Man City boosted finances through creative plays, documents show
LONDON (Reuters) - When soccer’s governing body in Europe began to get tough on the sport’s finances from 2009 onwards, the British club Manchester City came up with a two-pronged counter-attack, a trove of documents relating to soccer shows. One Man City plan was to get more money from sponsors; another was to offload some costs relating to players’ image rights. In both cases, the owner of Man City, an Abu Dhabi royal, would foot some of the bill, according to “Football Leaks” documents obtained by the German publication Der Spiegel and reviewed by Reuters in partnership with European Investigative Collaborations, a consortium of media organisations. In 2009, the executive committee of sport’s governing body in Europe, the Union of European Football Associations (UEFA), approved introducing Financial Fair Play rules to prevent clubs piling up too much debt and super-rich owners dominating the game. The rules were implemented from 2010 onwards. Under those rules, sponsors, suppliers or other commercial partners related to the owner of a club must pay only a market rate in transactions with that club. Related parties cannot simply funnel in unlimited money on behalf of the owner. Breach of the rules can lead to clubs being banned from UEFA competitions. On Nov. 2, Reuters reported how UEFA’s regulatory arm, the Club Financial Control Body (CFCB), took the view that some Abu Dhabi sponsors of Man City were related parties and their deals with the club were above market rates. The club disputed that view, and UEFA’s control body ultimately allowed Man City to record the sponsorship deals at favourable levels that boosted its income. Today Reuters details new information from emails and other documents relating to further arrangements involving Man City, which was bought by Sheikh Mansour bin Zayed Al Nahyan, half-brother of the ruler of Abu Dhabi, in 2008. Those arrangements boosted the club’s finances by tens of millions of pounds, helping it to buy star players. Manchester City said in a statement responding to questions last month: “We will not be providing any comment on out of context materials purported to have been hacked or stolen from City Football Group and Manchester City personnel and associated people. The attempt to damage the Club’s reputation is organised and clear.” The club did not respond to further questions put this month. The club said in an April 2014 response to UEFA investigators about sponsorship that it had complied with the rules and “adopted a good faith and correct interpretation of the regulations.” UEFA said in an emailed response to Reuters that it could not comment on specific cases due to confidentiality obligations. The UEFA control body chairman declined to comment, citing confidentiality obligations. In an overall statement about the Financial Fair Play rules, UEFA said the rules were there to help clubs become financially sustainable and it was “very satisfied” with how they had been applied and the results achieved, noting an improvement in the finances of European soccer clubs. “No system is perfect but on the whole FFP (the Financial Fair Play regime) has increasingly protected European football from financial difficulty since its introduction in 2010,” UEFA said. The documents provide insight into the nature of the huge sums flowing through Man City and could supercharge one of the biggest controversies in soccer. Some rivals have alleged that Man City has benefited unfairly from the financial firepower of its Gulf owner. The club has rejected those claims. The issue is of interest to millions of fans who pay to support soccer teams. Man City’s arrangements for boosting income from sponsors and offloading some costs formed part of a programme termed ‘Project Longbow’ by executives, according to club presentations and emails between managers. It is unclear from the emails reviewed by Reuters whether Sheikh Mansour was aware of the arrangements. Nor do the documents show Man City had an intention to deceive UEFA or its investigators about the state of the club’s finances. And nor do documents reviewed by Reuters show UEFA or its control body accusing the club of deception. The arrangements were as follows, according to the documents. In early 2010, Man City negotiated a three-and-a-half year sponsorship contract with Aabar, a state-controlled investment fund in Abu Dhabi, worth about 15 million pounds a year. But correspondence between the club and Aabar said some of the money would come from other sources. In early 2010, Man City director Simon Pearce emailed Aabar’s then chief executive, Mohamed Badawy Al-Husseiny, saying: “The annual direct obligation for Aabar is GBP 3 million. The remaining 12 million GBP requirement will come from alternative sources provided by His Highness.” That appears to refer to Sheikh Mansour. A spokesman for Sheikh Mansour and the Abu Dhabi government referred questions to the club. Man City director Pearce did not respond to requests for comment. A spokesman for Aabar, the investment fund, said he could not comment on “any information that came from what appears to be hacked or stolen emails.” The club did not make any comment on specific questions beyond its statement above. Other emails discuss the flow of funds from Abu Dhabi United Group (ADUG) - the company through which the Sheikh owns Man City’s parent company - through sponsors to the club. In an August 2013 email, Jorge Chumillas, then chief financial officer at City Football Group, the company through which Sheikh Mansour controls Manchester City Football Club (MCFC), asked Pearce about the arrangement by which money flowed through Etihad, an airline owned by the Abu Dhabi government. “I need to understand the mechanism by which additional sponsorship flows through ADUG. Ii [sic] it ADUG Shareholder->ADUG->Etihad->MCFC? Or is it rather ADUG Shareholder->Etihad->MCFC?,” Chumillas wrote. ADUG is “a private investment and development company belonging to His Highness Sheikh Mansour bin Zayed Al Nahyan,” according to the Man City website. Chumillas could not be reached through Man City, and did not respond to requests for comment sent to City Football Group and via LinkedIn. Other emails describe funds being “routed” through sponsors. An email sent to Pearce in December 2012 by Man City’s head of finance, Andrew Widdowson, said: “In summary we need the following: £27m to be funded via Etihad, £15m to be funded via Etisalat, £42m in Total. Can I ask that the relevant amounts be routed through the partners.” Reuters was unable to verify whether the payments were made. Corporate governance and accounting experts said the sponsors and other counterparties in the transactions with Man City in all likelihood did not break any rules because their shareholders were not disadvantaged by the arrangements and because the amounts were likely not material enough to require detailed disclosure to investors or the public. A spokesperson for Etihad Airways said in a statement: “The airline’s financial obligations, associated with the partnership of the club and the broader City Football Group, have always been, and remain, the sole liability and responsibility of Etihad Airways.” The spokesperson added: “Our partnership with Manchester City and the broader City Football Group continues to deliver important ongoing and accumulative returns on our investments.” Etisalat is a state-controlled telecoms company headquartered in Abu Dhabi. A spokesman for the company said in a statement that football had become a highly competitive market for sponsors and that “we believe that Etisalat has delivered excellent returns from its investments in this area.” He added: “As a publicly listed company Etisalat is driven to create returns for its shareholders in all of its investments, including our commercial partnerships.” Tobias Troeger, a professor of law at Goethe University, Frankfurt, said the directors of sponsoring companies would not be breaking their fiduciary duty to their shareholders if they paid over the odds for a sponsorship contract providing the overpayment was covered by another party and the directors believed the overall transaction was in the best interests of the company and its investors. In other words, if the payments from Sheikh Mansour’s ADUG were covering any potential overvaluation of Man City’s sponsorship deals, there would be no loss to the sponsors’ shareholders. “All the jurisdictions we’re talking about have a ‘business judgement rule’ so executives can essentially determine, without being held liable, how they want to pursue the corporate interest, if it’s a reasonable judgement they make with sound information,” Troeger said. Provided all the payments were recorded correctly in the accounts, there would likely be no breaches of corporate reporting rules, he added. Luca Enriques, Professor of Corporate Law at the University of Oxford, said that while a football club might be bound by UEFA’s rules, the club’s sponsors or business partners would not have any legal obligation to follow the governing body’s rules. “I don’t see how you can put third parties under the domain of football rules,” he said. Widdowson, Man City’s head of finance, did not respond to requests for comment on what was meant by funds being routed through sponsors.