That's something Stefan and me never agreed on. He felt that as long as Etihad had paid the omeny and got fair value for that, it didn't matter. My argument was that this was disguised equity investment and it did matter. This argument wasn't tested though as it wasn't ADUG funding the majority of the Etihad sponsorship.
I keep getting quoted on this so let me be clear on my view on this.
The crux of the issue isn't where Etihad sourced the funds to fulfil their sponsorship obligations, as City assert that the sponsorship is genuine. The unproven allegation at the Court of Arbitration for Sport was that the sponsorship agreement was essentially a sham, with only a portion of the obligation truly being Etihad's. If proven, this would have serious implications.
However, the source of the funds arguably remains a secondary concern. If the sponsorship contract is not as detailed on its face, the origin of the funds—whether from ADUG, the owner, or elsewhere—becomes largely irrelevant. The more significant violation would be the presentation of a false agreement and false accounts.
Therefore, the key question isn't about the source of funds but rather the authenticity of the sponsorship agreement. UEFA attempted, unsuccessfully, to use the source of funds as evidence that the agreement was fake. When MCFC refer to "irrefutable" evidence, they are likely pointing to the contract itself, which simply outlines an obligation from Etihad.
If the contract is deemed genuine then the only other questions are whether Etihad is a related party (so far UEFA thought it was in 2014 but didn't go with that argument in 2020) and if it is whether the contract was fair value (UEFA accepted it was in 2014 but didn't run any argument in 2020).
Etihad is not declared a related party in MCFC accounts. In my view, unwinding 10 years of the audit treatment of Etihad by MCFC, would be very difficult save if the PL could
prove that the auditors were
deliberately not told of
material facts about the relationship. It is highly unlikely the PL would be able to prove that and this is especially so because the auditors must have given due consideration to the point after UEFA raised it in 2014 (at the latest) and since. I suspect, it appears clearly and regularly as a point of discussion/risk/consideration with management in every audit meeting pack. This will have been even more apparent in the earlier years of the ownership due to the materiality of the Etihad sponsorship and therefore, the risk of material misstatement if the contract was incorrectly accounted for.
