On Feb. 14, the Union of European Football Associations announced that Manchester City F.C. has been banned from participating in the UEFA Champions League for the next two seasons. Manchester City, which was also fined 30 million euros, has since filed an appeal at the Court of Arbitration for Sport.
UEFA, the governing body of European soccer, announced this punishment after the Adjudicatory Chamber of the Club Financial Control Body determined that Manchester City severely violated the UEFA Financial Fair Play Regulations. This appeal may very well address the legality of the controversial fair play regulations.
The regulations were implemented in 2011 after it was discovered that a majority of European soccer clubs operated at a financial deficit over consecutive seasons. Although smaller clubs experienced a real possibility of dissolution, clubs with wealthy ownership were able to keep their clubs from failing by personally paying off their clubs’ debt and injecting cash to offset deficits.
Consequently, the regulations includes a break-even requirement that limits the amount clubs can spend for player transfers and wages to no more than 5 million euros more than they earn over each three-year assessment period.
However, this limit is increased if an owner or related party contributes. For the 2015-16 to 2017-18 assessment period, the limit was increased to 30 million euros.
In 2018, a German magazine published leaked emails and documents involving Manchester City’s revenue. These leaks appear to show that Manchester City deliberately inflated the value of sponsorship agreements to misrepresent that the club was in compliance with fair play regulations’ break-even requirement.
The most serious allegation of misrepresentation involved Manchester City and Etihad Airways. Manchester City reported that it entered into a 67.5 million euro annual sponsorship deal with Etihad.
However, the leaks appear to reveal that Etihad only contributed 8 million euros. Consequently, the leaks indicated that the leftover amount was contributed by a shell company owned by Manchester City’s owner, Sheikh Mansour bin Zayed Al Nahyan.
Adjudicatory Chamber of the Club Financial Control Body, which is the independent agency that reviews all potential fair play regulation violations, held that there was enough evidence to determine that Manchester City violated the regulations by overstating its sponsorship revenue in the accounting it provided UEFA from 2012-2016. It was also noted that Manchester City was uncooperative during the investigation.
This is not the first time Manchester City has breached the fair play regulations. In 2014, Manchester City was fined 60 million euros after financial control board determined that the club grossly exceeded the fair play regulations’ break-even requirement. This past breach likely contributed to the board’s decision to impose a two-year ban of participation in Europe’s largest soccer tournament.
Manchester City has adamantly denied that the club has breached the regulations in any way. Accordingly, the club filed an appeal with Court of Arbitration for Sport. Manchester City is undoubtedly focused on proving its innocence, however, it is possible the club will also challenge whether the regulations are in accordance with European competition laws.
Article 101 and 102 of the Treaty of the Functioning of the European Union established Europe’s anti-competition policies. Article 101 prohibits horizontal and vertical agreements between two or more independent market participants where the agreements’ objective or effect is to restrict competition.
Horizontal agreements involve competitors operating at the same level of the supply chain, where vertical agreements consist of market participants at different levels of the supply chain. Article 102 prohibits abusive conduct by dominant market participants.
If Manchester City argues that the fair play regulations violate Article 101, it is also likely that it will claim the regulations violate Article 101(1)(b), which explicitly prohibits agreements that limit or control investments. The presumed argument is that the break-even requirement prohibits clubs with lesser revenue to invest more in players than teams with greater revenue.
Thus, even if a smaller club obtained an owner who was willing to significantly invest in a roster that would have the talent necessary to compete in the Champions League, the regulations severely restricts such investments.
Regarding Article 102, establishing that UEFA holds a dominant position does not alone violate Europe’s anti-competition laws. Manchester City would need to further argue that UEFA imposing the fair play regulations on all European soccer clubs demonstrates abusive conduct by a dominant market participant.
A potential argument for Manchester City would be that the regulation limits the development of the European soccer market because clubs with lesser revenue will not be able to offer comparable compensation for top-tier talent. Thus, well-established clubs will continuously outbid smaller clubs, sign the most talented players and build rosters capable of competing in the Champions League every season.
The Champions League began in 1955. Over its 64 seasons, only 22 clubs have won. Of those 64 seasons, more than half have been won by the same five clubs. Certainly not the model for parity.
If either or both arguments were to be accepted by Court of Arbitration, UEFA would need to establish that the regulations create a pro-competitive effect that outweighs the anti-competitive effects.
One argument UEFA may make is that although the high-revenue teams can pay more for players, the regulations are a necessary safeguard to ensure smaller clubs do not incur exorbitant debts that will ultimately cause the clubs to dissolve.
Therefore, UEFA would argue that the regulations promote competition because more clubs will have the opportunity to grow and hopefully compete in the Champions League in the future.
Furthermore, UEFA likely will use Manchester City as an example for why the regulations promote competition. Manchester City is valued at more than 2.1 billion euros, and its annual revenue exceeds 500 million euros.
If the allegations are true, Manchester City decided to inject significant cash into the club to achieve a competitive advantage. Thus, even if smaller clubs had the opportunity to invest far beyond their revenue, UEFA would contend that large clubs like Manchester City will simply do the same while also having the advantage of greater revenue, a stronger brand and wealthy ownership.
This is not the first time that Court of Arbitration has arbitrated a case involving a potential breach of the regulations. In 2019, the court released a notice that Galatasaray S.K., a Turkish pro team, was found not to have breached the regulations. Although the actual award is confidential, UEFA announced that the award rendered by court did “not doubt the objectives of the UEFA Club Licensing and Financial Fair Play system.” Thus, it appears that if Galatasaray S.K. argued that the regulations are in violation of Europe’s anti-competition laws, the court did not accept the argument.
Manchester City’s main objective is to be found innocent, or at the very least receive a reduced penalty. However, given the fact that this will be the second time that Manchester City has been severely punished for breaching the regulations, there is motivation for the soccer club to push for the elimination the financial regulations entirely.