Allegation 1 – Inflated Sponsorship Deals Paid for by ADUG

By: Ted Fred Franky, Refuting misinformation, August 14, 2024 1 month ago

Part 1 – Financial Issues

This section references the downloadable files found on this article at Der Spiegel – HERE

In the complex and secretive world of football finance, discerning truth from manipulation is no easy task. The case surrounding Manchester City and the emails leaked by Rui Pinto, presented by UEFA to the Court of Arbitration for Sport (CAS), illustrates just how convoluted this landscape can be.

At the core of the controversy is the authenticity of these leaked emails. Among the six crucial emails (printed in der Spiegel) which UEFA used as evidence, it was revealed by Manchester City that one was actually a combination of two separate messages spliced together, fundamentally altering its meaning. This discovery casts doubt on the entire collection of documents, particularly since many of the names and email addresses as well as paragraphs of text within them have been redacted.

Man City Nero Scarf - Sky/Navy - One Size

Another question arises, were Manchster City telling the truth about the spliced email or was Rui Pinto telling the truth. As it stands we do not know. However, the millions of emails stolen by Rui Pinto were in an electronic format. Such formats contain email headers and other information used to transmit the email and check it has done so correctly. This information included cyclic redundancy checks, file sizes and many more parameters. These leave a forensic footprint which could confirm the truth. Since Rui Pinto has this information, why hasn’t he produced it to back up his claim this controversial spliced email was the truth? This would be trivial to do. I suspect the truth is that he hasn’t because he knows he fabricated the email and City were telling the truth.

Moving onto the files supplied to support the Premier League PSR case against Manchester City. The documents themselves appear to be a mix of emails and faxes, some of which have been copied multiple times, leading to significant degradation in print quality. This degradation not only complicates the task of verifying their authenticity but also makes it easier to alter their contents. Without a robust electronic audit trail, it’s nearly impossible to determine the veracity of these documents.

When examining these emails, it’s essential to recognize that we lack crucial context—namely, the reasons behind certain actions and the background information that might provide clarity. Rui Pinto, the hacker behind Football Leaks, and *Der Spiegel*, the outlet reporting on these leaks, seem to have approached the situation with a presumption of wrongdoing, without fully understanding the business context in which these actions took place.

Official Manchester City Scarf – PUMA 2

Pages 16, 33, 40, 41, and 42 of the documents contain redacted names and email addresses, indicating that someone significant was involved in these discussions. If these redactions hide the identity of a Premier League official, such as Richard Scudamore, it would challenge and undermine the narrative that the Premier League was ignorant of Manchester City’s financial actions.

What emerges from this correspondence is the sense that there’s significant financial manoeuvring happening behind the scenes—what might be described as “financial jiggery-pokery.” A vivid example of this can be seen from these emails in the way Manchester City and their owners (via the City Football Group), the Abu Dhabi United Group (ADUG), appear to manage their cash flow.

To understand this, we must consider how some large businesses utilise surplus cash. For decades, savvy financial operators have leveraged cash flow on the overnight money markets to generate profits. Take, for instance, Kwik Save in the 1970s and 1980s. The company would buy non-perishable goods on credit, sell them quickly at cost for cash, and then invest that cash in the overnight money markets before the bills became due. By the time payment was required, Kwik Save had already made a substantial profit from the interest earned on the overnight markets.

This type of strategy is now common among large, cash-rich companies. Retail giants like Tesco routinely invest their surplus cash in the overnight markets, where interest rates can fluctuate significantly based on supply and demand. The London Inter-Bank Offered Rate (LIBOR) and the Secured Overnight Financing Rate (SOFR) are benchmarks that guide these transactions, with rates typically ranging between 3% and 8%, but the actual rates can vary widely.

As I write the rates are around 5.3%. This means if you do this every night for 14 nights with compound interest you can double your money. It seems too good to be true but it is true. Access to these markets is controlled and limited to people and businesses with large amounts of cash and other credentials.

