Manchester City legal challenge prompts Premier League to reconsider associated party transaction rules

The legal challenge, brought by Manchester City Football Club against the Premier League, centred on the Premier League’s APT rules relating to clubs’ commercial deals linked to their owners, and the application of the rules in some of the deals Manchester City submitted to the Premier League for approval.

Restrictions on fair market values (FMVs) were introduced in December 2021 as part of the APT rules, giving the Premier League the right to assess the value of a club’s commercial deals involving associated parties to ensure they have not been inflated. This is aimed at addressing the Premier League’s concern that an inflated deal involving a club’s owners could give the club more to spend under its current financial fair play rules, known as the Profit and Sustainability rules (PSR).

Amendments to the APT came into force in February 2024. The changes include shifting the burden of proof as to whether a transaction is at FMV from the Premier League to the club and extending the period for making a FMV assessment from 10 days to 30 days.

However, under both the original and amended APT rules shareholder loans, where shareholders or 'associated parties' lend to the clubs they own at preferential rates or interest-free, are excluded from the restrictions.

The tribunal found that shareholder loans should not be excluded from the scope of APT rules and that some amendments made in February by the Premier League, aimed at tightening the interpretation of FMV in commercial agreements, should not be retained. It said that they are unlawful and in breach of the UK’s Competition Act 1998.

It also ruled that several aspects of the APT rules are procedurally unfair and, therefore, unlawful. For example, Manchester City’s inability to comment on the comparable transaction data relied on by the Premier League before it determines whether a transaction is at a fair market value is procedurally unfair.

Julian Diaz-Rainey, sport disputes specialist at Pinsent Masons, said: “This ruling brings into focus yet again the need for an independent football regulator to be empowered within the Football Governance Bill to address these issues.”

The Football Governance Bill was introduced in Parliament in March this year. It aims to establish an independent football regulator to oversee clubs in England’s top five men’s leagues and make provision for a licensing and regulatory regime requiring clubs to satisfy certain financial and governance requirements. Following a fan-led review, the previous government cited shortcomings in the current model of industry self-regulation as a factor in the case for reform.

Gabrielle Armstrong, another sports disputes expert at Pinsent Masons, added that now is a time for the Premier League to take this “opportunity” to conduct a thorough and detailed consultation with its clubs.

The Premier League has reportedly said that it would change the two aspects that the tribunal ruled against it on, such as integrating shareholder loans to the APT rules and removing some of the amendments, through a process that can allow the Premier League and clubs “to enact those specific changes quickly and effectively”.

“Whilst it looks like the Premier League wants to act quickly and administer the rule changes without delay, I think it should use this opportunity to hold a detailed consultation with all of its member clubs. Through this process, the Premier League should ensure the APT rules are not anti-competitive and fundamentally are in line with the overriding objective of the rules which are to safeguard the financial stability, integrity, and competitive balance of the league,” said Gabrielle Armstrong.

At least 13 Premier League clubs are thought to be potentially affected by this ruling, as their interest-free loans from the owners of their clubs could now potentially fall within the scope of the APT rules, if amended. This means clubs could now be hit with additional costs that they were not anticipating, as their shareholder loans could be subject to commercial market rates of interest. According to Sam Ballin, an associate in the sports disputes team at Pinsent Masons, this ruling could have major financial ramifications for those clubs that owe tens, or even hundreds, of millions of pounds to their owners, with some clubs in danger of breaching the PSR rules, potentially leading to further legal challenges with the Premier League.

“Any clubs who have been in the Premier League from 2021 and have had their commercial deals blocked by the governing body under the APT rules, which have now been deemed null and void, may be able to pursue claims against the Premier League for damages,” said Sam Ballin.

In the tribunal ruling, the arbitrators touched on the fact that declaratory relief, injunctive relief and damages have been sought by Manchester City. Although the panel did not hear submissions as to the injunctive relief and damages, they noted that “the parties should have the opportunity to consider what, if any, further relief is appropriate in the light of our conclusions”.