Manchester City's reported legal action against the Premier League has the potential to change the face of English soccer.
At a time when the most popular league in the world is trying to clamp down on out-of-control spending, the removal of its Associated Party Transaction (APT) rules could pave the way for never-before-seen excess and, it's feared, ultimately kill competition.
City is already England's most dominant team of recent times, having won six of the last seven leagues and an unprecedented four in a row.
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Backed by the ruling family of Abu Dhabi, it is one of the richest clubs in the world and has spent exorbitantly on star players like Erling Haaland and Kevin De Bruyne. If restrictions over its spending powers were relaxed, City's dominance is only likely to grow, with fewer rivals able to compete.
APT EXPLAINED
The league introduced APT rules in December 2021 after Newcastle was bought by Saudi Arabia's Public Investment Fund.
The rules dictate that commercial deals with organizations linked to a club's ownership represent “fair market value.”
Soccer
Regulations prevent clubs from artificially inflating deals to gain an “unfair advantage over domestic competitors.”
One of City's main sponsors is Abu Dhabi-based Etihad Airways. Saudi-backed Newcastle is sponsored by Saudi firm Sela, which is owned by the PIF.
It is reported that City claims it is the victim of “discrimination.”
WHAT'S NEXT?
An arbitration hearing is reportedly due to start on Monday and will last for two weeks.
If APT rules are proved to be unlawful and scrapped, there is the potential for sponsorship deals to be vastly inflated going forward without regulation from the league.
The concern is the possibility that clubs could take advantage of commercial deals with companies linked to their owners and, if abused, that could artificially distort revenues.
That would be a problem for the league's profit and sustainability regulations (PSR), which are designed to control spending in relation to revenues and currently allow clubs to make losses of up to 105 million pounds ($133 million) over a three-year period.
In its most extreme case, without regulation, a club could hypothetically set the value of sponsorships at any figure that would allow it to meet PSR requirements.
CITY CHARGES
City has been accused by the league of more than 100 alleged rules breaches including financial wrongdoing. If upheld, it could face a fine, points deductions or even expulsion from the league. City denies the charges.
City was banned from European competition by governing body UEFA in 2020 for breaching its Financial Fair Play rules, including “overstating its sponsorship revenue.” The ban was overturned on appeal at the Court of Arbitration for Sport.
COMPETITIVENESS
The Premier League's competitiveness is among the main reasons why it is so popular around the world and earns billions of pounds in broadcast revenue.
At a time when even mega-rich rivals like Manchester United are struggling to compete with City, a strengthening of its already vast spending powers runs the risk of widening the gap between the top and the rest.
Top-flight clubs meet on Thursday for their annual general meeting where, among other issues, a spending cap will be discussed to help increase the competitiveness of the league.
They will be given the chance to trial an “anchoring” system, which will limit clubs to spending only a multiple of the combined prize money and cash from TV rights earned by the last-placed team in the league.
That could reduce the potential spending power of the clubs with the biggest revenues and richest owners.
PSR REFORM
The anchoring principle, if approved, would be part of new financial rules which are set to replace the existing profitability and sustainability regulations from the 2025-26 season.
After a tightening of regulations, Everton and Nottingham Forest were handed points deductions this season for breaching financial rules.
Clubs will discuss at the AGM the possibility of raising the amount of losses permitted to 135 million pounds ($173 million) over a three-year period.