Manchester City versus the Premier League: arbitration proceedings kick-off

In recent weeks, Manchester City has initiated a legal challenge against the Premier League's Associated Party Transaction (APT) rules, with arbitration proceedings expected to last two weeks. Manchester City alleges that the APT rules are unfairly discriminatory, anti-competitive and represent a "tyranny of the majority". The arbitration commenced on 21 June and occurred in private.

What are APT rules?

At a high level, an APT is a commercial deal between a club and an entity linked to the club; for example, through shared ownership. The Premier League's APT rules, introduced in 2021 following Newcastle United's takeover by a Saudi-led consortium, have two main objectives. They aim:

• to ensure the long-term financial stability of clubs by reducing reliance on enhanced commercial revenues from linked entities; and
• to promote fairness among clubs by preventing them from gaining an unfair advantage over rivals through revenue inflation or cost reduction via arrangements with linked entities.

In practical terms, clubs must submit each APT to the Premier League's board of directors for a "Fair Market Value (FMV) assessment, which ensures that the transaction reflects the value that would be agreed upon by knowledgeable and willing parties in an arm's length transaction under normal market conditions. The aim is to prevent clubs from receiving income at levels not available to their competitors on the open market by inflating commercial deals with associated entities.

If a transaction is deemed by the board to exceed the FMV, the club must either terminate the transaction or return the excess to the counterparty (the excess being the difference between the actual consideration being received by the club and the FMV as determined by the board).

Manchester City's complaint

The UK newspaper, The Times, has reviewed a leaked 165-page legal document submitted by Manchester City, detailing its claim, which argues that the club is victim of "discrimination" and that the APT rules were "deliberately intended to stifle commercial freedoms of particular clubs in particular circumstances and thus to restrict economic competition".

Manchester City has complained of a "tyranny of the majority," which likely references the Premier League's voting system that allows rule changes affecting all clubs to be implemented with the agreement of 14 out of the 20 Premier League clubs. Manchester City is seeking damages for losses claimed to have been incurred due to the alleged unlawfulness of the APT rules, particularly concerning the FMV assessment.

This challenge, which will be heard in the autumn, comes against the backdrop of 115 charges made against the club by the Premier League, largely related to alleged financial misconduct. While the APT rules challenge is not directly related, Manchester City hopes to build momentum and control the narrative leading into the autumn hearing.

While some clubs hold a more moderate position, seeking reform rather than complete abolition of the APT rules, The Lawyer has reported that it is understood that most of the Premier League clubs are broadly siding with their league.  That said, there are no indications that any Premier League club has directly intervened in the case or is due to appear as a party in the arbitration (other than Manchester City).

If Manchester City is successful and the APT rules are declared unlawful, they could be removed from the Premier League's rulebook. This would allow clubs to negotiate commercial deals with associated entities without the need for a FMV assessment.

Osborne Clarke's comment

Manchester City's strained relationship with the Premier League is well known among football fans and sports lawyers alike. The specific allegations and precise legal bases for Manchester City's claim in the document referenced by The Times are not (yet) in the public domain. However, it is likely that Manchester City will be relying on Chapter 1 of the Competition Act 1998, which prohibits agreements that have as their object or effect the prevention, restriction or distortion of competition. Manchester City are likely to argue that the APT Rules constitute an anti-competitive agreement among Premier League clubs, contrary to the Chapter 1 prohibition.

Premier League clubs are keenly awaiting the outcome of the arbitration proceedings. If Manchester City's challenge is successful, it could pave the way for lucrative sponsorship deals, especially for clubs owned by wealthy commercial owners or with links to oil-rich states. Other professional sports leagues should closely monitor this challenge, as a successful outcome for Manchester City could mean that league bodies need to ensure they do not impose commercial restrictions on teams' abilities to negotiate deals with associated entities.

Osborne Clarke has a track record of representing companies on high-profile competition law cases in the UK and across Europe.  If your club needs competition law advice, please contact one of our experts listed below.

This article was produced with the assistance of James Lister, Solicitor Apprentice.