Manchester City and UEFA's FFPR
The news was startling for some.
Manchester City make a record loss of £190m + It’s a big number and one that many in the press are making the most of.
But when you dig a little deeper it is soon apparent that there are no sweat beaded brows at the Etihad Stadium.There was barely a glimmer of concern about the whole issue within MCFC.
Yes the losses were large, but they were expected.
Yes the numbers could be seen as scary but they were planned for well in advance.
You see Manchester City is almost unique in world sport in that it carries no debt (other than a lease agreement for the Etihad Stadium) whilst making such losses.
Within minutes anyone who cared to read the annual statement ( http://www.mcfc.co.uk/News/Club-news/2011/November/MCFC-Annual-Reporthttp://www.mcfc.co.uk/News/Club-news/2011/November/MCFC-Annual-Report ) would have seen that the losses were covered by a debt/equity swap carried out by the club’s owner, Sheikh Mansour.
So the debt was covered, cool.
Then UEFA’s Financial Fair Play Rules (FFPR) would be the next problem for MCFC to overcome?
But these losses would not be included in any FFPR calculations only losses reported from this year and the following 2 years would be needed for those purposes. (FFPR run in 3 years cycles).
People in the know of course were aware of this, but many lazy journalists had been fanning the flames of disaster and impending doom and many none City fans were lapping it up.
Ignore the fact that every measure of income shows more than steady growth.
Ticket sales UP, TV income UP, commercial revenues UP, turnover UP.
City have spent really, really heavily in the transfer market to get where they are and incurred massive losses, and they have a wage bill that is in excess of income but that was the price the club had to pay to get where they are.
And where are they? In the Champions League for the first time ever which is likely to bump income still further, by perhaps as much as £30-40m this year alone.
And unlike Spurs who didn’t get back into the CL this season it looks like City are a shoe for next year as well (fingers crossed).
City are also FA Cup holders.
City are also top of the Premier League.
City now have a young and dynamic squad that wont need such massive investment again.
And as well as the extra revenues already on tap for next years accounts City have the income from the mega Etihad Campus deal, estimated at £35m p.a. for 10 years with escalators that, it is suggested, could take the value past £60m p.a. once the Campus is completed and if City win the Premier League or Champions League.
But there are some that still think UEFA, via their Financial Fair Play Rules (FFPR) will be stop City and that indeed they intend to do just that.
But can a football club owned by a member of a wealthy royal family be stopped by a sporting body with a few forensic accountants?
The answer is quite simply no.
You see the desire to stop the spending of ‘sugar daddy’ owners is one thing.
Being able to prove that income is ‘ill gotten’ is a whole different ball game.
Under FFPR income can only really be excluded if they are A) Not at fair market value B) Deemed to be from a ‘related party’.
So what exactly IS fair market value?
Proving what a deal is worth to a sponsor/partner is a tough one and as long as any sponsorship deal is within touching distance of previous, similar deals then UEFA will not have enough authority to discount it.
As well as making a deal similar enough in value to previous deals, to push but not break acceptable levels, MCFC could do types of deals that have never been done before.
Thus making it unlikely that UEFA could even create a realistic benchmark.
That is what City have done with the Etihad Campus deal - it comprises of shirt sponsorship, stadium naming rights and most importantly they are lead sponsor to the future academy and the as yet fully described ‘Campus’.
But of course UEFA can only discount income if it is from a recognised related party and deemed above fair market value.
The club’s owner could simply make fifty phone calls to fifty relations within the Arab royal families and, hey presto fifty new £5m p.a. partnership deals for things as diverse as training apparel, website sponsor, official cars, club bank etc
None of the deals would be above market value and FFPR does not allow for income to be kicked out because there are too many of them.
But lets just say that UEFA really did want to have a go at the worlds wealthiest football club and they forced the issue as to related parties. I wonder how much time, effort and money they would be willing to expend getting the goods on who owns what to prove that ‘related party status’?
You see the Abu Dhabi royal family is hugely wealthy, and as is the way of wealthy families who rule over a recognised state such a Abu Dhabi, they have Sovereign Wealth Funds (SWF’s)
These SWF’s are rather secretive and in the case of Abu Dhabi (AD) rather well endowed.
