which was firstly Stadium Australia for the 2000 Olympics, then the Telstra Stadium- is so-called in a deal worth £4m a year.

Etihad have had naming rights since 2009 in a deal estimated locally at £4m-£5m a year.

If that works for them Down Under, as naming rights appear to work for umpteen companies in various sports venues around the world, how can Uefa deny the Etihad Stadium in Manchester holds naming rights values worth cash to City?

They can’t. And won’t. The only quibbling will be on price, and the benchmarks mentioned make £5m a year, including Premier League premium, not so unreasonable.

Look at how often Etihad Stadium is already featuring in the news.

Fair Money for Etihad Campus as well?

The Etihad Campus can change the dimensions of Manchester City.

There will be an academy that will accommodate 400 young players, with classroom facilities for 200.

There will be 16.5 pitches, with 12 of those designed for players between the ages of 8-21. Promising young players will also get accommodation. Not to forget, a 7000-seat stadium for the young players to play home games.

The first team will also be be moving to the Etihad Campus. There will be a new gym and rehab centre and the club's clerical and media teams will be based on site with lavish offices.

Etihad want to be associated with this campus and will pay a premium. A fee of about £10m is not excess- considering the popularity the campus will bring to Etihad company.

Still think City are doing something wrong? Well let's have a look at some other clubs

1. Paris Saint-Germain have a deal with Qatar Tourist Authority worth €200million ($262m) per year until 2016. Both the sponsor and the club are owned by the Qatari Royal Family. Now, this is a deal that over-values a club. Until 2013, PSG hadn't won a trophy for three years, the Ligue 1 title for nearly a decade. Their average attendance last season was just over 41,000 and their fan-base in not enough to command such money.

2. Barcelona have an 'Official logistics partner’ (Serveto), Manchester United have an official 'marine engine partner' (Yanmar) and several other energy drinks partners. Not exactly questionable deals but these are futile sponsorship agreements that just reap in extra money.

3. Chelsea have a "commercially confidential’ three-year deal" with Russian oil and gas giant Gazprom. The deal is believed to be worth £18 million per year.

So, what's wrong with this deal? Well, this is not the first time Abramovich is dealing with Gazprom, a company "heavily influenced" by political forces. He sold his controlling stake in oil company Sibneft to Gazprom in 2005. Did Abramovich have "significant influence" on the deal, something UEFA doesn't allow? From the outlook he does. Yet Chelsea escaped any scrutiny as Gazprom signed an agreement with UEFA as well.

Dodgy isn't, it Jose?

Nonetheless, the credibility of such deals is only for UEFA to decide.

UEFA general secretary Gianni Infantino once said that "UEFA’s 15 strong team of accountants (the Club Financial Control Body) would begin analyzing figures during the spring of 2014 for the years 2011-12 and 2012–13, the first period to be monitored under the new break-even regime". So, if City did any wrongdoing, it will be told.

We, the fans, are not really in a state to decide anything. <a class="postlink" href="http://bitterandblue.sbnation.com/2014/2/14/5408818/manchester-city-ffp-etihad-stadium" onclick="window.open(this.href);return false;">http://bitterandblue.sbnation.com/2014/ ... ad-stadium</a>

1. Just a whopping huge error to kick off with. Etihad made a $14m profit in 2011, a $42m profit in 2012 and are just about to report their 2013 numbers which will probably show increased profits of around 10%-15% (the previous 3 quarters reported profits) on the previous years figures...
2. Etihad is NOT owned by ADUG either.
3. A half brother IS NOT a related party under FRS8.

As those things are wrong the rest of the article is probably bollox too.

 

[Prestwich_Blue]

Just a whopping huge error to kick off with. Etihad made a $14m profit in 2011, a $42m profit in 2012 and are just about to report their 2013 numbers which will probably show increased profits of around 10%-15% (the previous 3 quarters reported profits) on the previous years figures...

It's a million times better than his first article though. Also he claimed that Etihad is owned personally by Sheikh Hamed whereas it's state owned. I've pointed both errors out.

But he understands that Etihad is not a related party, which makes a change.

 

[BlueAnorak]

But he understands that Etihad is not a related party, which makes a change.

It certainly does!

 

[citizen_maine]

Saying that, I'd take Nerd at face value all day long.(along with the likes of you PB and others on BM)

A City fan, and a well respected and knowledgeable poster on SSC.

Posted on the SSC Manchester City thread, in reply to yours truly.

nerd(posted on the 3rd of Feb)

Procedural Rules for Interveners

jrb;

- trouble is that most commentators are speaking without having actually read the UEFA procedural rules document for the Club Financial Control Body. They are right to note that is allows other clubs to apply to be 'inteveners' in the adjudication procedure; if they can demonstrate that they are directly interested in the outcom (e.g. if they might otherwise qualify for a Champs League place). This is what the procedural rules say about interveners

Article 22 – Interveners

1 Member associations and clubs who are directly affected and who have a
legitimate interest in participating in the proceedings before the adjudicatory
chamber may be invited or accepted to do so as interveners.

