From court to handshake: The significance and aftermath of settlement between Premier League and Manchester City APT dispute

Manchester City and the Premier League announced on Monday that the two sides reached a settlement on the legal dispute over the rules of the top league related party transactions (APTs).

A bigger battle is still brewing - more than 100 allegations against Manchester City are still pending, shrouding the entire league - but it marks a key turning point in the legal battle between the Premier League and the eight-time champions.

This compromise avoids the extreme result of "the rulebook is completely overturned".

The two parties announced in a statement with complete consistency that they had reached a settlement on the accounting methods, review procedures and rules for related party transactions written into league terms.

The statement mentioned: "The Premier League and Manchester City Football Club have reached a settlement on the arbitration initiated by the club against the trading rules of the Premier League earlier this year, so the parties agreed to terminate the relevant legal proceedings."

"This settlement ends the dispute between the two parties regarding the trading rules of the related party. As part of the settlement, Manchester City recognizes the effectiveness and binding force of the existing trading rules of the related party."

"The two parties have agreed not to make any further comments on the matter."

Although the two parties reached an openly silent agreement, the details in the settlement agreement may have a significant impact on the future and governance of the league. Here is what we know so far and what it means.

What is an affiliate transaction (APT)?

The abbreviation seems to be an abstract term exclusive to lawyers and accountants, but in fact it has a simple meaning.

Affiliate Party Transactions essentially refer to any transactions reached between a club and a company that has co-owners or investors.

Its operating mechanism is that any transaction with a company or individual holding a significant economic or other interest in the relevant club must be reviewed by the Premier League's Fair Market Value (FMV) filtering system before it can be approved.

clubs need to submit their commercial agreements confidentially to the Premier League, while the Premier League uses records of other past transactions to determine whether the value of the agreement has been improperly raised.

If the agreement is found to be imbalanced in value, the Premier League will readjust to prevent the market from being distorted through preferential terms and avoid the club from gaining improper economic advantages.

Why did the Premier League initially formulate these rules?

Since the first introduction of the Financial Fair Competition (FFP) rules in 2013, such transactions with related third parties have received close attention.

The reason for setting the rules is that a mechanism must be established to prevent clubs from obtaining additional financial space by entering into deals with affiliates.

However, in December 2021, just two months after Newcastle United Football Club was acquired by the Saudi Arabian Public Investment Fund, Premier League clubs voted to introduce related party trading rules.

Many believe that the timing of this move is protectionist, and other league clubs hope to prevent Newcastle United from pushing for such deals.

Abu Dhabi United Group acquired Manchester City earlier than the introduction of financial fair competition, profit and sustainable development (PSR) and related party trading rules, but the group is controlled by the UAE Vice President and Deputy Prime Minister Sheikh Mansour bin Zayed Al Nahyan, so it has a similar network of state-owned companies.

For an event with the "world's most competitive league" as the core of the brand, the prospect of clubs using the resources of oil countries to expand revenue is seen as a threat.

Why does Manchester City challenge related party trading rules?

In June 2024, Manchester City sued the Premier League to an independent arbitration court, saying that the trading rules of related parties were fundamentally unfair and anti-competitive.

A 165-page legal document obtained by the Times shows that Manchester City believes it has been "discriminate" because the rules have had a disproportionate impact on its existing sponsorship network - many of its major deals are linked to members of the City Football Group's board of directors.

Manchester City called it "the tyranny of the majority", while Arsenal, Manchester United, Liverpool, West Ham United, Brentford, Bournemouth, Fulham and Wolves all provided evidence to support the Premier League stance.

In October last year, a three-person arbitration team did not find any bias against Manchester City and believed that the related party trading rules were a necessary mechanism to maintain profits and sustainable development regulations, but the three specific aspects of the rules were "illegal".

The team found that there were procedural issues in potential transaction approvals against Emirates and Abu Dhabi First Bank – Manchester City was denied the opportunity to respond to benchmark analysis.

However, the Arbitration Panel also ruled that dividend-free shareholder loans should be included in the jurisdiction of related party transaction regulations, and that Arsenal, Brighton, Everton and Leicester City all received huge loans with a conditional discount from their owners.

Manchester City believes that this distorts the calculation of profit and sustainability, and proposes: If limiting transactions from companies in Gulf countries is considered discrimination, then why do related party transaction rules only focus on sponsored transactions but do not include shareholder loans in the same market value assessment?

Why did Manchester City launch another challenge? What is its appeal?

The Premier League responded to the initial ruling and quickly proposed three rules revisions, retaining reasonable parts and deleting only the content in question.

Most clubs (16 of 20) voted to pass the modifications, with only Aston Villa, Newcastle United and Nottingham Forest supporting Manchester City.

Manchester City believes that fine-tuning of the rules will not help. In February this year, the Arbitration Tribunal ruled that the three "illegal" clauses could not be "divided" from the rest of the rule and were therefore deemed to be "invalid and unenforceable".

This raises a possibility that the club may claim compensation for a possible undervalued deal reached between December 2021 and November 2024..

The Premier League attempted to downplay the matter, saying it had no effect on the "effectiveness" of the new version of related party trading rules that had taken effect.

