Man City Guilty: £830m Disguised Funding Scheme Exposed

Manchester City found guilty of all Premier League financial charges after £830m disguised funding scheme

An independent commission has found Manchester City guilty of all charges related to serious breaches of financial rules, plus all but one charge of failing to co-operate, after a nine-season scheme that disguised more than £830m of sponsorship funding paid by the club's Abu Dhabi owners.

Verdict: Guilty on all charges related to serious breaches of financial rules, and all but one charge relating to failure to co-operate with the Premier League investigation.
Disguised funding: £830.69m of commercial income from 2009-10 to 2017-18 was tagged sums paid by the club's owners, leaving only £119.25m in genuine base fees from sponsors.
Total commercial income: £949.94m across the nine seasons assessed by the commission.
Additional concealment: Other devices hid a further £90m in expenses, including the Fordham Arrangement and third-party payments for player and manager contracts.
Co-operation: The ruling states City's witnesses gave false evidence and that certain individuals knew their evidence was untrue.
Document: The independent commission's 40-page ruling was published on Tuesday.

The disguised funding scheme explained

Manchester City were bought by Abu Dhabi investors in 2008, but the ruling states their predicament became clear from the start of the 2009-10 season. The new owners wanted the best players and wanted to win, but total losses for that campaign were set to exceed the then-record single-season loss by a Premier League club — Chelsea's £140m in 2006 — and City's owners were adamant that record should not be broken.

The club also knew they would likely continue to suffer large losses for at least the following five seasons, just as Uefa and the Premier League were bringing in financial fair play rules. The only option, the commission found, was to significantly increase commercial revenue and reduce reliance on their owners.

In early 2010, City began entering sponsorship agreements at record amounts significantly above fair market value. The commission labelled this the 'disguised funding scheme'. Sponsorship deals were split into a base fee, paid by the sponsor, and a tagged sum, paid by the club's owners. That structure allowed the owners to pay the vast majority of each contract while giving the misleading impression to regulators and auditors that the club's commercial revenues were far greater than they were.

The panel said the scheme was tweaked from time to time to assist with continued concealment and reduce the likelihood of difficult questions being asked. City denied the claims and said the Premier League had misunderstood the sponsorship agreements, but the panel rejected that explanation as untrue and described it as concocted well after the event in an attempt to obscure and conceal the realities of the disguised funding scheme.

The numbers

£949.94m: total commercial income from sponsors from 2009-10 to 2017-18.
£119.25m: the portion that represented genuine base fees.
£830.69m: tagged sums paid by the club's owners.
£9.9m: the shortfall City faced in May 2013 before modified sponsor agreements were generated within days.
£24.5m: sum wrongly recorded as operating income under the Fordham Arrangement.
£49.414m: sum wrongly excluded from operating expenses under the Fordham Arrangement.
£8.866m, £7.4m, £0.5m: three separate cases of remuneration paid through third parties and concealed in consultancy agreements.

Project Longbow and the Fordham Arrangement

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

This was an agreement between City and a third party called Fordham which the commission described as 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. The ruling called it a further device by which funds could be paid into the club in a manner that concealed their true origin, enabling the club to pretend that such funds represented operating income.

City also moved expensive contracts for players and managers off the books by paying remuneration through third parties, while in reality it was paid by the owners. This was recorded in consultancy agreements and concealed the true extent of the club's liabilities.

May 2013: how the scheme plugged a £9.9m hole

Less than a week before the end of the 2012-13 financial year, City knew they were £9.9m short of complying with Uefa's financial rules. According to the ruling, in a matter of days, and without sponsors even being approached, a number of modified sponsor agreements were generated which increased recorded sponsorship fees to pay bonuses for events that had already taken place and to pay for a US tour. The feared Uefa FFP shortfall was thus plugged.

Witnesses, honesty and the regulator

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, and that certain factual witnesses provided evidence they knew to be untrue and so had been dishonest.

The commission also found that City knew the 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. Overall, it said, City failed to act with utmost good faith and breached duties of co-operation owed to the Premier League. The ruling states that by its conduct the club clearly intended to circumvent the Premier League rules, and made concerted efforts to stop and frustrate the Premier League investigation.

No individuals have been named in the ruling, but this could prove problematic later, as the new Independent Football Regulator is able to examine the honesty and integrity of directors and owners.

Analysis: Why the Fordham Arrangement is the most damaging finding

The disguised funding scheme is the headline figure, but the Fordham Arrangement may prove the most damaging detail. It moved image rights off the books at an artificially inflated price, shifting £24.5m into operating income and stripping £49.414m out of operating expenses. That is not a creative accounting dispute — it is the commission finding a purpose-built structure designed to disguise where money came from.

The three unnamed third-party remuneration cases, involving £8.866m, £7.4m and £0.5m, follow the same logic. If wages for players or managers were routed through consultancy agreements, then the true cost of the squad was hidden from the Premier League, Uefa and auditors alike. With names redacted, the full written reasons may yet reveal which contracts were affected.

The strongest language, though, is reserved for City's witnesses. Twenty-four individuals provided evidence, and the ruling states some gave evidence they knew to be untrue. That finding moves beyond financial breach and into honesty, which is exactly where the Independent Football Regulator has jurisdiction. Directors and owners can be assessed on integrity, and although names are redacted, the commission's conclusions are now on the record.

Talking points

Should the Premier League have brought these charges years earlier, given the scheme began in 2009-10 and ran for nine seasons?
If the Independent Football Regulator can assess director honesty, what sanctions should follow for witnesses found to have given knowingly false evidence?
City fans argue the club denied all claims and said the Premier League misunderstood the deals, yet the panel rejected that explanation as untrue — how does the club respond?
Does the redaction of every individual name protect the wrong people, given the ruling's findings on honesty and integrity?

What happens next

The full written reasons are expected to be released, which may publish names redacted from the 40-page document, including those involved in the three third-party remuneration cases and the witnesses criticised by the commission. The Independent Football Regulator will then be able to examine the honesty and integrity of directors and owners under its remit. City have denied the claims.

Frequently asked questions

What was Manchester City found guilty of?

The independent commission found City guilty of all charges related to serious breaches of financial rules, and all but one charge relating to a failure to co-operate with the Premier League investigation.

How much money was hidden by the disguised funding scheme?

The ruling found £830.69m of sponsorship income between 2009-10 and 2017-18 was tagged sums paid by the club's owners, out of total commercial income of £949.94m. Other devices hid a further £90m in expenses.

What did the commission say about Manchester City's witnesses?

The ruling said evidence from a number of important factual witnesses was false in key respects, and that certain witnesses provided evidence they knew to be untrue and so had been dishonest.