Manchester City and UEFA Financial Fair Play – What Happened? Why? And What’s Next?

Football fans will have noticed the news regarding the expulsion of Manchester City from UEFA competitions for two seasons for breaches of the UEFA Financial Fair Play (FFP) Regulations. In this piece, I will attempt to briefly explain what happened and why, and what the potential next steps could be.

What is FFP?

FFP was introduced by UEFA in 2010, coming into effect in the 2011/12 season, to attempt to promote better financial management within European football following alarming increases in the losses incurred by clubs, which in 2011 measured approximately €1.67 billion.

Article 58 of FFP refers to the ‘break-even requirement’. This states that clubs should have an overall break-even surplus over a rolling three-season period. Although, Article 61(2) permits allowable losses up to €30 million if these losses are covered by shareholders or owners.

The income included in the break-even calculation covers gate receipts, sponsorship revenue, broadcasting rights, commercial activities, UEFA prize money, transfer fees received, and all other operating income related to the football-related activities by the club. Also, it includes any income from related parties, which must be of ‘fair value’ or it will be excluded for the calculation.

A related party for FFP purposes is ‘a person or entity that is related to the entity that is preparing its financial statements’; the substance of the relationship is important rather than its legal form. Thus, anyone with control or joint control over a club’s activities and is involved in preparing its financial statements will be covered.

Allowable expenditure for the break-even calculation includes transfer fees, football-related operating expenses, wages and salaries and finance costs. Clubs can subtract expenses related to youth development activities, community development, women’s football, and infrastructure spending, all of which has been excluded to encourage clubs to invest in these areas.

The Case Against City

In 2014, City was fined €49 million and had Champions League squad size restrictions imposed for FFP breaches. This related to sponsorship deals found to be closely associated with the club’s owners. For instance, a £400 million, ten-year contract with Etihad Airways was found to fail the related party rule as Etihad’s chairman was the half-brother of Sheikh Mansour Bin Zayed al Nahyan, the owner of Manchester City. This deal (and others) was also found contrary to the ‘fair value test’ in assessing the market value of sponsorship arrangements with related parties, meaning any such contracts must be comparable to other similar sponsorship deals. This is to prevent owners from artificially inflating sponsorship deals as a way of investing further funds into a club as a way of maintaining a semblance of competitive balance.

However, in November 2018 Der Spiegel found evidence provided to them by the Football Leaks hacker, that City and their sponsors manipulated contracts to circumvent FFP. Der Spiegel claimed the club misled Uefa by not revealing they had directed money to the club from Abu Dhabi owner Sheikh Mansour via sponsors linked to him, which artificially inflated the value of their commercial income to help meet the FFP break-even requirement.

As a result, in March 2019 UEFA began an investigation into the claims which resulted in a referral to the UEFA Club Financial Control Body (CFCB), the UEFA body responsible for handling the most severe disciplinary disputes. After various legal challenges, the CFCB announced its decision on 14th February to impose a ban on City.

What are City’s Options?

Predictably, City has announced it intends to appeal to the Court of Arbitration for Sport (CAS) against the CFCB decision, which they need to do within ten days of the decision. The CAS appeal route is something which forms part of any participation agreement that clubs enter into when they enter UEFA competitions. This may result in provisional measures being imposed, e.g. a suspension of the ban while the hearing took place, similar to the Barcelona case in 2014 when their transfer ban was delayed while the appeal hearing was heard. The CAS appeal will be a new full hearing of the facts of the case and a new decision made on the facts presented.

Should City lose at CAS, then their only remaining course of action would be to appeal to the Swiss Federal Tribunal. The reason for that is that CAS is under the jurisdiction of Swiss law. This is something which is part of the CAS rules. Although this option would be open to them, they can only do so on limited grounds such as a lack of jurisdiction, procedural failings in the hearing process or the decision is incompatible with public policy.

Could City Challenge the Legality of the FFP Regulations?

Theoretically, yes. Although they would be unlikely to succeed as FFP has been unsuccessfully challenged in the European Court of Justice (ECJ) by Danielle Striani, a Belgian football agent in 2015. Striani challenged FFP on competition law grounds as he believed that FFP restricted clubs transfer spending, and thus restricted an agent’s potential income through reduced transfer activity. ECJ rejected this and stated that FFP encouraged innovative competition and financial stability of member clubs and was not a disproportionate response to financial instability in European football.

Article written by Mark O’Neill, research contracts paralegal at UCL and current LLM Sports Law student at De Montford University. Mark also helps various County Football Associations with disciplinary panel work.