Top article from Martin Samuel.
Seismic verdict for football that leaves financial rules in tatters
The Premier League overplayed its hand and now the whole concept of PSR is in the bin. Man City’s legal victory could have huge consequences for some clubs
Martin Samuel
Monday October 07 2024, 2.18pm BST, The Times
Unlawful, unlawful, unlawful, unfair, unfair, unreasonable, unreasonable. The seven conclusions of the arbitration panel governing Manchester City’s case against the Premier League make for sobering reading. Yet, even sober, the hangover is going to last a very long time.
It is not just Associated Party Transaction (APT) rulings that must now be revisited — this decision made them obsolete and unusable overnight. The whole concept of Profitability and Sustainability Rules (PSR) is also in the bin, now that shareholder loans, too, are to be judged related-party deals.
That is City’s big win, in many ways their payback. Their accusation was that the league and its members acted like a cartel by introducing rules specifically intended to curb the potential of a minority of clubs. They pointed out that many clubs benefited from interest-free shareholder loans. If that wasn’t a related-party transaction, they argued, what was? And because the arbitration was carried out by serious people, who listen to reason and logic, they agreed.
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Imagine if every loan given to a club by one of its owners was charged, as is standard, at between 8 and 10 per cent, if it could be obtained at all? We would be looking at PSR failings across the board. And now we are. Wrapped up in legalese is a seismic verdict for football. It doesn’t mean that clubs can do what they want — there will still be financial regulations, although there are precious few right now, however the Premier League may wish to spin it. What it does mean is that these cannot be tailored to negate the growth of Newcastle United, City or any specific club.
On page seven, the panel deal with what is termed “the consultation with clubs which led to the adoption of the APT rules in December 2021” and hears from Jamie Herbert, the Premier League’s director of governance. “Mr Herbert gave evidence that the PL had been considering the need for amendments to the PSR over a period of years. This evidence was challenged by MCFC [Manchester City]. However, it is agreed that there was no evidence of any formal initiative before the Autumn of 2021 to amend the PSRs in the manner in which they were amended in December 2021.”
City’s victory should help clubs such as Newcastle, whose growth under their mega-rich Saudi owners had been threatened by Premier League rules
PAUL ELLIS / AFP/GETTY
In other words, they cooked it up based on what most clubs wanted. There were no commissioned studies, no in-depth research of a type that would suggest change was always on the cards. Herbert talked of discussions about rule changes dating back to 2018. Maybe there were. But clubs talk all the time.
The fact is, these talks suddenly escalated and only became formalised when Newcastle were bought by the Public Investment Fund (PIF) of Saudi Arabia and it was feared they could receive huge investment, becoming more competitive. City argued from their own perspective but the desire to limit competition, the anxiety caused by Newcastle’s takeover, was very much at the heart of this.
“The tyranny of the majority,” City argued, and everybody sneered. It’s called democracy, they chorused. Well, yes and no. First past the post is democracy too, yet the tyranny of the majority is why your vote will never count if you are a Labour voter in a safe Conservative seat, or vice versa.
That’s what John Stuart Mill wrote about in
On Liberty. The pursuit of majority interest at the expense of a minority faction. So when the PIF bought Newcastle in October 2021 and almost instantly the Premier League began adjusting its rulebook — an email on the subject to the league from a club official specifically mentioned “the Gulf region” and was dated October 12, five days after the takeover — that’s the tyranny of the majority in action. AKA: a carve-up.
And we later read that the panel believed this official when, as a witness, he or she insisted Gulf-owned clubs were not the target. They believed the assertion that this intervention could just as easily have been discussing an “American consortium who had links to lots of American companies”. Except there are already quite a few American consortiums with links to lots of American companies in the Premier League, and the email didn’t mention them. It referenced the Gulf. “The takeover of Newcastle United heightened . . . concerns again and encouraged the clubs to seek action,” the witness admitted. Even so, the same email would have been sent had the worry related to Americans. It’s just that it wasn’t. It was sent five days after a Saudi takeover.
City’s success can largely be put down to one man: Guardiola
GETTY IMAGES
It’s the ruination of football, the destruction of the English game, that will be the argument. No, it’s not. City’s dominance is still scheduled to end pretty much the year Pep Guardiola walks out the door. Once the rules are redrafted, as they surely will be, City won’t be able to just claim what they like in sponsorship revenue. No club will. There will still be fair market value standards that have to be met, unless the system is entirely abandoned, which seems unlikely.
