City v UEFA: The Battle Over FFP – Part III

Part 1 | Part 2

In the first two parts of this series, I talked about the mechanics of FFP, how I believe UEFA undermined City, ensuring they failed, and the sanctions that were imposed as a result. I also said I’d explain why it was very much to City’s advantage to accept one of those sanctions. I should stress that this is my version of events, based on snippets in the media, official statements and reading of the FFP regulations and that I’ve had no information from Manchester City that would support this view.

FFP: Part 3 – Acceptance and the future

So let’s go back to that first sanction, which was the limit set on the maximum break-even deficit for two years (€20m in 2014 and €10m in 2015). I’d guess that this sanction, far from being seen as a punishment, was actually a godsend to the City board. To see why that might be, here’s the table I set out in Part 1 but with the actual bottom line figures in for the years reported so far:


In the above table, Assessment period 2 relates to the 2014 financial year, for which a maximum break-even deficit of €20m was allowed, and period 3 to the year where a maximum break-even deficit of €10m was allowed.

The aggregate loss for assessment period 2 has gone up to £173m as the 2014 financial year, in which City lost £22.7m, has to be taken into account, in addition to the two previous ones. We can do the standard FFP break even calculation on this, which involves adding back the assumed £35m allowable expenditure for 2012 and 2013, another £20m for 2014, plus the £16.3m UEFA fine in those 2014 accounts. That gives a break-even deficit of £101.7m. So once again, City would have been well above the maximum allowable break-even figure and therefore be in breach again. Without being able to offset those 2012 wages of £80m, that would presumably mean further sanctions or the continuation of the existing ones.

But the sanctions already imposed released City from the normal rolling 3-year calculation method and only required them to report a maximum break-even deficit of €20m (about £16m) for the 2014 financial year. The bottom line figure they actually reported was a loss of £22.7m but that included the £16.3 fine, as I’ve already said. So even before adding back other allowable expenditure (the assumed £20m) the adjusted break-even deficit of £6.4m was within the limit of UEFA’s sanction. Adding back that £20m allowable expenditure gives a break-even surplus of over £13m, compared to that UEFA-mandated €20m (£16m) maximum deficit. That meant that as long as all the other conditions were met, City had complied (meaning UEFA would lift some or all of the restrictions).

In 2015, the required break-even figure was a maximum €10m (approximately £8m) deficit. In the event City reported a bottom line profit of £10.7m so had met that requirement even before taking into account any allowable expenditure. That meant they were home and dry, with all sanctions lifted and back on the normal 3-year reporting requirement for Assessment Period 4. As you can see from the table, assuming a £20m net profit in 2016, an aggregate net profit of around £8m should be the starting point.

We know that something like £40m of allowable expenditure from 2014 and 2015 can be added back under the normal FFP rules, plus the £16.3 UEFA fine in the 2014 accounts. Assuming another £20m allowable expenditure can be added back for this financial year, a reported FFP break-even surplus of something like £80m should be reported to UEFA. With the new Sky/BT deal kicking in from next season, 2017’s results should be even healthier, meaning City reporting a very substantial surplus to UEFA. Assuming they continue along the same path and that there are no major disasters in the pipeline (never a safe assumption as this is City after all) any problems with FFP should be well in the past.

So by accepting the sanctions, including the limits on their single year losses, City were effectively able to wipe the slate clean of those big losses that could have incurred further sanctions. I think that this persuaded the board to swallow the sanctions (“take the pinch” as the chairman said) knowing the practical impact was probably minimal but that there was a breathing space in which those previous heavy losses were ignored. And knowing that, once out of the period of sanctions, there would be no further issues with FFP. Effectively it involved taking one step back to take two forward.

Having done that, UEFA then changed the rules again. Although it didn’t impact them in the same way as the change to Annex 11, it must have set teeth grinding in City’s boardroom. Annex 12 allowed a club to come to an arrangement with UEFA if there had been a significant change in ownership or structure and they were in danger of failing FFP. By a club highlighting this outcome before they formally reported, UEFA would allow them to escape sanctions if they could demonstrate a clear path to compliance over the next four years and would monitor them to ensure that they were on course to achieve this over the period. This is exactly what City would have wanted to do, so it was quite galling that they were actually penalised for something that any other club could now come to an agreement over.

Another interesting change is that in any situation where a club receives more than 30% of its income from entities connected to the same person, company or government, those entities are automatically considered to be related parties. Why is that important? Well in the previous parts, I talked about the Etihad sponsorship deal. Many in the media and fans of other clubs questioned this deal, given Etihad’s obvious link to Abu Dhabi. There was talk that UEFA would apply its “market value” adjustment to it, as talked about in the FFP regulations, which said that UEFA could reduce the value of a commercial deal if it felt it was out of line with what the market would normally expect for such an arrangement. Of course that assumes the Etihad deal was out of line and there’s little evidence to support that.

But what most didn’t realise was that this could only be applied if the club and connected sponsor were what is known as “related parties” and there is a long-standing, standard accountancy practice that any company that undertakes a commercial transaction with such a related party has to disclose any such transaction in its accounts. UEFA was just following this practice.

As an example, if I own two companies, A & B, and A does a deal with B for goods or services, the nature of that deal has to be disclosed in both their accounts. I won’t go into the accounting rule in detail but they set out (in broad terms) who can be defined as a ‘related party’ and there is nothing in those rules that makes Sheikh Mansour and Etihad related parties, whatever the media or others think. As UEFA had copied the accountancy rule word-for-word, that meant that City were not under any obligation to declare Etihad (or any other Abu Dhabi-based company) a related party and UEFA were unlikely to be able to force them to do so.

UEFA’s new rule allows them to get around that problem. City’s turnover last year was over £350m, and the new rule states that any companies or persons related to the Abu Dhabi government would have to contribute more than £105m to overall revenue to be considered related parties. It’s difficult to know precisely how much does come from Abu Dhabi but at the best guess, it could be no more than £65-70m, so that shouldn’t present a problem.

There’s another revised provision, which sets out what UEFA call the “reporting parameter” and this does potentially affect City again but I’ll cover that in a separate article as the revised corporate structure is an interesting subject on its own (no – honestly it is).

In summary, City certainly had their problems with UEFA and FFP but have taken the hit, absorbed the sanctions and are now in a position where they should not have to remotely worry about it in the future. As Shakespeare said, “All’s Well That Ends Well”.

I hope this series has been useful and given you some insight into City’s battle with UEFA over FFP. City may have lost a battle but hopefully they’ve won the war.



  1. Pingback: City v UEFA: The Battle Over FFP – Part I – City Watch

  2. Pingback: City v UEFA: The Battle Over FFP – Part II – City Watch

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