The overnight money markets are not the only source of such high interest short term lending. Everyone in the UK is familiar with pay day loan companies (like Wonga and Ocean Finance) and the extortionate rates of interest they charge. Investment bankers match large companies strapped for cash with individuals and organisations who have lots of cash. George Soros is arguably the richest man in the world because he has more cash than anyone else, his decision to invest or not can be the one that sends large companies under.

Manchester City MCFC Scarf

A typical investment banker scenario is this. The quarterly rents for large office blocks and retail outlets usually fall due in March, June, September and December. This is often why retailers have sales at this time of year to raise cash to pay their rent. If they don’t pay on time, they are locked out of their shops and everything is seized to pay the rent. They are then bankrupt. Easter is a cash bonanza for many retailers, however sometimes it falls in March and sometimes in April. An April Easter signals disaster as the Easter sales money will come in too late. Enter the investment banker to broker to deliver the required short term loan. These deals can be multimillion pound loans and interest rates of 10-20% are not uncommon. This is why investment bankers are so rich, they get huge commissions on these deals.

All of these types of deals occur in markets all over the world, there is no shortage of people and companies needing money.

With all this finance in mind, wouldn’t it be prudent for football clubs (or their owners) to utilize cash lying around in this manner? We know the bulk of money coming into clubs arrives in the summer in the form of TV payments and prize money, as well as season ticket revenue (both fan and corporate).

Barcelona are a club which may invest like this. They have a colossal wage bill of around £600m a year, and only pay their players twice a year, yet receive income all year round. This means their current account probably has an average of £200m in it throughout the year. Even an interest rate of 5% in a savings account would yield £10m. You would expect them to be doing something with all this cash. Short term lending as indicated above could yield over £100m.

Similarly at Manchester United, the Glazers are likely to be doing so as well. They own a suite of Shopping Malls in the USA. When retailers get into difficulty paying their quarterly rents, I am sure the Glazers are on hand to provide short term loans at high interest rates using the cash they have at hand, courtesy of Manchester United. Wouldn’t you in their position, it is a convenient synergy?

Now, let’s consider Manchester City’s situation. The club receives a significant portion of its revenue in the summer—TV money, prize money, season ticket sales, and merchandise sales. For instance, if City receives £480 million during the summer and their monthly expenses are around £40 million, they don’t immediately need the bulk of that revenue to cover their costs. This surplus cash, which might amount to £440 million in the first month, £400 million in the second, and so on, could be invested in the overnight money markets or short term loans to generate huge returns.

Official Manchester City Scarf – PUMA 2

The documents distributed by der Spiegel, suggest that despite what should be a hugely positive cash flow, City’s Chief Financial Officer, Andrew Widdowson, was frequently requesting funds from ADUG to cover player salaries, with requests spanning multiple years and various months—January, February, March, April, May, June, September, and December. The club should be awash with cash in January, June and September due to when these payouts are made. This pattern indicates that large cash inflows are being immediately transferred to ADUG, likely for investment in the overnight markets or other short-term financial schemes, as discussed above.

This financial strategy is further complicated by the club’s relationships with its sponsors. For example, Simon Pearce’s reminder to invoice Etihad for corporate tickets—just £11,500—suggests that the relationship between City and its sponsors is more transactional than cozy. Moreover, the sums of money being moved between City and ADUG do not align neatly with the amounts specified in sponsorship deals. The Etihad deal, for instance, was worth £20 million for the shirt sponsorship and £20 million for the naming rights, totalling £40 million. Yet, the amounts being moved from ADUG —£67 million and £90 million—don’t correspond to these figures, suggesting that *Der Spiegel* and Rui Pinto might have misinterpreted or misrepresented these financial transactions. The discrepancy between the expected sponsorship amounts and the actual sums being transferred raises questions about the true nature of these transactions and what they signify about Manchester City’s financial practices.

