Levelling the playing field: new Premier League financial control measures

The new rules, introduced on 14 December 2021, require all clubs to prove that their commercial deals with ‘associated parties’ represent fair market value (FMV). Other rules relating to the remuneration of players, managers and officials have also been introduced which, notably, extend to any benefits or payments received from associated parties. This change is aimed at avoiding secret payments being made to these individuals by business partners or sponsors related to the club.

In October 2021, following the Newcastle deal, a temporary moratorium was imposed by the Premier League on new commercial arrangements agreed between clubs and businesses linked to their owners. The ban was prompted by fears that Newcastle would be able to secure favourable partnership deals with Saudi entities, strengthening their spending potential within the transfer market and leading to an alleged unfair advantage over other clubs.

The temporary ban was lifted following the introduction of the new rules, which were backed by all Premier League clubs other than Newcastle and Manchester City. Clubs can now enter into associated party transactions provided that they represent FMV, and that the club seeks prior approval from the Premier League before proceeding with the transaction.

We understand that the approval process will require clubs to submit evidence to support their FMV assessments. The board of the Premier League will then obtain advice from an independent assessor when considering that evidence. The new rules also provide for the creation of an anonymised databank of all previous commercial transactions, including European transactions, entered into by Premier League clubs. This information can then be used by the board to compare values before granting approval to a transaction.

Under the Premier League’s Profit and Sustainability Rules (PSR), which promote financial fair play (FFP), clubs are permitted to make a loss of up to £105m over a three-year period. Additionally, clubs will now be required to submit details of commercial deals worth more than £1m to the Premier League, which will then consider whether it is an ‘associated party’ transaction. If so, the transaction will be subject to the FMV process.

The Premier League hopes that the new controls will prevent clubs from circumventing the PSR by artificially inflating their sponsorship incomes through owner-related deals, allowing them to increase their spending capacity in the transfer markets and so attract the best players.

Further guidance needed

Objections raised by some clubs during the consultation process included concerns that the proposals were anti-competitive, as well as being too broad and lacking in detailed guidance as to their application. In particular, there were concerns that the definition of ‘associated party’ under the new rules gives the Premier League potentially unfettered discretion in determining transaction approvals, as it allows the league to consider the substance of the relationship between a club and the associated party in determining whether the transaction falls within the definition.

Concerns were also raised about the retrospective nature of the rules, given deals entered into within the preceding three years are caught. Objectors referenced the potentially unfair impact on clubs which have ongoing relationships in place with parties that now fall under the ambit of ‘associated party’. These clubs could face not only commercial but also potential legal issues, depending on the nature of these commitments.

There were also concerns that the implementation of the transaction databank will enable the Premier League to access details, albeit in anonymised form, of commercially sensitive transactions across all league clubs to ensure that new deals are matched against similar deals by clubs of the same or comparable size. Some club executives, as well as fans, have apparently argued that use of the databank would effectively see clubs placed into categories when, across the 20 clubs, there is likely to be significant variations in the scope, application and mechanism of sponsorship and other third party commercial arrangements.

These concerns raise further questions about whether the databank approach places too much emphasis on historic transactions, which would inevitably have been valued differently to newer transactions that are negotiated in subsequent years. Arguably, historic transactions are not necessarily reliable benchmarks for current FMV assessments. As we understand it, no guidance has been forthcoming from the Premier League to clarify how the data will be harmonised between clubs to ensure it is of comparable value.

Prejudice risk to smaller clubs

Although the new financial control measures aim to bring greater transparency to financial arrangements, they risk unfair prejudice to smaller clubs trying to compete with their more established, richer counterparts.

Rather than aiming to level the playing field for clubs, there is a risk that the new requirements will drive a further wedge between lower tier clubs within the Premier League and their top tier competitors, who already benefitted from heavy investment before the rule changes were ever contemplated. Inevitably, such heavy investment will have enabled the top clubs to bolster the FMV of key assets, guaranteeing further financial stability when future transactions are contemplated under the new rules.

Next steps for clubs

Clubs must be aware of the consequences of breaching the new rules. Where the relevant transaction has not been executed, and the board of the Premier League determines that it is not at FMV, execution will not be permitted at a value other than the board’s determined FMV valuation. Where the transaction has been executed, the club must take all necessary steps to end or vary the transaction to ensure the total value of the consideration received is not above FMV.

Clubs should be proactively reviewing their commercial contracts, and should start to monitor negotiations that lead to transactions that will be reviewed against the new measures. Given their retrospective effect, the review should include assessing transactions completed in the preceding three years. Particular focus should be given to any confidentiality provisions, to determine whether any third party consents are required to enable the disclosure of data to the Premier League’s new databank.

Training programmes for the clubs’ commercial teams may also be needed, in order to identify and address any issues in applying the new financial control rules.

Co-written by Georgia Tetlow of Pinsent Masons