Yet the big change comes because the arbitration panel found that while APT regulations would be legal if applied in a non-discriminatory manner, Premier League rules excluded from the fair market value process some forms of financing by parties connected to a club. It means that in the future, the Premier League would have to regulate all forms of financing provided by shareholders and related parties, including sponsorship deals and loans, but also softer arrangements such as guarantees or equity investments. The calculation would be on the same terms available from a third party unconnected to the club and could even assess whether a club with a poor credit rating — one imagines Everton’s isn’t so hot right now — would be able to find a lender at all.
Equally, who doesn’t love Brighton & Hove Albion? Everyone’s second favourite club. Personal opinion: the best-run in the country. Yet, as of 2023, Brighton held shareholder loans of £302.8million. Charging interest at between eight and ten per cent would put £66-84million on their PSR calculation and will now have to be factored in going forward.
Brighton are a well-run club yet, as of 2023, had more than £300m in shareholder loans
GARETH FULLER/PA
The clue is in the delay. This was a verdict delivered 14 days ago, one that City have been happy to publish since it arrived. The hold up has been at the Premier League’s end. Now they are trying to spin it out further. Clarifications, consultations, all the things a governing body does if it wants to fashion a tight rule book which, as Leicester City found much to their delight, isn’t the Premier League’s style at all. Why? There is another case ongoing involving Manchester City and 115 charges. So the APT decision likely impacts proceedings elsewhere. If the League can bog this down in legal process, they hope it won’t weaken their case against City yet further. The Premier League, its rulebook and executives are facing a firing squad but are now asking to inspect the guns to ensure they fit professional standards. What a shower they are.
It is not so much a can of worms as one of those tins of exploding snakes. If shareholder loans should have been part of the PSR equation all along, Everton and Nottingham Forest may wonder how they, alone, suffered points deductions. The Premier League can’t even simply revert to a time before the APT update, because now calculations around shareholder loans are unavoidable. So there is no simple reset button, no back-to-factory-mode setting. The parameters around PSR will have to be rewritten, if the system is not to be scrapped.
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Martyn Ziegler: Why Man City judgment could be bad news for Everton and Arsenal
The drawing board does not have a mark on it. Everton, for instance, have £451million in shareholder loans, equating to as much as £104million on their PSR calculation. Arsenal have £258million, working out to a potential addition of £62.5million. At best it collapses the market around English football, at worst it puts some of the league in breach, or with vanishingly small sums to invest in player acquisition. There would be more asterisks attached to the league table than there are presently flying around boardrooms, as owners begin to study the 175-page adjudication and consider its implications.
Although not all of them. The idea City are out on a limb is inaccurate too. The club believe they have the support of at least six others in their actions — Everton, Nottingham Forest, Aston Villa, Chelsea, Leicester City and Newcastle. Others may be recruited if the Premier League attempts to keep the rules as they are with the odd tweak and adjustment.
Everton have £451million in shareholder loans, equating to as much as £104million on their PSR calculation
PETER BYRNE/PA
Who will vote for a flawed system that might now impinge, and quite brutally, on finances? Adjust any PSR calculation by tens of millions and see how much is left for investment. And if the rules are unlawful, as stated, how far do we now rewind on PSR calculations involving shareholder loans? How many years must be recalculated? Will there be an amnesty? And what about going forward? At what rate is interest now calculated to alight on fair market value? Would Forest receive the same rate on their £23.4million as Everton would on £451million — if Everton could get such a deal at all?
It’s a mess. Complex, perhaps incalculable. It always was. If Saudi Arabia are trying to get on the map with the Neom City project — estimated cost $1.5trillion — what is it worth to them to bring it to the world on the front of a football shirt or in a stadium naming-rights deal? And how can that investment be measured against Newcastle’s previous sponsors such as Fun88, Wonga or McEwan’s Lager? “This means more” used to be an advertising slogan around Anfield — but sponsorship does, to some companies. And fair market value was always a dubious, debatable concept, for that reason.
Just as profitability and sustainability has always been a counterintuitive aim. Ever since it started, football — indeed all business — has worked on the basis of how much money can be attracted to enhance the chance of glory. It is why there is a National Lottery to fund British Olympic objectives; why Hampshire County Cricket Club have been sold to the owner of the IPL franchise Delhi Capitals.
City’s owners are not the first to throw money at a project and, it is to be hoped, they won’t be the last. Yet PSR behaves as if investment is bad, as if that drive to squeeze every last drop to achieve is actually the problem. Every financial constraint further cements an established elite — and even that wasn’t enough. So new rules were drafted to ward off, and warn off, interlopers.
Yet it was an overplayed hand. It was unlawful, it was unfair, it was unreasonable. And it was three judges, not City, who studied it and saw through it too.
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