Manchester City guilty of sham contracts and misleading accounts over nine seasons, Premier League commission finds

Independent commission says City used disguised funding to inflate commercial revenue

The independent commission’s 40-page ruling published on Tuesday found Manchester City guilty of all charges related to serious breaches of financial rules, and all but one in relation to a failure to co-operate with the investigation. The word “sham” appears eight times in the document.

“To cheat, trick, deceive, delude with false pretences; to impose upon, take in, hoax.” That is the Oxford English definition of the word "sham". And that word appears eight times in the independent commission's ruling published on Tuesday, which found Manchester City guilty of all charges related to serious breaches of financial rules, and all but one in relation to a failure to co-operate with the investigation.

Disguised Funding Scheme hid £830.69m of owner support

The ruling says Abu Dhabi United Group, which bought the club in 2008, recognised from the start of the 2009-10 season that major overspends would follow its ambition to sign the best players and be winners. Total losses for 2009-10 were set to exceed Chelsea’s then-record single-season Premier League loss of £140m in 2006, with large losses expected for at least the next five seasons as UEFA and Premier League financial fair play rules loomed.

To address this, the commission found City entered into sponsorship agreements that were “record amounts and were significantly above fair market value”. The so-called Disguised Funding Scheme split deals into a base fee paid by sponsors and a tagged sum paid by the club’s owners.

“This gave the misleading impression to third parties (including regulators and its auditors) in its financial statements and any required FFP returns that its commercial revenues from sponsorship agreements were far, far greater than was in fact the case”.

The scheme was tweaked from time to time “to assist with continued concealment” and “reduce the likelihood of difficult questions being asked”. Commercial income from sponsors totalled £949.94m in the seasons from 2009-10 to 2017-18. The ruling says only £119.25m represented base fees. A total of £830.69m represented tagged sums paid by the club’s owners.

Manchester City have denied the claims and say the Premier League had misunderstood the sponsorship agreements. The panel said it “rejected that explanation as untrue”. It said it was “concocted well after the event in an attempt to obscure and conceal the realities of the disguised funding scheme”.

An example cited is May 2013, less than a week before the end of the 2012-13 financial year, when the club knew it was £9.9m short of complying with UEFA’s financial rules. Modified sponsor agreements were generated without sponsors being approached to increase recorded sponsorship fees for bonuses for events that had already taken place and for a US tour, thus “plugging” the feared UEFA FFP shortfall.

Project Longbow and the Fordham Arrangement

In 2012 City launched Project Longbow. The ruling says many strands were genuine attempts to boost revenues and reduce operating losses. One was not: the Fordham Arrangement.

This was an agreement between City and a third party called Fordham which was, according to the ruling, “little more than a front”. Funds from the club’s owners “would be used (and were used) to enable Fordham to acquire from the club (at a sizeable, artificially-inflated price) the club’s entitlement to benefit financially from its players’ image rights”.

It was a “further device by which funds could be paid into the club in a manner that concealed their true origin”. And this “enabled the club to pretend that such funds represented operating income”. In the financial statements wrongly recorded as operating income was the sum of £24.5m, and £49.414m was wrongly excluded from operating expenses. The ruling says the Fordham Arrangement was “operated with the knowledge and approval” of a number of individuals whose names were redacted.

Contracts moved off the books

Another method was to move expensive contracts for players and managers off the books by paying remuneration or wages through third parties, in reality paid by the owners. This was “instead recorded in a consultancy agreement” and “concealed the true extent of the club’s liabilities”.

Three separate cases are attributed to this, with names redacted. City used this method for payments of £8.866m, £7.4m and £0.5m.

Witness evidence and cooperation failures

“By its conduct the club clearly intended to circumvent the Premier League rules. ‘The club made concerted efforts to stop and frustrate the Premier League investigation’.”

City served witness statements or documentary evidence from 24 individuals, most of whom gave evidence at the hearing. The ruling said the evidence given by a number of important factual witnesses “was false in a number of key respects”. It added that certain factual witnesses provided evidence “that they knew to be untrue and so had been dishonest”.

The commission also said City knew annual accounts “did not provide a true and fair view of the financial position” and that the club “was reckless as to whether those annual accounts provided a true and fair view”. All in this, it was said, showed City failed to act “with utmost good faith” and “breached duties of co-operation that it owed to the Premier League”.