UEFA’s Club Financial Control Body has found that Manchester City have committed serious breaches of their Financial Fair Play (FFP) regulations by overstating sponsorship revenue between 2012 and 2016 and failing to cooperate in the investigation. Some thoughts follow #MCFC
As a consequence, #MCFC have been excluded from participation in UEFA competitions in the next two seasons (2020/21 and 2021/22) and been fined €30m (£25m). This is the biggest ever punishment for breaching FFP regulations.
In response #MCFC described the process as “flawed and consistently leaked”, saying that in December 2018 the UEFA Chief Investigator had “publicly previewed the outcome and sanction he intended to deliver, before any investigation had even begun.”
On the face of it, the emails leaked to Der Spiegel are damning, as they appear to show that #MCFC sponsorship was mostly funded by the owners, Abu Dhabi United Group, e.g. £57m of the £65m agreement with state airline Etihad, £12m of Aabar £15m deal. FFP limits owner funding.
#MCFC argued the emails were “out-of-context materials purportedly hacked or stolen” as part of an “organised and clear attempt to damage the club’s reputation”. They have claimed that “irrefutable” evidence will clear them of the accusations, but have yet to publicly share this.
So #MCFC have been found guilty by UEFA, but that’s not the end of the story, as the decision is subject to appeal. City will take their case to the Court of Arbitration for Sport (CAS) and then potentially the Swiss Supreme Court (which has jurisdiction over UEFA).
The importance of commercial income (and Abu Dhabi sponsors) to #MCFC is evident. It has grown by over £200m in the last 10 years from £18m to £230m, more than any other English club, and accounted for as much as 53% of total revenue in 2013. 
In the early years under Sheikh Mansour’s ownership, #MCFC incurred many significant losses, culminating in a £197m deficit in 2011, due to heavy spending to build a competitive squad. However, figures have steadily improved with the club reporting profits in the last five years.
Missing out on the Champions League would hit #MCFC hard financially. The amount obviously depends on how far City progress, but reaching the quarter-finals in 2018/19 was worth £86m, up from £55m the previous season, thanks to a new TV deal.
In addition, #MCFC would lose out on match day revenue (gate receipts and hospitality). Based on a simple average of £2m income per game, this would mean a £10m reduction in revenue (assuming City reach the Champions League quarter-finals).
On the other hand, #MCFC have new commercial deals: kit supplier Puma £65m is a £45m increase on Nike £20m; while there is an “eight-figure” training kit deal with Marathonbet worth a minimum of £10m. Club also reportedly reviewing replacements for Etihad shirt sponsorship.
Similarly, #MCFC will benefit from the new Premier League TV deal, especially the change that any increase in overseas rights will be distributed based on where clubs finish in the league. This is estimated to increase City’s distribution by around £20m.
Based on these assumptions, #MCFC revenue would fall £119m a year (22% of their total) due to the UEFA ban, though this would be offset by £75m revenue growth, giving a net decrease of £44m. The two-year ban would therefore cut City revenue by gross £238m, but “only” £88m net.
In theory, this could be offset by a reduction in the wage bill, as players would not receive bonus payments linked to Champions League qualification. However, it is possible that their agents would argue that the ban was not the players’ fault, so these would be paid anyway.
#MCFC will point to other cases where UEFA were more lenient, especially PSG, where the organisation ultimately sided with the French club’s appeal to CAS, despite clear similarities with City, i.e. allegedly overstating sponsorships, as commercial income rose €222m in 7 years.
Similarly, CAS told UEFA that Milan’s two-year ban was not proportionate and they had not properly assessed some “important elements”, resulting in the ban being halved to one year. It is worth noting that Milan have accumulated €543m of losses in the last six years.
Last February CAS also ruled in favour of Galatasaray, who had objected to a decision by UEFA to re-open a FFP investigation, though this appears to be more of a technicality, i.e. UEFA had failed to review the case within the prescribed timeline.
Let’s take a closer look at some of the sponsorship deals at major European clubs that #MCFC will have no doubt included in their dossier for UEFA, as there is a strong degree of owner involvement in the sponsoring companies, not to mention high values.
Perhaps the most egregious is PSG’s deal with the Qatar Tourist Authority for a “publicity campaign”, reportedly worth €200m a year, despite a much lower independent valuation. Either way, PSG’s €381m commercial income in 2018 was more than all the other Ligue 1 clubs combined.
PSG president Nasser al-Khelaifi also sits on UEFA’s Executive Committee and is the chairman of beIN Media, who have heavily invested in TV rights. An influential man then, but less happily, he had to agree a financial settlement with FIFA before they dropped a bribery complaint.