I would also highlight that Simon Pearce frequently mentions, that Etihad must be invoiced for £8m. It is common for sponsors to pay in smaller sums throughout the year. It could well be that Etihad pay 5 instalments of £8m throughout the season say in August, October, December, February and April to ensure that City have cash for day to day bills. This would then amount to £40m, the actual sponsorship sum. It would only take a small alteration of relevant emails by Rui Pinto or Der Spiegel to make this look like ADUG are only paying £8m a year.

If as discussed ADUG is using the club’s surplus cash to generate profits in the financial markets. The potential returns from such investments can be substantial, possibly ranging between £100 million and £200 million annually, depending on the strategies employed.

But why would ADUG handle these investments rather than Manchester City directly? In complex financial structures, it’s common for parent companies to manage significant financial activities separately from their subsidiaries. This separation makes it easier to track and analyze financial performance and can also simplify tax reporting, reducing the likelihood of audits or investigations from tax authorities like HMRC. Additionally, it allows ADUG to utilize the profits from these investments to fund other ventures, such as expanding the City Football Group (CFG) globally, effectively growing their football empire without directly tapping into Manchester City’s operational budget.

This approach to financial management might seem unorthodox to those unfamiliar with the intricacies of global finance, but it’s a strategy that maximizes the value of available cash. Any business, including football clubs, that fails to capitalize on surplus cash in this way could be seen as neglecting a valuable opportunity. In fact, it’s likely that other Premier League clubs have similar cash reserves, although they may not be exploiting them as effectively as Manchester City and ADUG.

The problem with the narrative constructed by Rui Pinto and *Der Spiegel* is that it appears to lack a deep understanding of how financial markets work and how businesses, particularly those with significant cash flow like football clubs, manage their finances. Their focus on sensationalist details—such as the spliced emails and redacted names—suggests an attempt to paint Manchester City in the worst possible light without fully grasping the broader financial context.

This lack of understanding is reminiscent of the misconceptions during the Brexit campaign, where it was suggested that the UK’s finance industry would migrate to Frankfurt. What wasn’t considered was the logistical impossibility of moving the vast amounts of gold reserves that finance companies have to hold at the Bank of England to trade on the London Stock Exchange. Such a move would have been prohibitively expensive and risky, highlighting the gap between political rhetoric and financial reality.

In the case of Manchester City, the real story might not be one of financial impropriety but rather one of sophisticated financial management, where surplus cash is leveraged to generate significant returns. This strategy, while perhaps unfamiliar to the average football fan, is a common practice in the corporate world. It allows businesses to maximize their resources and ensure long-term financial stability, even if it means operating in ways that seem opaque or overly complex to outsiders.

The documents leaked by Rui Pinto and publicized by *Der Spiegel* provide a glimpse into this complex financial world, but without a full understanding of the context, they risk misleading the public and mischaracterising Manchester City’s financial practices. The redactions, spliced emails, and financial transactions might tell a different story than the one being promoted—a story of a football club, supported by a powerful ownership group, using its resources to maintain competitiveness on the pitch while ensuring financial health off it.

In summary, while the leaks and subsequent reporting have cast Manchester City in a suspicious light, a closer examination reveals a more nuanced picture. The club’s financial practices, while complex, appear to be geared toward maximizing the use of available cash and ensuring long-term success. Whether this approach is typical or exceptional in the world of football finance remains a matter for further investigation, but it’s clear that the narrative is far more complicated than it initially appears.

Part 2 – Sponsorship Values

In the tangled web of football finance, allegations against Manchester City often boil down to claims about the legitimacy and value of the club’s sponsorship deals. The crux of the argument is that two of City’s key sponsorships were not genuine but rather vehicles designed to circumvent UEFA’s Financial Fair Play (FFP) and the Premier League’s Profitability and Sustainability Rules (PSR). Critics suggest these deals were essentially owner equity investments disguised as sponsorships, with City’s owners allegedly funding the deals before being reimbursed. However, the reality of these transactions may be far less nefarious and more aligned with standard business practices.

