Manchester City have been found guilty of all charges relating to serious breaches of financial rules, and of all but one charge concerning a failure to co-operate with the Premier League’s investigation. The findings come in a 40-page ruling from an independent commission, published on Tuesday, which catalogues how the club’s Abu Dhabi owners moved money into the club while presenting it as commercial income.
The ruling describes a club whose owners, Abu Dhabi United Group, understood from the start of the 2009-10 season that reaching the level they wanted would require major overspending. Total losses for that campaign were going to exceed what was then the record single-season financial loss by a Premier League club — Chelsea’s £140m in 2006 — a mark the City owners were adamant the club should not break. The club also knew it would likely keep suffering large losses for at least the following five seasons, just as both Uefa and the Premier League were preparing to introduce financial fair play rules.
With that pressure building, the ruling says the only realistic route was to increase commercial revenue significantly and reduce the club’s reliance on its owners. From early 2010, City began entering sponsorship agreements worth record amounts and significantly above fair market value. The mechanism, described in the document as the Disguised Funding Scheme, split each deal into two parts: a base fee paid by the sponsor, and a “tagged sum” paid by the club’s owners. Sponsors therefore did not have to fund the full value of the contract, while the owners covered the vast majority — money that in turn enabled investment in players.
The scale is set out in the ruling’s figures. Commercial income from sponsors totalled £949.94m across the seasons from 2009-10 to 2017-18, but only £119.25m of that represented base fees. A total of £830.69m was made up of tagged sums paid by the club’s owners. The commission found the arrangement “gave the misleading impression to third parties (including regulators and its auditors)” that City’s commercial revenues from sponsorship were “far, far greater than was in fact the case”. The scheme was also tweaked periodically to “assist with continued concealment” and to “reduce the likelihood of difficult questions being asked”.
City denied the claims, arguing that the Premier League had misunderstood the sponsorship agreements. The panel rejected that explanation as untrue, describing it as “concocted well after the event in an attempt to obscure and conceal the realities of the disguised funding scheme”.
The ruling offers a concrete example of the mechanism in action. In May 2013, less than a week before the end of the 2012-13 financial year, the club realised it was £9.9m short of complying with Uefa’s financial rules. Within days, and without sponsors even being approached, a series of modified sponsor agreements was generated that increased recorded sponsorship fees in order to pay bonuses for events that had already taken place and to pay for a US tour. The feared Uefa shortfall was, in the ruling’s word, “plugged”.
A second strand of the club’s financial engineering came through Project Longbow, launched in 2012. The ruling accepts that many strands of the project were genuine, legitimate attempts to raise revenues and cut operating losses. One was not. The Fordham Arrangement, an agreement between City and a third party called Fordham, was described as “little more than a front”. Funds from the club’s owners were used to enable Fordham to acquire, at a sizeable and artificially inflated price, the club’s entitlement to benefit financially from its players’ image rights. The commission called it a “further device by which funds could be paid into the club in a manner that concealed their true origin”, which “enabled the club to pretend that such funds represented operating income”. As a result, £24.5m was wrongly recorded as operating income and £49.414m was wrongly excluded from operating expenses. The arrangement, the ruling says, was operated with the knowledge and approval of a number of individuals whose names have been redacted.
The club also moved expensive contracts for players and managers off the books by paying remuneration through third parties, when in reality the owners were funding it. This was “instead recorded in a consultancy agreement” and “concealed the true extent of the club’s liabilities”. Three separate cases are attributed to this method — all names redacted, and potentially to be published when the full written reasons are released — involving payments of £8.866m, £7.4m and £0.5m.
The ruling is equally damning on the club’s conduct during the investigation. It states that “by its conduct the club clearly intended to circumvent the Premier League rules” and “made concerted efforts to stop and frustrate the Premier League investigation”. City submitted witness statements or documentary evidence from 24 individuals, most of whom gave evidence at the hearing. The commission found that evidence given by a number of important factual witnesses “was false in a number of key respects”, and that certain witnesses provided evidence “that they knew to be untrue and so had been dishonest”. It also concluded that City knew its annual accounts “did not provide a true and fair view of the financial position” and that the club “was reckless as to whether those annual accounts provided a true and fair view”. Taken together, the ruling says, this showed City failed to act “with utmost good faith” and “breached duties of co-operation that it owed to the Premier League”.
Those findings on honesty and integrity could carry consequences beyond this case: the new Independent Football Regulator is able to examine the honesty and integrity of directors and owners. No individuals have been named so far, leaving the position of those referred to in the ruling unclear.
Across the seasons from 2009-10 to 2017-18, the ruling sets out how the club’s financial statements failed to show a true and fair view of its position: sponsorship income overstated by more than £830m; expenses wrongly excluded through contracts and image rights of £8.866m, £7.4m and £0.5m; and, through the Fordham Arrangement, £24.5m wrongly recorded as operating income and £49.414m wrongly excluded from expenses. The total: £920.68m.