The summer of legal trouble for Manchester City and their battle against UEFA:

As the 2019/2020 football season drew to a protracted close, football clubs began planning for the 2020/21 campaign that was due to commence on the 12th of September.  Teams could finally look to improve their squads and move on from the difficulties of the 2019/20 campaign, as well as try to overcome the obstacles that the annus horribilis that is 2020 has managed to present.   None more so than Manchester City who, up until the 13th of July, found themselves facing a 2 year suspension from UEFA competition and being confined to the delights of English football.  Their alleged breach of the Club Licensing & Financial Fairplay Regulations (hereinafter:  CLFFPR), accompanied by their previous infringement in 2014 was enough, at least in the eyes of Union European Football Association (hereinafter:  UEFA), to sanction rather draconian punishments on the Manchester outfit.  However, unlike in 2014, Manchester City filed a successful appeal, enabling them to continue competing in European knockout competition and allowing them the chance to continue challenging to win their first Champions League trophy in the club’s history. 

This article will look into the details of the case, delving specifically into: how the case came to being; why the UEFA Adjudicatory Chamber decided to sanction the club; why UEFA awarded the sanction that they did; and why, upon review, the Court of Arbitration for Sport (hereinafter: CAS) arbitration panel decided to overturn the suspension and reduce the fine.  The piece will also look into the future of the CLFFPR and the backlash that the mechanism has received from some stakeholders within the game, as a result of this case. 

Public knowledge of the case came into being on February 14th after multiple media outlets and news channels, notably that of Sky Sports, revealed the suspension, causing shockwaves across the football industry.  This, only 4 weeks prior to the postponement of English football fixtures on the 13th of March and only 38 days before lockdown began in the UK on the 23rd of March, was immediately denied by the club. 

However, even though it only became public knowledge during February, the investigation into the perceived foul practices of Manchester City was being investigated long before the announcement of the ban.  In fact, Der Spiegel (a German newspaper publication known for its investigative journalism) claimed as early as 2018 that Manchester City and their sponsors were inflating the value of their commercial income and creating contracts in order to circumvent the CLFFPR (consequently allowing the club to spend greater amounts on expenditure and player transfers). 

UEFA, as a result of reports from “various media outlets”, decided to formally investigate the purported breaches and look into any possible violations of the CLFFPR regulations.  UEFA, after an extensive review of all the findings, said the following in their statement:

“The Adjudicatory Chamber has imposed disciplinary measures on Manchester City Football Club directing that it shall be excluded from participation in UEFA club competitions in the next two seasons (i.e.: the 2020/21 and 2021/22 seasons) and pay a fine of 30 million euros (25 million pounds).”

The statement also goes on to say:

“The Adjudicatory Chamber, having considered all the evidence, has found that Manchester City committed serious breaches of the Uefa Financial Fair Play Regulations by overstating its sponsorship revenue in its accounts and in the break-even information submitted to Uefa between 2012 and 2016.”

The Manchester club vehemently expressed their innocence and stated that they were “disappointed” in the UEFA Adjudicatory Chamber but remained confident that they would able to vindicate their name of any wrongdoing, come the conclusion of the case.   So confident, in fact, that they said in their statement that they would “pursue an impartial judgment as quickly as possible and will therefore, in the first instance, commence proceedings with the Court of Arbitration for Sport at the earliest opportunity”, even before reviewing the reasoning behind the decision.  City did indeed decide to take action and exercised their right to appeal through Art 34 of the Club Financial Control Body (hereinafter:  CFCB) Procedural Rules, which states:

“A party directly affected has the right to appeal a final decision of the CFCB”.

Break Even Requirement between 2012 / 2016

The CLFFPR regulations, which were implemented to combat financial doping of clubs and to help teams become more financially stable, were introduced in 2009 and, in the eyes of UEFA, remain pivotal to the sustainability of clubs competing in Europe.  A key aspect of the CLFFPR regulations is the break-even requirement (hereinafter: BER), which assesses a team’s financial stability over a ‘monitoring period’ (the previous 3 years of a club’s financial accounts), found in Art. 59. 