The Sponsorship Allegations

The accusation is that Manchester City’s owners, through related parties, injected money into the club via inflated sponsorship deals with companies like Etisalat and Etihad. These deals, according to the critics, were overvalued and designed to artificially boost City’s revenues, thus enabling the club to meet FFP and PSR requirements without actually being financially self-sufficient. However, there’s a strong case to be made that these sponsorship deals were not only legitimate but also reasonably valued given the context.

Bridging Loans and Exchange Rate Guarantees

If it’s true that City’s owners temporarily funded these sponsorships, it could have been through mechanisms such as bridging loans or exchange rate guarantees, both of which are common in global business operations. Bridging loans, for instance, are short-term loans used to maintain cash flow while awaiting long-term financing, while exchange rate guarantees protect against currency fluctuations. These practices do not inherently imply wrongdoing and are a routine part of managing finances in a global enterprise.

Fair Market Value and Commercial Realities

The suggestion that these deals were inflated and should be reduced to a Fair Market Value (FMV) is, in itself, a subjective exercise. Valuing sponsorship deals, particularly in football, is often an imprecise science, influenced by a multitude of factors including team performance, market reach, and brand exposure. City’s deals, when scrutinized, hold up against comparisons to other clubs’ sponsorship arrangements.

For example, Etisalat’s £10 million deal with City is criticized for being inflated, yet Manchester United, a direct rival, secured multiple sponsorships at around £20 million each. It raises the question: why is City’s single £10 million deal considered overvalued?

Similarly, City’s £20 million-a-year shirt sponsorship deal with Etihad was on par with Arsenal’s and Liverpool’s deals at the time (Liverpool’s increased to £30m in 2014), and only half of Manchester United’s £40 million deal. City’s on-pitch performance during this period—five consecutive seasons in the Champions League, two Premier League titles, and consistent title challenges—would arguably justify such sponsorship values, if not higher. Brand Finance’s 2018 report (here) even indicated that City’s sponsorship had a higher recall rate (46%) than both United’s (40%) and Arsenal’s (36%), suggesting that City’s global brand exposure was significant, and perhaps undervalued rather than inflated.

Exposure

This table shows the principal competitions entered and trophies won during the period. Manchester City, their brand and sponsors are getting far more exposure than their other Premier League rivals.

	2013-14	2014-15	2015-16	2016-17	2017-18	Total
Manchester City	EPL Entry UCL Entry EPL Winners EFL Winners	EPL Entry UCL Entry	EPL Entry UCL Entry EFL Winners	EPL Entry UCL Entry	EPL Entry UCL Entry EPL Winners EFL Winners	15
Chelsea	EPL Entry UCL Entry	EPL Entry UCL Entry EPL Winners EFL Winners	EPL Entry UCL Entry	EPL Entry EPL Winners	EPL Entry UCL Entry FAC Winners	13
Arsenal	EPL Entry UCL Entry FAC Winners	EPL Entry UCL Entry FAC Winners	EPL Entry UCL Entry	EPL Entry UCL Entry FAC Winners	EPL Entry	12
Manchester United	EPL Entry UCL Entry	EPL Entry	EPL Entry UCL Entry FAC Winners	EPL EFL Winners Eup Winners	EPL Entry	11
Liverpool	EPL Entry	EPL Entry UCL Entry	EPL Entry	EPL Entry	EPL Entry UCL Entry	7

EPL Entry – Participated in The Premier League
UCL Entry – Participated in The Champions League
FAC Winners – FA Cup Winners
EPL Winners – Premier League Winners
EFL Winners – League Cup Winners
Eup Winners – Europa Cup Winners

Removal of Shirt

In both UEFA competitions and the Premier League, if a player removes his shirt after scoring a goal it is a yellow card offence, ie a booking. If a player has already been booked he will get sent off. This is a serious offence! The reason given for this is that the most value a sponsor gets from the shirt sponsorship, is when a player scores the winning goal and it is shown on the news all over the world. Goals winning Premier League and Champions league matches have the most value with less for the other cup competitions. However the winning goal ascends in value for the winning the League Cup, wining the FA Cup, key Premier League matches, key Champions League matches, and finally for winning both the Premier League matches and the Champions League.

