by Harry Dowd scored » Fri Aug 23, 2024 5:47 pm
This is Colin Savage latest on the case
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First of all, apologies for the delay in producing this second part of my thoughts about City’s PL charges. An unexpected and enforced house move, a health issue (which was fortunately nothing to worry about), a change of role at work and other things I’ve needed to concentrate on have kept me more occupied than I would have preferred. But everything has settled down, so I can return to doing this stuff.
As promised, I’m going to talk about the second heading of the PL’s charges against us, which relate to payments to players and managers. It seems odd to bundle these under one heading, given they appear to relate to two completely different scenarios, that’s what the PL chose to do, plus there’s a common element underlying both. I’ll tackle them separately, with the proviso that we can only make an informed guess as to the exact nature of the allegations. But I think that guess is pretty straightforward in these cases.
Payments to managers
Given the years this charge covers (2009-2013) it can only relate to Mancini and, thanks(?) to Der Spiegel, we can be pretty sure about the specifics.
We know that, alongside his contract with City, he had a side contract with the Al Jazira club in Abu Dhabi, which is also owned by Sheikh Mansour. As part of that contract, Mancini was tasked with providing a minimum of 4 days consultancy a year to Al Jazira, for a sum of £1.75m per annum, which is nice work if you can get it.
The contract wasn’t with Mancini personally however (even though he signed it) but with a company called Sparkleglow Holdings, which he was presumably a director & shareholder of and was registered in Mauritius. It should be noted that Mancini wasn’t obligated to provide that consultancy personally, but that he could supply it via other third-parties qualified to do so.
The media made great play of this contract doubling his salary from City, which was somewhat disingenuous. We know from Der Spiegel that his base salary from City was £1.45m but there were numerous performance incentives built in to his contract. There were bonuses for finishing in the top four, which ranged from £1.5m for a 4th-place finish, up to £4m for winning the PL. There were bonuses for achieving targets in the European competitions and the domestic cups. In the 2010-11 season, when we finished 3rd in the PL and won the FA Cup, he would have received and additional £3.5m on top of his basic £1.45m.
Under the same incentives, he would have received an additional £4m for winning the PL the following season. His base salary also increased however, from £1.45m in 2009-10 to £2.9m in 2010-11 and £3.4m in 2011-12. This was detailed in emails between Garry Cook and Mancini in the summer of 2011. At the same time, it was agreed that the Al Jazira contract would be renegotiated, this time with a company called Italy International Services (IIS). As part of that, the base payment of £1.75 m remained the same but there would be a signing-on fee, plus Italian tax of 45% paid under the contract.
Der Spiegel also produced documents from March & April 2011 showing two payments made by Manchester City on behalf of Al Jazira, under the arrangement. One was described as a “reconciliation” (possibly the backdated tax element of the contract or the signing-on fee) and the other for the quarterly instalment of the normal £1.75m annual fee. It’s this disclosure that gave rise to the claim that City were paying Mancini ‘under the table’ and to potentially avoid problems under FFP.
We can dispose of the FFP-dodging claim pretty quickly. For one thing, Mancini joined in 2009 and FFP didn’t start until 2011. It’s barely conceivable that we felt that the additional £1.75m a year would help us avoid failing FFP. As we know, we recorded significant losses over the first FFP assessment, totalling £150m over the two years ending 2012 and 2013. The £3.5m paid to Mancini during that period was therefore pretty insignificant in the overall scheme of things.
So, did we pay him ‘under the table’ as has been suggested and, if so, why? The reason I assume we undertook this arrangement was due to some tax advantages it may have given Mancini. His City remuneration would have been paid, like all employees, with relevant deductions, including income tax.
Personal service contracts of the type agreed with Al Jazira, are paid gross however, with the recipient being responsible for any applicable taxes, rather than an employer. As a freelance IT consultant, I entered into such contracts regularly, which were standard in that scenario. There used to be financial advantages to these arrangements although these have been very significantly reduced in recent years.
Another possible explanation is that it’s known that Mancini already had a pre-existing relationship with Khaldoon al-Mubarak and therefore may have already had some sort of contract in place. We simply don’t know however, and the actual reason might not be relevant. The key questions are:
• Were City using this contract to pay him off the books?
• Did he actually fulfil the contract to provide services to Al Jazira?
On the surface, the evidence of City making payments might appear to support the first point. But you have to be careful with the Der Spiegel stories. I said at the time that they were selective and lacked context. They’d show an email suggesting that something underhand had been or would be done on sponsorship contracts, without showing the full picture. CAS did see the full picture however and dismissed the idea that anything underhand relating to sponsorships with Etihad had taken place.