The BER, which is found in Articles 58 and 64 of the CLFFPR is, in layman’s terms, the obligation for clubs to balance revenues against costs, so as to be compliant with the financial mechanism; which, essentially means, clubs will conform to financial fairplay, so long as they spend what they earn.  They can, however, spend an additional sum, should they choose to (known as ‘the acceptable deviation’).  This sum, which has differed since the regulations were implemented in the 2013/14 season, currently stands at €30 million. 

So clubs can, in theory, pass the BER test if they make a combined loss of up to €30 million, so long as this additional sum is covered through contributions from equity participants (in other words, the owner(s) would have to inject that same figure into the club).  If that sum is not replaced, then the club in question would be in breach of the rules.  This means that break-even isn’t quite break-even in the financial sense, as there is a €30 million maximum aggregate deficit that a club can exercise should they wish to do so (in practice, this tool is relatively commonplace amongst football’s elite clubs). 

Why overstating sponsorship revenue plays a huge factor

Taking all this into consideration, an “overstating of sponsorship revenue in its accounts”, as claimed by UEFA, would play a huge role in the financial leverage of Manchester City, and the power that they would hold within the transfer market.  Having greater revenue subsequently allows the club to spend greater funds in the market, thus being able to acquire the best players and consequently giving the club a greater chance of winning trophies by the end of the season.  This is before you take into consideration the myriad of other long-term effects that this would have (such as the unlawfully acquired player registrations, the potential revenue from competition success etc.). 

This is exactly the kind of behaviour that UEFA have looked to thwart since 2009. The CLFFPR regulations were not simply to save clubs from insolvency and liquidation, it was also to help smaller, and less financially affluent clubs stay competitive.  This seemingly unreasonable yielding of power by Manchester City directly conflicts with the CLFFPR principles and, as such, UEFA had no choice but to distribute a hard-hitting sanction (this is before one even considers their previous dispute with UEFA back in 2014). 

The reasoning behind the awarded sanction

As a result, UEFA found that the 2 year ban and €30 million fine was a commensurate punishment for what Manchester City had been doing over their monitoring period.  From a purely legal standpoint, it is imperative that UEFA set a precedent that deters clubs in the future from contemplating any potential loopholes in the regulatory measures in place.  Of course, stopping that all together is a separate issue, however setting a clear benchmark on what is to be expected should another club fall foul of the BER is crucial to clubs spending within their means and focusing on conforming to the CLFFPR regulations that they are obligated to adhere to. 

The full reasoning, explained in subsection 655(a) of the CAS verdict of the case, is detailed below:

“One must bear in mind that this case represents the most serious, sophisticated, deliberate and fundamental attempt to circumvent and violate basic financial fairplay principles.  Therefore, the imposed sanction must take into account the unprecedented nature of this case in scale, sophistication and duration.  It must take into account the financial volume of this case.  It must consider that MCFC overstated its sponsorship income by amounts exceeding GBP 200,000,000.  It must therefore take into account that when only counting the seasons 2013/14 to 2016/17, MCFC obtained prize money from its participation in the UEFA Champions League at an amount of more than GBP 215.000,000.  It must also consider the attitude of the club, which not only refused to cooperate with the CFCB, but which also gave demonstrably incorrect information and continues to change its explanations.  Moreover, the sanction must punish and serve justice.  It must serve justice not only to MCFC, but also to all other clubs, which – directly or indirectly – suffered from the unfair advantage that MCFC tried to gain.  Other clubs respected the FFP regulations and could therefore not qualify for UEFA club competitions or which competed against MCFC with a financial disadvantage.  The sanction must, in addition, deter other clubs from committing the same or similar violations of the FFP regulations.  The sanction must also ensure that it is proportionate when comparing this case to others.  Indeed, suspensions from UEFA club competitions have already been handed down for much smaller violations.  If one considers all these factors, there can be no doubt: the imposed sanction, i.e. to exclude MCFC from participation in UEFA club competitions in the next 2 seasons and to impose a fine of EUR 30,000,000 is entirely proportionate.”

Why CAS overturned the suspension

The question on everybody’s lips, though, when looking to understand the judgement by CAS, is why the arbitration panel decided to overturn the suspension and reduce the fine.  After a long investigation, strenuous time and effort put in to deliver a precise and judicious verdict, why did CAS suddenly decide to kibosh the 2 year ban? The answer, put simply, is that the alleged breaches “were either not established or time-barred”.

