Premier League clubs were required to disclose to the Premier League details of significant contracts by 11 January 2022 .
In light of the recent Newcastle takeover backed by a Saudi-led consortium, the Premier League has introduced new regulations relating to third party transactions (further detailed below). The 20 Premier League Clubs were entitled to vote on the proposed rule change. Only two clubs opposed the change - Newcastle and Manchester City.
The recently adopted Section E67 of the Premier League Handbook states that each Club must submit to the Premier League summary details of third-party transactions to which a payment, fee or value in kind is or will be provided to the Club where the total value is over £100,000 per annum, subject to the exceptions which include the sale or loan of a player’s registration. The Premier League state they want sight of all contracts within these parameters dating back to 1 January 2016, by no later than 11 January 2022; and going forward no later than 14 clear working days after a transaction contract is executed.
In compliance with the rules, Premier Leagues Clubs have had to audit their contracts to identify those that fall into the definition, grouping those over a certain financial threshold and submitting them on to an online portal, administrated and accessed, by the Premier League. The online portal required them to fill in a specific form that extracts key commercial terms such as contracting party, parent company, financial value, length of term and the rights the commercial partner gets in return.
The Handbook states that the information submitted to the League in compliance with this rule will be used “solely to assist with the process of Fair Market Value Assessment”. In short, does the agreement represent true market value, as if the transaction was concluded at ‘arm’s length’. The rule is intended to improve transparency within the League and confirm that current and historic contracts are not financially inflated, with reference to genuine and accurate market information. Arguably, the main purpose of the exercise is to give the Premier League a set of data of the current and historic commercial partnership deals within the League, enabling them to categorise and analyse the data and establish a fair market value range for Premier League club partners in a specific sector, for example, the fair financial value range of sponsorship deals for alcohol and betting and gambling partners. In doing this, it will allow the Premier League to red flag those deals which fall out of the established fair financial value range, on the basis that they are potentially (and unfairly) financially inflated and not representing fair market value. Ultimately, the rule limits clubs (including those newly acquired) to spend beyond their commercial means (in the context of the relevant profit and sustainability regulations) and grow quickly through disguised commercial deals that are, for example, ultimately owner financed.
The rules fit as another piece in the profitability and sustainability rules which prevent clubs spending more than they bring in. Currently the rules (Rule E49) allow a club to make a loss of £105 million over three years before it becomes subject to sanctions.
Ultimately, these rules are designed to regulate clubs and reduce the risk of clubs getting into financial difficulties, which may threaten their long-term survival. The rules also prevent clubs from overspending in pursuit of success, therefore protecting the integrity of the competition that is the Premier League.
As these are new rules, set for their first round of implementation, it remains to be seen how successful they will be at achieving their objectives, and also how actively they will be policed. No doubt all 20 Premier League clubs will be waiting with interest on the outcome of the audits. It will be interesting to see how the Premier League subjectively assesses the overall value of a particular commercial deal and how it benchmarks and categorises it against its data set. It is conceivable that the Premier League’s subjective findings of the audits will lead to disputes – there are so many different characteristics and circumstances to consider, from one club to the next, that will make objective comparisons difficult. For example, what happens if a club in a particular season manages to pull off an unexpected high-profile player signing, or a club has enjoyed unexpected success in a previous season, or new ownership creates a buzz, or some other off-field occurrence makes the commercial attractiveness of that club spike in a particular season, leading to an increase in commercial partnership revenue – will this trigger a ‘red flag’ in the audit?
As this area develops, clubs will have to give careful thought to the valuation of their commercial properties and assets and how they are sold and licensed. Given the potential future scrutiny of deals, it will be extremely important for the contracts which incorporate the terms of the deals to be carefully drafted, and perhaps even supported with third party opinion on the market value of the properties and assets in question.
Let’s see what happens. Please feel free to contact a member of our Litigation or Sports Law teams if you would like to discuss the issues raised in this blog.
