On the subject of Shareholder Loans and the PL's rules and regulations many, like myself, may find todays article in the NY Times' Athletic by Phil Buckingham and Matt Slater a useful summary of the current state of play.
In successfully arguing that shareholder loans should face the same assessments as any commercial deal, they did enough to ensure that associated party transactions (APT) rules could be declared unlawful.
So the APT rules now need to be amended, but can the league get a two-thirds majority of clubs to back the repair job, especially when City’s lawyers scrutinise their handiwork?
What are shareholder loans?
They do exactly what it says on the tin: it is money loaned to a club by their shareholders. They amount to a form of funding, a means for owners to inject cash into the football project without seeking equity in return. Typically these are long-term arrangements, often free of interest payments.
And clubs are certainly fond of them. Fourteen of the 20 Premier League teams in the 2022-23 season had shareholder loans recorded in their most recent set of accounts and City’s legal team were only too happy to highlight the extent of their use during this case. It was cited that £1.5billion ($1.96bn) out of £4bn total borrowings across the division — 37 per cent — were through shareholder loans.
“The main motivation (behind shareholder loans) is that it’s an easier mechanism for an owner getting their money back,” says Chris Weatherspoon, an accountant and financial analyst at the football website Game State. “If they put in equity, that’s them effectively giving up any right to a return, short of paying out dividends, which hardly any club does or even can do, as most are in a position of accumulated deficits, or making their money back when they sell up.
“It’s also more tax efficient. Interest costs on debt — if owners charge them — are tax-deductible for clubs, so reduce the club’s tax burden; dividend payments aren’t.
Why did City raise them as an issue?
City came hard at the Premier League when launching their legal challenge in June, saying the APT rules in place were “discriminatory and distortive”. They also called their existence “unlawful” and set about picking holes in a set of regulations designed to prevent clubs earning increased revenue through inflated commercial deals.
Everything, in theory, had to reflect fair market value (FMV). Only, shareholder loans have never done that. No bank would lend hundreds of millions interest-free, so why should a club benefit from such an arrangement through its owners? It was, City argued, the very definition of an associated party transaction and “at odds with the whole rationale of PSR (the league’s profit and sustainability rules)”.
“The exclusion of shareholder loans from the APT rules distorts competition in permitting one form of subsidy, namely a non-commercial loan but not another, namely a non-commercial sponsorship agreement,” City were cited as saying in the verdict.
And, most importantly, City’s argument over shareholder loans was accepted by the independent panel. That will force a change to the Premier League’s rules, with shareholder loans integrated into the broader APT regulations.
Any money loaned to a club by their owners will need to reflect FMV and see interest rates charged in line with commercial loans. The changes will bring the Premier League in line with
UEFA, European football’s governing body, which applies FMV to shareholder loans in its financial fair play (FFP) calculations.
