For Liverpool owners Fenway Sports Group, keeping the Reds competitive via a more sustainable approach has been a challenge.
Jurgen Klopp’s arrival as manager back in 2015 helped bring the plan together, with the German boss delivering tremendous success at home and abroad during his nine years in the Anfield hot-seat.
But one nut that Liverpool found hard to crack every season was that of serial champions Manchester City, whose triumph this past season was their fourth in a row, and their sixth in seven years, with only the Reds puncturing that dominance in 2020.
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Manchester City’s spending power has been well documented, and the club will face an independent panel in November after being hit with 115 charges by the Premier League with regards to alleged financial irregularities over several years. They are charges that City robustly deny.
But another twist in the tale arrived on Tuesday, with Manchester City pressing ahead with legal action against the Premier League over the tightening of rules that Liverpool and the majority of other Premier League teams were supportive of.
The Times revealed that Manchester City were launching legal action against the Premier League over its recently passed associated party transaction (APT) that gained the approval of the 14 majority needed to bring it into competition law.
City will now face off in an arbitration hearing between June 10 and 21, with the club believing that the APT rules passed in February are unlawful.
So, what is it all about, and why could it be impactful for Liverpool and the rest of the Premier League?
What are Manchester City unhappy about?
When Newcastle United were acquired by the Saudi Arabian Public Investment Fund (PIF) back in late 2021, by December of that year new rules around APT had been voted on by clubs.
Those APT rules were introduced to in an attempt to stop any plans to accelerate growth of Newcastle’s commercial revenue by them leaning on simpatico relationships with big business that they had in the Middle East.
As part of these rules, any deal with an associated party, a company which is also under the ownership or has close links with club ownership, had to prove that the deal was of ‘fair market value’.
In February a vote was taken at a shareholder meeting to tighten the restrictions around APT rules, something which the Premier League revealed at the time had prompted one club to threaten legal action.
Manchester City have now followed through with that threat and are taking action against the Premier League.
Will this impact the 115 charges that Manchester City are facing?
The two issues are separate, and Manchester City’s pursuit of legal action against the Premier League is the result of the stricter rules brought in back in February around APT rules and fair market value.
But they could have a ripple effect, with a significant chunk of the charges Manchester City are facing relating to the alleged enhancing of commercial income through associated party transactions during the early to mid 2010s.
Should Manchester City be able to make a compelling case that the Premier League’s rules that are currently in situ with respect to APT then it could strengthen its case when it faces an independent commission in November in relation to the 115 charges, and the role associated party transactions played in those.
What have Manchester City said?
Speaking in an interview with club media on Wednesday, believed to have been recorded before the legal action was first reported, Manchester City chairman Khaldoon Al Mubarak said: “I hope there’s a bit more sensibility in regulating, (that there is) always a balanced approach.
“This is good for all the leagues, be it in England or the rest of Europe. I think you won’t see the same level (of transfer spending) as we’ve seen in the past few years because of the level of regulations that have come into place over the last 12 months.”
In its legal submissions related to the challenge of APT rules, Manchester City claimed that the rules themselves were “unlawful” and in, with the 165-page legal document, argued that they are the victims of “discrimination against Gulf ownership”, describing rules they say have been approved by their rivals to impede the club’s success on the pitch as a “tyranny of the majority.”
Why is this so important and what might it mean for the Premier League?
This is a seismic moment for the world’s biggest, most-watched domestic football league.
A victory for Manchester City against the Premier League would cause potential serious ramifications. For a start, it could open the door to clubs who have owners who can lean on huge commercial relationships to improve revenues to allow them to spend more money on transfers and wages, something that could widen the competitive gap that already exists in the Premier League.
The fact that a majority passed the most recent APT rules should be telling, with a large number of Premier League clubs either under full or partial North American ownership, with private equity invested.
Private equity likes to see a return on investment over time, and North American sports ownership largely wants to see these teams wash their own faces, while doing enough to grow the value of the asset through its increased appeal that can draw greater attention and broadcast revenues. Cost control is something that exists in a big way in US sport, from salary caps to no promotion or relegation, and the financial certainty that comes with that makes it appealing.
Financial controls in the English game being tightened makes the Premier League more investible for some of these groups. A lack of such controls will likely open the door to more nation states and sovereign wealth funds being able to arrive and invest.
For the Premier League the optics are not good, even if they win. Being involved in a civil war with your current champions and being accused of discrimination and tyranny is not ideal for brand and its plans for growth, nor does it do much for quelling any appetite to see such things as the European Super League brought back to the table.
What might it mean for Liverpool?
FSG chief and Liverpool’s principal owner John W. Henry, in an exclusive interview with the ECHO last year, stated his belief that more financial controls were needed in the Premier League in order to make it competitive.
“You are right that there are ever-increasing financial challenges in the Premier League,” Henry said.
“The league itself is extraordinarily successful and is the greatest football competition in the world, but we’ve thought for some time there should be limits on spending so that the league doesn’t go the way of European leagues where one or two clubs annually have little competition.
“Excitement depends on competition and is the most important component of the Premier League.”
For Liverpool, the club has seen huge commercial revenue growth over the last decade.
Back in 2014 the club’s commercial revenues stood at £98m. Fast forward to the most recent 2022/23 financial accounts and the commercial revenue stood at £272m, a rise of 177.5%.
Over that same period, Manchester City’s commercial income rose from £143m to £341.4m, record levels for the Premier League. That rate of growth was slower than Liverpool’s at 139% but from a significantly higher starting point.
Liverpool have been able to make a little ground, but not much, and given the need to keep spending at significant levels on the wage bill and in the transfer market, with wage spending up 182.5% from £132m to £373m, it has been a constant challenge to compete.
Liverpool have been strong in retaining long-serving partners and getting an uplift in every renewal, such as Standard Chartered, Expedia, AXA, and Carlsberg, while new blue-chip deals have aided the effort, with partners such as UPS, Google Pixel, and Peloton all arriving.
But there hasn’t been any leaning on simpatico relationships that already exist with associated parties, while the likes of Manchester City and Newcastle have been doing deals with businesses with ties to ownership and in the regions in which their owners do the bulk of their business.
The concern for Liverpool and FSG will be that if Manchester City launch a successful legal bid to challenge the Premier League’s APT rules, and prove that they are against UK competition laws, it opens up the potential for clubs with such relationships with associated parties to lean on them to a greater degree, which poses huge challenges for many Premier League clubs in terms of keeping revenues growing at a rate to keep pace organically.
Should City be able to further cement their position of financial strength then it could impact the competitive nature of the Premier League, thus potentially making it less attractive to audiences, which could have the knock-on effect of diminishing broadcast values, which would be to the detriment of the league, also impeding how investible it is for those not part of nation states or sovereign wealth funds.