Looking at the exposure of these clubs, Mannchester City clearly have a lot more exposure than Arsenal and Liverpool. City play in the UCL every season unlike Arsenal (4) Liverpool (2), City win 5 trophies (including 2 Premier League titles), to Arsenal’s 3 trophies and Liverpool 0.

CONCLUSIONS:

Those money shots of players scoring winning goals have far more value to City’s sponsors than either Arsenal or Liverpool do to theirs.
City’s sponsorship deal is far cheaper than those of Chelsea, Liverpool and United, but it delivering a better return

Brand Finance

Brand Finance produce an annual report and rank clubs according to the power of the brand. The table below shows the period in question:

Rank	2014	2015	2016	2017	2018
1	B Munich $896m	Man Utd $1,206m	Man Utd $1,170m	Man Utd $1,733m	R Madrid $1,297m
2	R Madrid $768m	B Munich $933m	R Madrid $1,148m	R Madrid $1,419m	Man Utd $1,472m
3	Man Utd $739m	R Madrid $873m	Barcelona $993m	Barcelona $1,418m	Barcelona $1,246m
4	Barcelona $622m	Man City $800m	Man City $905m	Chelsea $1,248m	B Munich $1,159m
5	Man City $510m	Chelsea $795m	B Munich $867	B Munich $1,222	Man City $1,097m
6	Arsenal $505m	Barcelona $733m	Arsenal $858m	Man City $1,021m	Liverpool $992m
7	Chelsea $502m	Arsenal $703m	PSG $792m	PSG $1,011m	Chelsea $985m
8	Liverpool $469m	Liverpool $577m	Chelsea $776m	Arsenal $941m	Arsenal $893m
9	Dortmund $327m	PSG $541m	Liverpool $748m	Liverpool $908m	PSG $753m
10	PSG $324m	Tottenham $360m	Tottenham $441m	Tottenham $696m	Tottenham $630m

The Manchester City brand is clearly more valuable than those of Arsenal and Liverpool, so why question City’s shirt sponsorship deal for a sum that is equal or less?

Etihad Naming Rights: Stadium, Campus, and Tram Stop

The Etihad naming rights deal, which includes the stadium, training campus, and even a tram stop, is also under scrutiny. However, when compared to similar deals by other top European clubs, such as stadium only deals for Bayern Munich (£15m a year from 2005, £12m from 2023) and Atletico Madrid (£10m from 2018 & £10m from 2022). City’s deal is far from excessive, espcially considering it includes more and Athletico don’t even appear in the table above.

The stadium and training campus naming rights ensure that every piece of media coverage—whether in print, on television, or online (match previews, match reports, live football etc) – prominently features the Etihad name, offering extensive global exposure, way beyond that of just naming the stadium. The inclusion of tram stop alonside the training campus and stadium, are integral parts of Manchester’s infrastructure. The tram stop being one of ten terminus on the network. These further boost this exposure, potentially making this deal more valuable than traditional shirt sponsorships.

Conclusion: Unlikely Breach of PSR

Given the commercial realities and the strong performance of Manchester City during the period in question, it is difficult to argue that these sponsorship deals were significantly overvalued. The exposure provided by these deals, coupled with City’s consistent success on the pitch, suggests that the sponsorships were not only fair but possibly undervalued. Therefore, even if these deals were reassessed in a fair manner, it is unlikely that the revaluation would be low enough to cause City to breach PSR, as alleged in the broader case against the club.

The narrative that City’s sponsorships were simply a front for owner funding fails to take into account the complex realities of football finance and the legitimate business practices involved in securing global sponsorships.

Man City Stuff