Football fans will have noticed by now the announcement by the UEFA Adjudicatory Chamber that Manchester City will be banned from taking part in the Champions League for the next two seasons, and was also fined €30 million as well for severe breaches of the UEFA Financial Fair Play (FFP) Regulations. This is something which has had significant ramifications not just for City, but also for the Premier League, European football, and the wider football industry as well. So in this post, I will attempt to lay out what happened to City, why they were banned, and what City’s options are moving forward.
What is the UEFA Financial Fair Play Regulations?
The FFP Regulations were introduced by UEFA in 2010, and came into effect in the 2012/13 season, as an attempt to stabilise the financial landscape within European football following an alarming increase in the losses incurred by clubs within UEFA’s jurisdiction, which in 2011 measured approximately €1.67 billion.
Article 58, often considered the most critical section of the FFP Regulations, is the ‘break-even requirement’. This states that clubs should have an overall break-even surplus – an excess of relevant income over relevant expenditure over a rolling three-season period. Despite this, Article 61(2) permits a certain level of allowable losses, up to €30 million if these losses are covered by equity participants or related parties (i.e. shareholders/owners).
The relevant income (Annex X of the Regulations) included the break-even requirement is calculated as the sum of all football-related activities within a club, such as 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 conducted by the club. This includes income coming from related parties, which must be of ‘fair value’ or it will be excluded for the calculation.
Annex X of the FFP Regulations also defines relevant expenses for the break-even requirements: they include transfer fees, football-related operating expenses, wages and salaries and finance costs. Clubs are allowed to subtract costs related to youth development activities, community development, women's football, infrastructure spending, all of which UEFA has expressly excluded from the calculations to encourage clubs to invest in their infrastructure and development.
A related party is defined in Annex X Part F of the FFP Regulations as a ‘person or entity that is related to the entity that is preparing its financial statements’; the focus is on the substance of the relationship rather than its legal form. Thus, anyone who has control or joint control over a club’s activities and is involved in the preparation of its financial statements will be covered.
The Case Against City
In 2014, City was initially found to have been breached FFP and was fined €49 million and had transfer bans and squad size restrictions imposed. The breach related to sponsorship deals signed with parties which were found to be closely associated with the club’s owners. For instance, a £400 million, ten-year contract with Etihad Airways was found to be against the rules as Etihad’s chairman was the half-brother of Sheikh Mansour Bin Zayed al Nahyan, the owner of Manchester City. This deal was considered contrary to the ‘fair value test’ applied in assessing the market value of sponsorship arrangements and transactions with related parties, that any such contracts must not be overly inflated and must be comparable to other similar sponsorship deals. The reason for this is to prevent owners able 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 Rui Pinto, the Football Leaks hacker, that City and their sponsors manipulated contracts to circumvent Uefa's Financial Fair Play (FFP) regulations. The German news magazine says the club allegedly misled Uefa by not revealing they had directed money to the club from Abu Dhabi owner Sheikh Mansour via sponsors linked to him and artificially inflated the value of their commercial income to help meet FFP rules requiring clubs to break even.
In light of this new evidence, UEFA began a further investigation into the claims in March 2019 which resulted in the 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 launched an immediate appeal to the Court of Arbitration for Sport (CAS) against the CFCB decision, which they needed to do so within ten days of the decision. This could likely result in provisional measures being imposed, e.g. a suspension of the ban while the hearing takes place, similar to what happened to Barcelona when they unsuccessfully appealed against the transfer ban in 2015 when the 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 on the facts presented.
Traditionally CAS hears cases behind closed doors as privacy is a fundamental principle of arbitration proceedings and the many parts of the world of sport embrace this privacy. But since a decision of the European Court of Human Rights in late 2019 in a case involving Adrian Mutu (the former Chelsea and Romania footballer), and Claudia Pechstein (a German speed skater) which stated that where a defendant requests it, CAS must allow for public hearings. This is part of Article 6 of the European Convention of Human Rights (ECHR) which states that everyone must be entitled to a fair trial, which includes those conducted by private law bodies, such as UEFA, FIFA and CAS. Whether the hearing is a public one or not will provide an insight into City’s confidence around the strength of their case.
Should City lose their appeal at CAS, then their only remaining course of action would be to appeal to the Swiss Federal Tribunal which is allowable under CAS rules. The reason it is at the Swiss Supreme Court is that as UEFA, FIFA and CAS are all under the jurisdiction of Swiss law. This is something which is agreed with participants when they enter agreements to enter competitions, the contract they enter into will include how any disputes will be resolved and will state what law will be applicable in the event of a dispute (a jurisdiction clause). Although this option would be open to them, they can only do so on very limited grounds such as a lack of jurisdiction (e.g. CAS did not have the power to hear the case), procedural failings in the hearing process (e.g. breach of a participant’s Article 6 ECHR rights), or the decision may be incompatible with public policy. On the facts of the case as we know them, it appears unlikely that any of these would apply, so should City lose at CAS then they would have to accept the ban.
Could City Challenge the Legality of the FFP Regulations?
Theoretically, yes. Although they would be unlikely to succeed as the FFP Regulations have already been unsuccessfully challenged in the European Court of Justice (ECJ) by Danielle Striani, a Belgian football agent in 2014. Striani challenged the FFP Regulations on competition law grounds as he believed that the FFP Regulations disproportionately restricted clubs transfer spending, and thus restricted the agent's potential income through reduced transfer activity. ECJ rejected this argument and stated that the FFP Regulations were not a disproportionate regulatory response to the financial stability of European football, but encouraged innovative competition and financial stability of member clubs. Additionally, Brexit may also affect their ability to bring any challenges in the European courts. So, all in all, City's options are limited.