Managaging Reputational Issues

Manchester City is launching unprecedented legal action against the Premier League. The Times has seen sight of legal documents evidencing City’s claim against the Premier League for breaches of competition law.

The action largely stems from the club’s issue with laws on Associated Party Transactions (APTs). These concern sponsorship deals (highly lucrative revenue streams for sports clubs) which are in some way linked to a club’s ownership.

By regulating APTs, the Premier League wants to stop clubs benefitting from inflated commercial deals which exceed a fair market value. Such a scenario can occur when the owner of a club can leverage a business (which they likewise own) to sponsor the club for an exaggerated price.

Indeed, this is important. For instance, the Premier League’s Profit and Sustainability Rules prohibits clubs from spending more than they earn in revenue. So if a club receives an artificially inflated commercial offer, it is afforded the freedom to spend more money.

Manchester City argue the Premier League’s rules in relation to APTs breach competition law. Competition Law in England and Wales is currently governed by the Competition Act 1998. It is designed to ‘make provision about competition and the abuse of a dominant position in the market’. By restricting ATPs, City believe the Premier League are furthering the dominant position of the long-established clubs in the League.

The gulf between the richest, most successful clubs is notable. Out the 20 clubs that constitute the Premier League, the top six make up 57.5% of its collective revenue. City believe this gap largely arises out of certain fundamental advantages which only a few clubs benefit from.

For example, clubs with more successful histories can accrue larger fanbases over longer periods of time, and can therefore enjoy financial advantages in the form legacy benefits. In another example, London clubs are generally able to charge a price premium because of their geography. Manchester City argue that APTs help clubs make up for those inherent differences.

The Premier League’s decision to tighten APT rules came into force following a majority agreement of its shareholders in February, part-way through the 2023/24 season. Manchester City argue it is not possible to properly cost out rule changes – in terms of impact and unintended consequences – introduced mid-way through a season, and points to the negative effect it may have on future investors who are generally adverse to ad hoc infrastructural changes.

Manchester City (who saw record profits last season) are also seeking damages. The club believes that ATP rules are so restrictive they have severely hampered or even lost out on lucrative commercial deals. City also allege the League discriminates against clubs with ownerships from Gulf states. Newcastle United – a recent acquisition of a Saudi Arabian consortium – may keep eye on the fallout of that particular allegation.

An arbitration hearing has begun this week and could run until 21 June. It will be heard in private, as will its outcome. Should the hearing fail, City may pursue its allegations through the courts, which has the potential to cause major legal repercussions , and may cause damage to the club’s reputation.  Changes to competition law kicked off by one of the world’s biggest competitions may be on the horizon.