Let me explain just a little of how these things work.
AD has a number of SWF’s which are, in the main, tasked with investing the wealth of AD abroad in order to diversify the state from oil revenues and create income and growth.
The largest SWF in the world is the main AD SWF - ADIA - Abu Dhabi Investment Authority which is thought to have $875bn available to it.
A smaller SWF, Mubadala Development Company has a minimum of $25bn available to it.
Then there is IPIC, International Petroleum Investment Company with about $65bn rattling around.
There are other funds as well but lets try to keep this manageable shall we.
The three funds named have invested in all manner of businesses all across the globe with names such as Daimler Chrysler, Ferarri, Tesla, Hyatt Hotels, AMD, Barclays, CitiGroup, Santander, EADS and many, many more truly global companies that could, theoretically be proven to be a ‘related party’ if they were to sponsor MCFC in any way.
But of course the income can only be deemed unacceptable if it is above ‘fair market value’ AND from a ‘related party’.
There are thousands of other multi-billion dollar companies that these SWF’s dip in and out of including Credit Agricole, FIAT, Thales, GSK, NBC, Disney the list is endless.
But then there are investments made that are so weird that you really could not make it up.
By way of example AD have a 75 year lease on the income from all of the 36,000 parking meters in Chicago in a deal going back to 2008 and costing over $1bn.
How can UEFA keep tabs on the related party status of a body that makes a few billion pounds buying and selling shares in Barclays whilst another arm of the same family’s interests buys a 75 year lease in Chicago’s parking meters.
Another AD SWF owns 90% of the Chrysler Building, worth $800m!
And FFPR allows a rather nifty trick that removes all doubt in any case.
If a product or service, or indeed any company trades under the clubs name then any revenue from that company is A OK.
This was allowed because the existing big clubs already all manner of products from which they earn including travel clubs, credit cards, drinks, shops, bank accounts etc.
So any of AD’s investments could change the name to Manchester City (enter business name here) and the income is allowable.
Keep that one in mind as you read on.
But lets assume that UEFA have got the bit between their teeth on this one and are still trying to prove that ‘related party’ status.
Have a go at this fellas.
Abu Dhabi Investment Council (ADIC) a further SWF has a few subsidiaries through which it does deals and invests (remember that this is not the same as Mubadala, ADIA or IPIC which also have a web of companies doing their bidding).
One part of ADIC is Invest AD (http://www.investad.com/en/home.aspx) You will see Sheikh Mansour’s name on that web page so it MUST be a related party?
But that one part of one SWF invests hundreds of millions of dollars in Turkey, Rwanda. It has an Iraq Opportunity fund and a UAE total return fund.
Its emerging Africa fund is doing well.
But that one arm of ADIC is only a piece of the jigsaw.
There is also the Al Hilal Bank, specialising in Islamic banking worth several billions.
AD Commercial Bank with assets of $148bn, apparently.
Then there is the Union National Bank
AD National Insurance Company
AD National Chemicals Company
Then there are some more companies that are used to invest outside of AD such as the Cayman Islands based Procific, who own god knows what on behalf of Sheikh Mansour’s family.
Then there is Tannadice Investments Inc, Flamingo, Fundaq, Ganges, Gulab, Indent, Manly, Mark5, Way, Monsoon, Merlion, Roic, SSGain or Tamweelview European Holdings SA or Jhelub.
The list is almost endless and the money goes everywhere.
So I ask you this, how are UEFA going to prove that any of the dealings that Manchester City FC have with partners and sponsors are via ‘related parties’ if Sheikh Mansour wants to hide that link?
It may seem unfair that City can get around the rules but thats the nature of such things.
And that’s even before we get onto the fact that there are enough large corporations willing to do almost anything to get into bed with the worlds wealthiest family.
Or of course that all Sheikh Mansour needs to do to remove all doubt in terms of FFPR to rename a large company with goo income and profits after the club.
Manchester City Islamic Bank anyone?