Manchester City Allegation 4 – Analysis

By: Ted Fred Franky, Refuting misinformation, August 13, 2024 4 months ago

A proper look at how the numbers add up.

In the intricate web of football finance, where numbers and figures can often be as slippery as the pitches the players compete on, the case against Manchester City and the financial practices under scrutiny require a deep dive into the club’s financials from 2013 to 2018. The allegations, led by Rui Pinto and Der Spiegel, revolve around whether City violated UEFA’s Financial Fair Play (FFP) regulations and the Premier League’s Profitability and Sustainability Rules (PSR), however the sums just don’t add up to anything significant.

Adjusted Earnings Before Tax Allowances

Analyzing Financial Statements and Charity Contributions

Adjusted Earnings Before Tax (AEBT) is set out in the rules (see below). Basically, you can offset certain investments against your P&L before the PSR Calculations are performed.

Official Manchester City Scarf – PUMA3

Manchester City’s financial statements for the years 2012 to 2018 reveal significant investments in infrastructure, particularly the Football Academy construction, which saw £70.3 million spent in 2012-2013 and a further £47.9 million in 2013-2014. These investments are long-term assets, contributing to the club’s depreciation costs, which were considerable across the years, between £7.2 million and £13.5 million annually.

City’s charitable contributions were also notable, with a consistent £1.9 million directed towards Youth and Community Development each year (Football in the Community), alongside smaller donations, such as the £256,000 to City Women in 2013-2014. By 2016-2017, total charity contributions rose to £4.6 million, with £3.7 million dedicated to youth and community initiatives, demonstrating the club’s ongoing commitment to its local community.

Totals From City’s Annual Accounts filed at Companies House

2013-2014

£1,900,000: Youth and Community Development
£256,000 : Donation to Manchester City Women
£7,283,000: Depreciation (section 12 p 18)
£9,439,000: Total(A1)

2014-2015

£1,900,000: Youth and Community Development
£9,086,000: Depreciation (section 12 p 18)
£10,986,000: Total(A2)

2015-2016

£1,900,000: Youth and Community Development
£12,642,000: Depreciation (section 12 p 27)
£14,542,000: Total(A3)

2016-2017

£3,700,000: Youth and Community Development
£13,556,000: Depreciation (section 12 p 27)
£17,256,000: Total(A4)

2017-2018

£3,000,000: Youth and Community Development
£12,914,000: Depreciation (section 12 p 28)
£15,914,000: Total(A5)

When these allowances are aggregated over three-year periods, they produce the following results:

Man City Nero Scarf - Sky/Navy - One Size

£33,067,000: 2013-2016 (B1 = A1 + A2 + A3)
£40,884,000: 2014-2017 (B2 = A2 + A3 + A4)
£47,712,000: 2015-2018 (B3 = A3 + A4 + A5)

These sums are very singificant, and judging by the way the Premier League rshed this through, it is quote possible they over looked the depreciation costs associated with building the Etihad Campus.

Profit and Loss

UEFA’s Financial Fair Play regulations and the Premier League’s PSR require clubs to stay within specific financial limits over rolling three-year periods. City’s declared profits fluctuated significantly during these years. The figures are taken form the same set of accounts:

-£22,929,000: 2013-2014 (C1)
£10,160,000: 2014-2015 (C2)
£19,589,000: 2015-2016 (C3)
£0.104,000: 2016-2017 (C4)
£10,438,000: 2017-2018 (C5)

When these profits are aggregated over three-year periods, they produce the following results:

£6,820,000: 2013-2016 (D1=C1+C2+C3)
£29,853,000: 2014-2017 (D2=C2+C3+C4)
£30,131,000: 2015-2018 (D3=C3+C4+C5)

These rolling three-year profit figures show a trend of financial stability, reflecting City’s growing revenue streams and prudent financial management. But to fully assess their compliance with PSR, we must factor in the amortization of large investments, such as the football academy, and depreciation costs.

Profits (P&L) plus The Adjusted Earnings Before Tax (AEBT)

To ensure a comprehensive evaluation, these rolling profits must be adjusted by adding the P&L to the AEBT:

£39,887,000: 2013-2016 (E1=B1+D1)
£70,737,000: 2014-2017 (E2=B2+D2)
£77,843,000: 2015-2018 (E3=B3+D3)

These adjusted figures indicate a strong financial position, well within the limits set by UEFA and the Premier League. They are positive for a start! They give City a buffer of £145 million, £175 million and £182 million respectively from the PSR limits.

Official Manchester City Scarf – PUMA3

Sponsorship Deals and Allegations

The primary allegations against Manchester City focus on two areas: the payments made to Roberto Mancini and Yaya Toure and the valuation of their sponsorship deals, with Etisalat and Etihad.

Allegation 2: Payments to Mancini and Toure

The payments to Roberto Mancini fall outside the period relevant to the PSR, rendering them irrelevant to the current financial assessments. Meanwhile, the contract claimed by Rui Pinto and Der Spiegel to be additional pay for Yaya Toure is, in fact, a legitimate agreement for DS Management Ltd to advise ADUG on exploiting the image rights of Toure and other players in the group. Clause 3 of the contract clearly states this, nullifying the claim of improper payments.