Manchester City then launched a new round of legal challenges to these revised rules, insisting that although the rules have been revised, there is still discrimination and the same inherent problem - shareholder loans have not been evaluated in market value like commercial transactions.

And the dispute has now been settled.

So, who "wins" this battle?

Eleanor Roosevelt once said: "There was no winner in the last war, and there would not be the next one."

Considering the costs and reputational losses paid by both sides, this sentence may make some sense in this matter, but as in the past, both sides declare that they won in some ways.

No one really achieved an overwhelming victory. The Premier League was found to be violating competition law and forced to rewrite multiple of its own rules, and Manchester City has now agreed to accept the revised rules it once challenged.

As with any closed-door settlement, details will reveal who really takes a better position, but as one lawyer said: "This may mark the end of Manchester City's 'scorched earth policy'."

Manchester City won both the first two lawsuits, but chose to settle with only one month left before a self-confidence hearing, which seems to indicate that they believe they have gained substantial benefits in the negotiations.

How does this relate to Manchester City's proposed new Emirates sponsorship deal? What is the valuation of this transaction?

This seems likely to be the core of the protocol. In 2011, Manchester City signed a 10-year agreement with Abu Dhabi national airline Emirates Airlines, worth more than £400 million, covering stadium naming rights and jersey chest advertising. In 2023, a new agreement was rejected by the Premier League for failing to pass the fair market value test.

If the previously rejected transaction is now approved, its value is expected to be significantly higher than the agreement reached 14 years ago. As Manchester City accepted the new version of related party trading rules in the settlement, the transaction still needs to undergo a Premier League fair market value benchmark.

The Premier League always believes that it is not unacceptable to enter into a deal with an affiliate or an individual, as long as the transaction is fair.

It is reported that the starting point of the controversial Emirates deal is much higher than the initial agreement, and several sources revealed that the agreement also includes annual percentage growth clauses. In such cases, the compounding effect of annual growth may be only a few percentage points different, but over the entire contract period – especially when the starting point amount is already high – may mean a difference of hundreds of millions of pounds.

If Manchester City can get the once-denied Emirates deal approved, it will be a major progress for the Premier League: the deal will be included in the benchmark database and may set a precedent for other clubs.

Since its acquisition in 2008, Manchester City's commercial revenue has increased by more than 1259%. That figure is expected to climb again after renewing its contract with jersey maker Puma for at least 10 years (a record value believed to be a record £1 billion).

What does this resolution mean for other clubs that have used related party transactions?

If the Premier League is forced to completely abolish related party trading rules, it may face compensation claims from Manchester City and other clubs whose transactions have been rejected or delayed.

It is not clear how many affiliate transactions in the league have been rejected or delayed, but Manchester City agreed to abide by the rules, avoiding this potential ripple effect and ensuring that historical shareholder loans are not affected.

If Manchester City successfully gets this huge Emirates deal approved, other agreements between Manchester City and other clubs still need to be subject to a fair market value assessment of the Premier League.

Theoretically, this limits the space for clubs to artificially increase sponsorship revenue through their affiliates.

However, this Emirates airline transaction is huge, and even considering the increase in popularity of Manchester City, it is necessary to remember that "fair market value" is a subjective concept, not a fixed boundary - asset prices will fluctuate with market conditions (regardless of conditions). The presence of such a large amount of Emirates airline transactions in the market may provide support for those who advocate increasing the value of the transaction currency. This does not mean that they can price at will without supporting evidence or justification, but fundamentally, this expands the scope of what Premier League clubs argue in the current market. What does

mean to the relationship between Premier League and Manchester City? The real answer to this question will not be revealed until the major case ruling against Manchester City. The case focuses on the club's financial disclosures from 2009 to 2018, including issues such as false reporting of sponsorship income and undisclosed compensation. Manchester City denied any misconduct.

At present, since the Premier League announced the launch of a major investigation in March 2019 and filed accusations in February 2023, it is rare to have a reconciliation result in the "protracted war" between the two sides.

There was a view that Manchester City's tough attitude may completely overturn related party trading rules, causing the sponsorship transaction to fall into chaos and losing all face to the Premier League. But in the end, the two sides reached a settlement.

How much does reaching an agreement bring to the Premier League?

Other Premier League clubs have learned that the two sides have reached an agreement before the statement is released. For many clubs, this may be a relief - not only avoiding going to court again, but also preventing further outflow of funds.

The latest annual accounts show that Premier League operating expenses have increased by 23%, mainly due to new employee recruitment, increased investment in football-related support, and increased legal expenses due to club supervision.

Regular shareholder meetings allow clubs to understand the financial status and departmental budgets. The Premier League believes that the case is about whether to uphold its own rules, so they know that competing with Manchester City's lawyer team will inevitably incur high costs. Will

have any impact on the outcome of Manchester City's larger case?

These are two things.

First, the initial arbitration panel did not identify the Premier League’s fair market value rules as flawed, and only believed that the Premier League did not comply with these rules.

This means that the matter is unlikely to have a significant impact on the allegations Manchester City are facing.

If the case enters new arbitration proceedings next month and the concept of related party transactions and fair market value is completely shaken, it may have an impact on allegations related to sponsorship income in larger cases.

And now, this possibility has been ruled out.