Manchester City's £920m Finding: Why Football Accounts Matter

What did the Manchester City Commission find?

The Premier League published the Commission's redacted 40-page Core Decision on 29 September, alongside a statement setting out its findings. The League is able to publish because the Commission ruled, and an Appeal Board confirmed, that the decision constitutes a final award for publication purposes.

The wider process is not finished. City retain a right of appeal, sanction has not been determined, and the award also contains a large number of appendices which the Premier League says it will publish when it is able to do so.

The findings concern the period from 2009/10 to 2017/18. The Commission found every charge relating to serious breaches of the Premier League's financial rules proved, and upheld the majority of the allegations concerning City's co-operation with the investigation; Charge 4(B), one element of those co-operation allegations, was not proved.

According to the Commission, City arranged contracts with commercial partners which it characterised as shams because they misrepresented the true agreements between the parties, and relied on other sham arrangements to increase reported revenue and reduce reported costs. It found that City filed misstated accounts, concealed the true state of their finances from auditors and football regulators, and significantly breached both Premier League and UEFA spending limits. It also concluded that City intended to circumvent Premier League rules and made concerted efforts to frustrate the League's investigation.

Manchester City reject those findings. The club says it is innocent of the accusations made by the Premier League and that a comprehensive body of evidence supports its positions. It says the Commission's opinion contains clear material errors of law, principle and fact and is unsafe, and has confirmed that it intends to pursue the appeal avenues available to it.

How did the Commission say the funding arrangements worked?

The financial mechanism is what makes the decision particularly relevant to The Pyramid.

According to the Commission's findings, sponsors entered into agreements with Manchester City at stated values but were required to fund only part of the relevant sponsorship fees, with the remainder ultimately funded by ADUG, City's owner. The money still reached the club. The accounting classification is what mattered.

Commercial revenue and an equity contribution from an owner are not economically interchangeable. Revenue represents income generated by the football business; equity represents capital supplied by its owners. Financial regulations also treat those sources differently when determining how much a club may spend. On the Commission's findings, money ultimately supplied by ADUG appeared in City's accounts as commercial income from sponsors.

The Commission also found arrangements affecting the other side of the income statement, concluding that further ADUG-funded structures allowed City to record lower operating expenses than it actually incurred, and identifying a circular arrangement involving Fordham, the entity which acquired players' image rights. On the Commission's case, the effect therefore ran in both directions: revenue was overstated and expenditure understated.

City dispute the Commission's conclusions and now have the opportunity to challenge them on appeal.

How much did the Commission identify?

The overall scale of the accounting findings exceeds £920m, but that number requires care. It is not £920m of overstated sponsorship revenue. It is not £920m of money found to be missing. And it is not a £920m fine or an assessment of damages.

The largest component is more than £830m of income which the Commission found had been overstated because sums presented as commercial revenue should instead have been treated as equity contributions from ADUG.

Other items affect different parts of the accounts. The Commission separately identified £24.5m of Fordham operating income which it found should have been treated as an ADUG equity contribution, and £49.414m of Fordham expenses which it found had been omitted from operating costs. Further expenses were found to have been understated by more than £8.866m under one arrangement, £7.4m under another and £500,000 under a third.

Those figures should not simply be collapsed into a claim that City had £920m of additional revenue. They describe adjustments to different sides of the accounts. What the combined scale demonstrates, on the Commission's findings, is that the issue was not confined to one sponsorship contract or one accounting period: it concerned the treatment of income and expenditure across a substantial part of nine seasons.

Manchester City dispute those findings.

Did the Commission find City breached spending limits even at fair market value?

Yes, and this may be the most consequential part of the Core Decision beyond the headline figure.

The Commission did not rely exclusively on its conclusion that the relevant sponsorship arrangements were shams. It also considered an alternative: what would happen if that primary finding were wrong. On that alternative analysis, the relevant sponsorship agreements would have to be substituted with what the Commission considered their fair market values for regulatory purposes — and it concluded that those values were very substantially below both the stated sponsorship fees and the commercial revenue recorded in City's accounts. After making those substitutions, it found City still failed the relevant spending requirements in every season covered by the charge.

That does not mean the alternative finding is immune from appeal. City may seek to challenge the Commission's fair-market-value analysis as well as its primary findings. It does mean something narrower but important: if an appeal succeeded only in overturning the Commission's characterisation of the agreements as shams, that would not necessarily dispose of the spending-limit findings, because the Commission has set out an alternative route to those conclusions.

City say the Commission's opinion as a whole is unsafe and contains material errors of law, principle and fact.

Why 'true and fair view' matters

Two phrases in the Core Decision matter particularly for a publication about football finance.

The first is true and fair view. The Commission found that Manchester City's financial statements did not provide a true and fair view of its financial position. That is not merely football terminology; a true and fair view sits at the heart of UK financial reporting, and concerns what the accounts themselves tell a reader about the financial position and performance of a business.

The second is related-party transactions. The Commission found that the relevant sponsorship arrangements should have been disclosed as such. That distinction exists for a reason: readers need to know when transactions presented in a company's accounts involve parties connected with its owners or management rather than wholly independent counterparties dealing at arm's length.

Manchester City dispute the Commission's findings. But the issues the decision raises go considerably further than whether one football club complied with one set of spending rules. They concern what football accounts actually tell us.