2 Any party seeking to intervene in proceedings shall file a written application to
intervene, together with reasons, within seven days of the proceedings
becoming known to the party seeking to intervene.

3 The extent to which an intervening party may participate in the proceedings
before the adjudicatory chamber or have access to the case file shall be decided
by the CFCB chairman.

Understanding the next bit depends on knowing the CFCB structure. The Body is split into two sections (or 'chambers'), which have no common membership. The investigatory section can be thought of as 'prosecutors'; they determine whether there may be grounds for an adjudication to be made, prepare the evidence and present it at a formal adjudication panel hearing. The adjudicatory section can be though of as 'judge and jury'; they conclude whether a club has broken the rules; and decide on the sanction to be applied. Interveners only get in on the adjudication, not the investigation

The complicatioin is that the investigatory section have a degree of discretion to settle minor infringments of the rules on their own, without requiring a full adjudicatory hearing - as fast-track justice. This seems to be envisaged as the normal mode of proceeding when there is no question of concealment or intention to deceive; e.g. where a club submits accounts that it believes demonstrates a break-even position; but where the investigator - applying UEFA standard accountancy conventions - shows the club as a marginal fail. But there has to be a procedure for an outside club who envisage being 'interveners' to object if they can assert that this fast-track procedure is being abused to let serioius offenders off the hook. The relevant articles are here;

Quote:
Article 14 – End of the investigation

1 At the end of the investigation, the CFCB chief investigator, after having
consulted with the other members of the investigatory chamber, may decide to:
a) dismiss the case; or
b) conclude, with the consent of the defendant, a settlement agreement; or
c) apply, with the consent of the defendant, disciplinary measures limited to a
warning, a reprimand or a fine up to a maximum amount of €100,000; or
d) refer the case to the adjudicatory chamber.

2 The decision of the CFCB chief investigator is notified to the defendant in writing.

3 Decisions of the CFCB chief investigator shall be forwarded to the CFCB
chairman.

4 Decisions of the CFCB chief investigator pursuant to Article 14(1)(b) or Article
14(1)(c) shall be published within five days from the date of their communication
to the defendant.

5 The CFCB chief investigator may, following a reasoned request from the
defendant made within two days from the date of communication of the decision,
redact the decision to protect confidential information or personal data.

Article 15 – Settlement agreement

1
Settlement agreements pursuant to Article 14(1)(b) shall take into account, in
particular, the factors referred to in Annex XI of the UEFA Club Licensing and
Financial Fair Play Regulations. Such agreements may be deemed appropriate
in circumstances which justify the conclusion of an effective, equitable and
dissuasive settlement without referring the case to the adjudicatory chamber.

2 Settlement agreements may set out the obligation(s) to be fulfilled by the
defendant, including the possible application of disciplinary measures and,
where necessary, a specific timeframe.

3 The CFCB chief investigator monitors the proper and timely implementation of
the settlement agreement.

4 If a defendant fails to comply with the terms of a settlement agreement, the
CFCB chief investigator shall refer the case to the adjudicatory chamber.

Article 16 – Review of decisions of the CFCB chief investigator

1 Any decision of the CFCB chief investigator to dismiss a case or to conclude a
settlement agreement or to apply disciplinary measures within the meaning of
Article 14(1)(c) may be reviewed by the adjudicatory chamber on the initiative of
the CFCB chairman within ten days from the date of communication of the
decision to the CFCB chairman.

2 Any decision of the CFCB chief investigator to conclude a settlement agreement
or to apply disciplinary measures within the meaning of Article 14(1)(c) may be
reviewed by the adjudicatory chamber at the request of a directly affected party
within ten days from the date of publication of the decision.

3 The adjudicatory chamber only reviews decisions of the CFCB chief investigator
with regard to the existence of a manifest error of assessment.

4
The adjudicatory chamber may uphold, reject, or modify the decision or refer the
case back to the CFCB chief investigator.

These provisions have been seized on by journos to suggest that other Prem clubs could gang up against City to ensure that they do not receive a lenient sanction - in the event of being found to be in breach of the financial rules, but not to have acted in bad faith.

But what they have missed is Article 16; 3 "The adjudicatory chamber only reviews decisions of the CFCB chief investigator
with regard to the existence of a manifest error of assessment." What this means is that any objection from another club must assert a 'manifest error' in the recommendations of the chief investigator. Just disagreeing with those recommendations, or simply wanting your day in court; is not good enough grounds. You have to demonstrate some point where the chief investigator has his facts wrong.
__________________

I'm probably missing something here, but Article 14.1 doesn't mention anything about expulsion from UEFA competition as one of the sanctions. Is this actually saying the worst that can happen is a large fine?

 

[Prestwich_Blue]

I'm probably missing something here, but Article 14.1 doesn't mention anything about expulsion from UEFA competition as one of the sanctions. Is this actually saying the worst that can happen is a large fine?

No. They are a bit like magistrates, who can deal with less serious cases. If it's serious, it goes to the Adjudicatory body who can impose more stringent penalties.