Therefore, any adjustments to calculations relating to PSR can almost exclude Allegation 2 completely (included later for completeness).

Allegation 1: Sponsorship Deal Valuations

The sponsorship deals with Etisalat and Etihad, valued at £40 million (Etihad) and £10 million (Etisalat) per year, have been scrutinized. To test the financial stability without these sponsorships, their values were subtracted from the AEBT ( £40,000,000 +£10,000,000 ) x 3 = £150,000,000:

-£110,113,000: 2013-2016 (F1 = E1 – £150 million )
-£79,263,000: 2014-2017 (F2 = E2 – £150 million )
-£72,157,000: 2015-2018 (F3 = E3 – £150 million )

These calculations still fall withing PSR for the 2014-2017 and 2015-2018 periods, indicating that City would still comply with PSR even if these sponsorships were valued at zero. However there is an overspend of ~£5,000,000 in the first period.

Adjusted for Lower Sponsorship Valuation

If we hypothetically value City’s sponsorships at a more modest level, akin to the club’s previous deal with Thomas Cook (£2 million a year for six years, so £2m x 3), and apply this as a worst-case scenario:

Man City Nero Scarf - Sky/Navy - One Size

-£104,113,000: 2013-2016 (G1 = F1 + £6,000,000
-£73,263,000: 2014-2017 (G2 = F2 + £6,000,000
-£66,157,000: 2015-2018 (G3 = F3 + £6,000,000

Even under these conservative estimates, Manchester City remains within the financial limits, for each period demonstrating compliance with PSR.

Even if you added the alleged payments to Yaya Toure, this would only adjust the above figure for 2013-26 by 4 million Euros causing a minor breach , and 2014-2017 by 2 million Euros making no difference to the outcome……

Final PSR Calculations (Worst Case)

-£108,113,000: 2013-2016 (H1 = G1 – £4,000,000 )
-£75,263,000: 2014-2017 (H2 = G2 – £2,000,000 )
-£66,157,000: 2015-2018 (H3 = G3 )

So even if everything is proven, the worst case scenario is that City breached the PSR rules in one period by £3,113,000.

This is less than one sixth of the overspend reported by Everton resulting in a 6pt penalty and about a tenth of the overspend reported by Nottingham Forest resulting in a 4pt penalty. Using those as a precedent, City could expect a 1 or 2 point penalty if anything at all.

Don’t forget City finished 4th in the league that year and 3rd the following year, so there are no Premier League league titles affected by this potential breach.

That said you would have to value City’s Etihad Shirt Sponsorship Deal, The Naming Rights and the Etisalat deals all at around £3million or less a year for this breach to occur, which is just laughable (evidence here) .

Also….

There is another limit in the rules which says, if you lose more than £15 million in any period, your owner has to provide guarantees and fund the club to ensure the club can finish the current season and the fulfill the following season. So the owner is required to put in equity funding, which is what City’s owners are being accused of doing. In other words, if proven, City are being accuesed of doing what the Premier league would have required them to do! This is just crazy!

Conclusion

In conclusion, the detailed examination of Manchester City’s financial records reveals a club operating within the bounds of financial fair play regulations. The adjusted figures, even under hypothetical worst-case scenarios, suggest that City did not breach the Premier League’s Profitability and Sustainability Rules. The allegations brought forward by Rui Pinto and Der Spiegel regarding improper payments and inflated sponsorships fail to hold up under scrutiny, revealing instead a club that has carefully managed its finances and leveraged its assets to ensure both on-field success and off-field stability.

In the end, the numbers speak for themselves: Manchester City’s financial practices, while complex and perhaps misunderstood by outsiders, align with the financial regulations governing modern football, and the club remains compliant with the rules.

So far it is believed the Premier League have spent over £200 million on solicitors fees since making the allegation on 6th February 2023 and City have spent over £300 million preparing their defence. By the time this case finishes, it could have cost over £1 Billion in legal fees. Where is the commercial sense in doing that for a breach that might amount to a 2pt penalty at most? If City win and win a claim for costs, this could cost each Premier League club £50million in lost revenue and send many over the PSR limit themsleves.

On the face of it the pursuit of this is shear madness. However as with all the clandestine behaviour involving abuse of market position by Arsenal, Liverpool, Manchester United and Spurs, it might be the ultimate aim is to somehow use this as a lever to force City to join them in a European Super League, either by destroying the Premier League or by kicking City out of it. The truth will come out in time.

When you hear that Manchester United will not be punished for recently breaching PSR by losing £105,500,000. This includes exceptional AEBT allowances outside of the rules, such as a £40million allowance for COVID-19 (the nearest for another club was £1million) and a £35 million allowance to pay for Jim Ratcliffe’s investment. The only conclusion you can draw is that Manchester United actually lost £180million and there is corruption inside the Premier League. Article to follow……

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