To demonstrate the point about context there is an email disclosed within the Mancini documents that showed some payments were netted off against a payment from ADUG, Sheikh Mansour’s company. It’s therefore perfectly possible that City paid out the money but got it back from Sheikh Mansour, the Al Jazira owner. That would negate the idea that City were paying Mancini off the books.
The other part of the scenario is whether Mancini, or his representatives, provided the required consultancy to Al Jazira. If he did, or the PL can’t prove that he didn’t, then I suspect this part of their case will fail to clear the ‘comfortable satisfaction’ hurdle that will be required.
Payments to players
The other part of the second charge relates to payments to players. There was some speculation that payments to Yaya Toure’s agent were part of this but it’s far more likely to be about image rights payments. These are payments to players for use of their voice and image in club publicity and other media scenarios. Why is it paid separately though?
The answer is that, similar to the Mancini Al Jazira contract, it’s paid gross to the players, usually via limited companies (or their equivalent). Doing that reduces a clubs’ overall wage bill, as that part of their remuneration won’t be subject to automatic deduction of income tax or NI. HMRC has a number of cases running against clubs who it feels have abused the payment of image rights. Their rule of thumb is that 10% of a player’s total remuneration is acceptable, but it’s not black and white and can depend on the player’s market ability. So, if a player earns £200k a week, £20k of that can usually be paid as image rights, with the other £180k attracting UK income tax and NI.
In City’s case, the issue revolves around how these payments were made, and who made them. In October 2012, City set up a company called Manchester City Football Club (Image Rights) Limited. This company’s name was changed to Fordham Sports Image Rights in May 2013, although the company had been set up a year earlier and included two senior City employees (John Macbeath and Simon Cliff) as directors. They both stepped down in June 2013, with someone called Graham Robeson seemingly being the main person connected with Fordham from July 2013. Fordham is openly linked to City on the Companies House website, so there was clearly no attempt to hide the company or its purpose.
Back in 2012-13, when City were struggling to meet FFP, they felt they needed additional revenue to avoid being sanctioned. I’ve written about this extensively and don’t propose to revisit this in any detail. One of the ways they raised additional revenue was to sell some players’ image rights to Fordham, for £24.5m. This was reported in the 2013 accounts as “Sale of intellectual property to third parties”.
Basically, Fordham paid us an up-front cash payment to take possession of these image rights, with the responsibility for paying them. What wasn’t clear was what they were getting out of this arrangement and how they were going to fund these payments. It seems that they did pay them, and were reimbursed by someone, presumably ADUG. The key question is whether this source of remuneration was disclosed to UEFA and included in our accounts. FFP rules require the full disclosure of remuneration paid to managers and players, which these payments (to both Mancini & the players) are alleged to have breached.
Following the 2014 settlement with UEFA, and the conditions imposed on us as part of that, it appears unlikely that this would have impacted our FFP compliance, although it’s difficult to be 100% certain. The amounts involved seem to have been in the £12-13m range, maybe a bit higher. It’s important to note that Fordham appears to have been conceived as a mechanism for raising revenue as a one-off, not a deliberate and ongoing attempt to reduce our expenses and FFP losses.
Whatever, UEFA seemingly became aware of the arrangement around 2014 or 2015 and discussed it with the club, according to a story put out by Reuters. Soon after that, the arrangement seems to have been wound down, with image rights payments presumably coming back in-house. The last major injection of cash was in the 2015-16 financial year, with no cash going in since then and the company being put into liquidation in 2022.
That means that the Der Spiegel articles in 2018 about Fordham and the image rights payments were certainly not news to UEFA and no further action was taken by them over it, either at the time or as part of the 2019 charges.
Summary
To summarise therefore:
• This group of charges appear to fall under the requirement to disclose player and manager remuneration.
• Unless the PL’s lawyers can show to the comfortable satisfaction of the Independent Commission that Roberto Mancini’s Al Jazira contract was a calculated attempt by City to hide genuine expenses, I believe their case will fail.
• The Fordham arrangement is more difficult to call, as it originated with the need to raise some additional revenue in 2012/13, and doesn’t appear to have been a deliberate attempt to hide expenses.
• The key question seems to be not the arrangement itself, but whether the payments were declared to the PL/UEFA.
• Fordham was not a secret, and UEFA became aware of it (although we don’t know the substance of the discussions) and the arrangement was wound up by 2017, with no further action by UEFA.
• As the PL is actually the licensor for UEFA re FFP, it’s difficult to imagine they weren’t also aware of Fordham back in 2015. I think the PL will struggle to land this group of charges therefore.
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