The audited financial statements submitted between 2012 and 2016 concerned the sponsorship contributions derived by MCFC from their partners Emirates Telecommunications Corporation (Etisalat) and Etihad Airways (Etihad).  In the CAS statement, it was stated:

“…equity contributions in an amount of at least GBP 204,000,000 provided to MCFC by its ultimate owner were disguised as sponsorship income so that they would be falsely reflected in the financial statements and counted with the break-even calculation as relevant income for monitoring purposes.”

The disclosure of sponsorship revenue and cash flow is required under sections C (1) and D (1) of Annex VI of the CLFFPR, and provides that clubs present financial information as set out in articles 47, 48 and 52.  The CLFFPR also require, pursuant to Article. 62, that clubs must provide the CFCB with all necessary BER information.  

However, the alleged breaches of the financial statements in 2012 or 2013 proved time-barred by the application of article 37 of the CFCB procedural rules.  This article, titled the ‘Statute of Limitations’, details that:

“Prosecution is barred after 5 years for all breaches of the UEFA Club Licensing and Financial Fairplay Regulations”.

Therefore, any breaches before May 2014 in relation to both the financial statements or the BER, are exempt from being subject to prosecution.  Due to the alleged breaches occurring in both 2012/13 and 2013/14, and concern the statements from then, this of course means that prosecution isn’t possible (the case was brought forward in 2019).  Any breaches vis-à-vis the season commencing 2014/15 however, would not be time-barred. 

Another key facet of the case was the leaked emails containing sponsorship information, reported most prominently by Der Spiegel.  Acquired documents from Manchester City’s computer systems showed that the club contravened the CLFFPR.  Manchester City, however, refused to deny or accept the authenticity of the leaked emails as they were stolen by illegal hacking, thus meaning that they do not comprise admissible evidence. Accordingly, the CFCB procedural rules do not explicitly permit or prohibit to use of illegally obtained evidence, stating that:

“All means of evidence may be considered by the CFCB Chief investigator”. 

 In addition to this, City also argued that it’s “personality rights prevail over the general interest in finding out the truth”.  However, this was contrary to the opinion of UEFA who deemed that

“….public interest outweighs interest of MCFC in seeking to protect the confidentiality of commercial communications.”

Ensuring that the integrity of the sport was maintained in the eyes of stakeholders was a key factor in commencing the case forward, notwithstanding Manchester City’s best efforts. 

The CAS Ruling

Manchester City’s appeal was successful insofar as they managed to overturn their ban, however they were still issued a rather substantial fine for their misconduct. 

The CAS ruling was given as follows:

  • Manchester City contravened Art. 56 of the FFP regulations.
  • Manchester City shall pay a fine amounting to EUR 10,000,000 to UEFA.
  • Manchester City shall pay EUR 100,000 to UEFA for the legal costs incurred. 

Conclusion

It is fair to say that over the last 6 years Manchester City have certainly had their fair share of ding-dongs with UEFA, managing to remain in the legal spotlight one way or another. Their dispute that arose back in 2014 for also failing to comply with FFP rules means that they are no stranger to legal interference.

That being said, on this occasion, Manchester City have managed to defeat UEFA in what was one of the most high-profile cases since FFP began; no easy feat for a club that has already been in the firing line with UEFA previously. This case is a big statement in numerous ways but none more so than in the context of autonomy when it comes to sports governing bodies. The CAS decision to overturn the ban means that there is hope for clubs in the future, and that UEFA’s sovereignty is, if not broken, certainly chipped. Clubs may just start to feel a certain degree of confidence when looking to take legal action against the European powerhouse that is UEFA, potentially resulting in an increase in appeals to CAS in the future.

One can be confident that the MCFC case certainly won’t be the last controversial dispute we see concerning FFP; the question that arises however, is whether we see FFP in the spotlight on a national law scale, rather than simply a sporting one.  Will, for example, clubs take the plunge to try and defeat this financially restrictive tool via competition law, or will clubs continue their acquiescence of the measure in the manner that they already have? Only time will tell. 

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.