Revenue is not owner funding

The Pyramid has spent much of the past month looking at exactly this distinction further down English football.

At Leicester City, we found £186.5m of revenue alongside hundreds of millions of pounds of historical owner support. At Fisher, annual turnover is just £80,444, yet much of it can be reconstructed almost line by line: £24,876 from the tea bar, £22,612 from home tickets, £12,208 from sponsorship and smaller amounts from memberships, merchandise and supporter contributions. In women's football, parent-club funding can be one of the largest financial inputs into an otherwise rapidly growing business. Further down the pyramid, disclosure eventually becomes so limited that some filed accounts reveal no turnover at all.

The numbers change enormously. The accounting question does not. Where did the money actually come from?

Revenue tells us what the football business generated. Equity tells us what its owners supplied. Debt tells us what has been borrowed and may ultimately need to be repaid. Related-party disclosures help readers understand the relationships behind transactions which otherwise appear commercial.

Owner funding itself is not improper, and football is full of it. Harrogate Town's chairman has lent millions to his club interest-free. Michele Kang has provided substantial capital to London City Lionesses. King Power converted hundreds of millions of pounds of Leicester City debt into equity. Those transactions tell readers something fundamental about the economics of the clubs involved, because the source of the money is disclosed.

The Commission's finding against Manchester City is different: it found that owner money was recorded as something else, in accounts relied upon by auditors and football regulators. Manchester City emphatically reject that conclusion.

Why this matters all the way down the pyramid

Manchester City sit at one extreme of football finance. Fisher sit close to the other. Yet the reason we read their accounts is identical.

Turnover alone tells us very little unless we understand its composition. A club generating £20m commercially is economically different from one recording £20m after substantial related-party income. A club receiving £5m of shareholder equity is in a different position from one borrowing £5m. A club making an accounting profit after player sales may have a very different underlying football operation from one generating cash from ordinary activities.

The Commission's Manchester City decision is an unusually large illustration of that basic problem. On its findings, the headline accounts did not accurately describe the underlying economics, because money supplied by the owner appeared as commercial revenue and other arrangements reduced reported expenditure. City dispute that case and have a statutory process within the Premier League's rules through which to challenge the Commission's findings.

But the accounting question is precisely the one The Pyramid asks every time it opens a set of club accounts. The number matters. Where the money came from matters more.

What happens next?

No sanction has been decided. That distinction matters, because the publication of the Core Decision has already produced considerable discussion about points deductions, relegation and expulsion.

The Commission will consider sanction separately at a further private hearing. Premier League rules give it broad discretion, with the League identifying a non-exhaustive list which includes fines, points deductions and other sporting sanctions.

Manchester City have until Friday 2 October to exercise their right to appeal the Commission's findings. An Appeal Board has broad powers: it can allow an appeal, dismiss it or make another order it considers appropriate, including varying an order made by the Commission.

The process is therefore at an unusual stage. There is now a published final award containing findings against City, but those findings remain subject to an appeal process and no punishment has been imposed. The Premier League says it intends to move through the remaining stages as quickly as possible.

Why it matters

Last week, The Pyramid asked where Manchester City could actually play if the eventual sanction were expulsion rather than a points deduction. That question remains unanswered, because there is still no sanction. A points deduction capable of putting City in the bottom three would operate through the ordinary mechanism of Premier League relegation, while removal from the competition would create a different issue, because the Premier League cannot simply allocate a place in an EFL competition.

The Core Decision now gives us a different story, and the findings are fundamentally about accounting. The Commission found that the accounts did not provide a true and fair view. It found relevant sponsorship agreements should have been disclosed as related-party transactions. It found hundreds of millions of pounds recorded as income should instead have been treated as owner equity, alongside separate adjustments to expenditure. City deny those findings and have until Friday to challenge them.

For The Pyramid, that is why this case reaches beyond Manchester City. Football finance is often presented as a collection of headline numbers: turnover, losses, debt, wages, transfer spending. The accounts only become useful when those numbers are taken apart, because revenue, equity, debt and related-party income tell fundamentally different stories about the economics of a football club. If their classification is wrong, conclusions drawn from the headline figures can be wrong with them.

That applies whether turnover is £80,444 at Fisher, £186.5m at Leicester or hundreds of millions of pounds at Manchester City. The scale changes. The question does not. Where did the money actually come from?

What to watch

The appeal. Manchester City have until Friday 2 October, and the grounds they pursue will matter. The Commission's alternative fair-market-value analysis means overturning only its characterisation of the sponsorship agreements as shams would not necessarily dispose of the spending-limit findings. City may challenge that alternative analysis too.

The sanction hearing. No sanction has been imposed. A separate hearing before the independent Commission will consider what follows from the findings, subject to any appeal.

The appendices. The published Core Decision is redacted and refers to extensive supporting material. The Premier League says it will publish the additional appendices when it is able to do so.

UEFA. The Commission also found City significantly breached UEFA's spending limits during the relevant period. City dispute the Commission's findings.

The accounting evidence. The Commission found that the club's accounts did not provide a true and fair view and that the true state of its finances was concealed from its auditors and football regulators. Those are findings within the Premier League proceedings; the Core Decision does not itself establish any separate action by an accounting or audit regulator.

Disclosure: Bloodstone Capital Research and The Pyramid are under common ownership.