Bayern Munich have third highest commercial income in Europe, boosted by strategic partnerships with three German companies who each have an 8.33% stake in the club (the other 75% is owned by the fans): Adidas €60m, Audi €60m (recently extended, up from €40m) and Allianz €6m.
Similarly, some of Borussia Dortmund’s largest sponsorship deals are from companies that are also shareholders: Evonik (14.78% stake) €40m shirt sponsor (combined deal with 1&1); Puma (5% stake) €31m kit deal; and Signal Iduna (5.43% stake) €5.8m stadium naming rights.
Then there’s the Juventus shirt sponsorship with Jeep, which increased from €17m to €42m in 2019/20– even though the original deal still had two years to run. This is three times as much as Milan, Roma and Inter. Jeep is part of Fiat, which is owned by the Agnelli family.
Following Inter’s acquisition by Chinese company Suning in 2016, their commercial revenue growth has been driven by substantial money from regional (Chinese) sponsors, including Suning and an unnamed company. This accounted for €97m in 2018/19, which was 26% of total revenue.
That said, there has clearly been some “creative accounting” at #MCFC, who transferred some staff to City Football Group, reducing wages from £233m in 2013 to £205m in 2014. This is a perfectly normal business practice, but rare in the world of football.
In any case, it looks like City Football Group then charge the club for services provided, which partly explains the large increase in #MCFC external charges from £42m in 2013 to £59m in 2014 (up to £98m in 2019).
#MCFC were fined £49m (£32m suspended) in 2014 for a breach of FFP, though they said there was “a fundamental disagreement between the club's and UEFA's interpretations of the regulations on players purchased before 2010", which led to them not meeting the break-even target.
When UEFA first implemented FFP, they allowed clubs to exclude wages of players signed before 2010. Although the rules did not change, UEFA’s toolkit that helps explain the interpretation did change between the 2011 and 2013 version, which seemingly scuppered #MCFC.
At the time, #MCFC said that they decided against pursuing the case, due to “the practical realities for our fans, for our partners and in the interests of the commercial operations of the club.” In other words, this was akin to a plea bargain to enable the club to move forward.
UEFA sanctioned 9 clubs in 2014 for FFP breaches, including 3 from Russia & 3 from Turkey. #MCFC argue that this settlement should be considered final and they should not be singled out, especially given revelations about sponsorship deals at PSG & Zenit St Petersburg (Gazprom).
Ironically, if #MCFC had accepted UEFA’s view that the Etihad deal was from a related party, they would probably have been fine with FFP, as the value is in line with similar deals at other leading clubs. Any adjustment to fair value would likely have been minimal.
In fact, it is staggering how careless #MCFC appear to have been. If we assume for a moment that they are guilty of this skullduggery, it beggars belief that they should lay such an incriminating trail on email. Perhaps they’re not the smartest people in the room after all.
There is no doubt that FFP has improved European net profits, which have improved by €1.8 bln since its introduction, turning €1.7 bln deficit into €140m profit. However, it is interesting that net debt (UEFA’s definition) has actually increased from €7.0 bln to €8.5 bln.
As a consequence, some clubs are making huge interest payments each year, money that is going out of the game to banks, hedge funds or greedy owners. In 2019 #MCFC only paid £2m interest, while at the other end of the spectrum Inter paid £26m (and United £23m).
Potentially the Premier League might impose a retrospective points deduction on #MCFC, though their version of FFP is far less stringent than UEFA, allowing losses of up to £105m over 3 years. Last year they even scrapped Short Term Cost Control that restricted wage increases.
Of course, #MCFC players themselves might push for a move if they are unable to play in the Champions League. For the same reason, it would be difficult to attract top talent, so the club would probably have to pay a premium, which would mean City would be back at square one.
If #MCFC make big losses without Champions League money, they might fail FFP again, so they cannot over-spend. In fact, there is a question over how UEFA will treat their sponsorships in the next monitoring period: 3 years maximum loss €30m (including €25m equity contribution).
Apart from Abu Dhabi, #MCFC have some interesting investors: in November US private equity giant invested $500m (£389m) for a 10% stake, valuing City Football Group at £3.7 bln; in 2015 China Media Capital bought 13% for $400m. They would surely have done due diligence on FFP?
#MCFC already tried in November to get CAS to halt the case. This was rejected, as the UEFA process was not completed, but they did give City some cause for optimism, saying their case was “not entirely without merit” and describing leaks from UEFA as “worrisome”.
#MCFC chief executive Ferran Soriano said, “The fans can be sure of two things. The first one is that the allegations are false. And the second is that we will do everything that can be done to prove so.”
Most people would agree that if #MCFC have indeed broken the rules, they deserve to be punished. However, there is still much to play for. CAS could confirm the ban, reduce it to 1 year or send the case back to UEFA (maybe recommending a financial penalty). We shall see.
