Fair play or foul play?
Manchester City have appealed to the Court of Arbitration for Sport against decisions taken by the UEFA Club Financial Control Body regarding City’s alleged non-compliance with UEFA's Club Licensing and Financial Fair Play Regulations.
The Club Licensing and Financial Fair Play Regulations (“the Regulations”) were introduced in 2011 to control club spending or “financial doping” within the football industry. UEFA considered the level of debt incurred by clubs to be unsustainable with total losses amounting to over EUR 5 billion between 2008 and 2011. The Regulations aim to improve the economic and financial capability of UEFA clubs, increasing their transparency and credibility and to encourage responsible spending for the long-term benefit of football.
The Regulations are enforced by the Club Financial Control Body (“CFCB”), which is comprised of an Investigatory Chamber and an Adjudicatory Chamber. Eligible clubs are monitored using certain criteria including the “break-even requirement.” In order to comply with the break-even requirement, club losses must be kept within EUR 5 million over a three-season period. Losses can be increased up to a final maximum amount of EUR 30 million provided that the excess is entirely covered by contributions from the club’s owners or related parties. “Relevant income” for the break-even calculation includes gate receipts, broadcasting rights, prize money and sponsorship (i.e. “pure” football income).
UEFA launched their investigation in March 2019 after internal emails published by German magazine Der Spiegel were alleged to show the club had inflated its sponsorship agreements in 2013 in order to meet the break-even requirement. Most notably, it is alleged the value of its main sponsorship, Etihad, had been significantly increased by investment by the club’s owner, Sheikh Mansour bin Zayed Al-Nahyan of the Abu Dhabi ruling family.
The Regulations allow sponsorships by companies connected to owners, but only if they are for “fair value”, being the amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction. Der Spiegel’s report alleged some of the Abu Dhabi sponsorship contracts were valued at three times more than their “fair value.”
Instead of concluding a settlement agreement with the Club, the investigatory arm of UEFA’s CFCB referred City to its Adjudicatory Chamber in May. City have denied any wrongdoing, and have appealed to the Court of Arbitration for Sport (“CAS”) to throw out the case. The club claims the emails were stolen and their contents taken out of context.
Under the procedural rules governing the CFCB, clubs have the right to appeal a final decision of the CFCB but there is no scope to appeal the decision to refer the case to the Adjudicatory Chamber. This was confirmed by CAS in 2018 in AC Milan v. UEFA (CAS 2018/A/5808). Accordingly, a successful appeal in relation to the referral seems unlikely.
Meanwhile, City awaits the decision of the CFCB. Sanctions for failure to comply with the Regulations range from warnings and fines to spending restrictions and competition bans, meaning, if the allegations are proven, City could face the prospect of expulsion from the Champions League in 2020. A decision of this kind would be one of the most high-profile and controversial since the adoption of the Regulations. In any event, the investigation indicates UEFA’s determination to achieve its objectives and serves as a warning to any club that may be tempted to manipulate its contracts.
For more information please contact Tessa Newman on +44 (0)20 7203 8843 or at Tessa.Newman@crsblaw.com.