Man City's lawsuit against the Premier League, explained

Just weeks removed from winning their fourth consecutive Premier League title, Man City are suing the Premier League.

The Times reported late last week that the club are challenging the Premier League's Associated Party Transaction (APT) rules, which determine whether sponsorship deals are financially “fair” in the eyes of the league. An arbitration tribunal will hear the case today, and its decision – which is expected to be made within the next two weeks – could change the fabric of English soccer forever. Here’s how:

What are APT rules, anyways?

The Premier League's ATP rules were originally introduced in 2021 following the Saudi-backed takeover of Newcastle United. The rules are designed to prevent “associated parties” from agreeing to sponsorship deals that exceed fair market value.

Let’s say that I strike it rich with this newsletter and am able to purchase my favorite club, Arsenal. I’m fucking sick and tired of City winning the league, so I’m obviously going to pour tons of money into the club to purchase the best players possible. But, under the Profit and Sustainability Rules (PSR), I’m limited in how much I can contribute as a percentage of the club’s revenue.

Fortunately for me, sponsorship deals are part of revenue, and as the owner of both Stoppage Time and Arsenal, I facilitate a $200 million-a-year sponsorship in which the Stoppage Time logo prominently displays on the club’s kits.

I could then in turn spend this additional revenue on big-name players (Victor Osimhen, anyone?), and return the Premier League title to North London for the first time since 2003-04.

But there’s one problem here, and it’s not that I don’t have $200 million. As a single person who exercises “significant control” over both Stoppage Time and Arsenal, I’d be considered an “associated party,” and thus banned from making the transaction under the APT rules. Since this would be considered an “associated party transaction,” it would be subject to “fair market value,” the nebulousness of which is at the heart of this lawsuit.

Who decides what is “fair market value”?

Not Man City supporters, apparently. There are companies that specialize in determining if a transfer is “fair” by benchmarking the value of the deal against comparable deals at similar clubs. The Premier League board has approve every transaction, so they leverage these independent auditors to assess each deal’s “fairness.”

City are, evidently, not fans of this. The club submitted a 165-page document to the league which argued that even sponsors with ties to their owners should be free to decide for themselves how much their sponsorship should be worth. City are contending this on the basis of the APT rules violating UK competition law.

This is of grave interest to City, who are owned by the Abu Dhabi-based United Group and have a number of sponsorship deals companies tied to their owners, most notably Etihad Airways.

The lawsuit, which is in response to the league’s tightening of the ATP rules in February, is not just seeking to repeal these rules. City are also seeking damages for lost revenue, which further underscores just how influential the outcome of this case will be on the future of the sport – both in the Premier League and beyond.

What does this mean for the sport’s future?

Should the arbitration tribunal side with City, its impact will be far-reaching. Firstly, owners will be free to inject as much money as they wish into their club via sponsorship deals, effectively enabling associated party transactions to bankroll a club to whatever extent the owner can stomach the losses.

This means that City could theoretically sign any number of uncapped sponsorship deals that tap into just a sliver of the $159 billion in assets owned by Abu Dhabi’s sovereign wealth fund, who own Etihad Airways. This would make it even easier for City to snatch up all the world’s top players, significantly altering the talent disparity in the Premier League.

Such a ruling could also upend the European order, as many clubs operate as nonprofit entities (e.g. Real Madrid, Bayern Munich) or are publicly owned (e.g. Man United). These clubs would not be able to artificially inflate their revenues through associated party transactions like City.

Cooking the books is, of course, nothing new in soccer. City were hit with 115 charges of breaching Premier League financial regulations during a nine-year period last February, and Chelsea came under scrutiny last week for a £76.3 million deal by their owners to sell two hotels at Stamford Bridge to another company they own, enabling them to avoid PSR breaches.

Yet, this time things feel different. 🤔 

Setting a dangerous precedent

This current Man City team are perhaps the best in English history, with six titles in seven seasons, a European treble, and more top players than any team in Europe outside of perhaps only Real Madrid. They have spent €1.94 billion in player transactions over the past ten years – more than any other team but Chelsea.

And this still isn’t enough!?

The Premier League, which is an association of the 20 member clubs, has historically settled things in-house, with any disputes resolved via majority vote. By circumventing this process, City are potentially setting a dangerous precedent: don’t like something? Just sue!

I guess the Americanization of the Premier League is further along than we all thought. 🇺🇸