Manchester City have scored a seismic victory in their war with the Premier League after new rules on sponsorship deals were branded 'unlawful'.
In a significant, landmark verdict that will send shockwaves through the top flight, a heavyweight panel of retired judges has ruled that regulations aimed at preventing clubs from inflating deals with companies linked to their owners breach the Competition Act - and that the top flight was wrong to stop two recent City deals.
The Abu Dhabi-owned four-in-a-row champions, currently facing 115 charges of breaking Premier League financial rules in a separate case, took the league to court earlier this year. They claimed the rules, brought in after the Saudi-led takeover of Newcastle United and amended in February, were unfair.
And in a ruling that could spell trouble for others – not least rivals Arsenal – the system on Associated Party Transactions (APTs) was deemed unlawful. The panel gave a number of reasons, including the fact that the rules do not extend to loans from owners and shareholders.
Of £4billion borrowed across the league £1.5bn comes from shareholder loans - including all of the Gunners estimated £250m borrowings and almost all of Brighton's.
Man City have won their legal challenge against the Premier League's sponsorship rules
Pep Guardiola's side took legal action against these sanctions that they deemed as a form of 'discrimination' in February
Others in a similar position could also now be impacted should the rules subsequently change.
In a statement on Monday, City said: 'Manchester City Football Club thanks the distinguished members of the Arbitral Tribunal for their work and considerations and welcomes their findings.'
City had argued that such payments were unfair and not at market value as they were often at zero or no interest or did not have to be repaid at all. If commercial rates are now applied – and those loans included in club's profit and sustainability accounts - many could find themselves in breach of financial regulation in what could be a nightmare scenario that would heap pressure on Premier League bosses.
The verdict could also open the door for City and others to pen significantly higher deals with related parties.
The bombshell findings, seen by Mail Sport, were delivered in a 175-page report to clubs this afternoon. It remains to be seen what happens next. City are expected to seek costs and damages while the Premier League are expected to have to amend or dump the system entirely. Other clubs could also seek damages should they believe they have been impacted.
The panel ruled the league was wrong to reject, under ATP rules, a wide-ranging new sponsorship deal City had lined up with Etihad late last year. City's previous 10-year deal with the Abu Dhabi-based airline features heavily in the separate case on the 115 charges.
The stopping of another deal with an Abu Dhabi-based bank was also branded procedurally unfair.
City's expensively-assembled legal team led by Lord Pannick, the KC spearheading City's defence against the 115, launched a series of claims against APT rules, many of which centred on the element that deals had to represent what the league deemed Fair Market Value (FMV). They claimed rules were designed to end their reign of success and were the result of a 'tyranny of the majority'.
While many of their claims were rejected, they scored victories in no fewer than seven key arguments. City had only needed to show the rules were unlawful for one reason.
The Premier League are set to have to amend or dump the system entirely following the verdict (chief executive Richard Masters pictured)
The panel found the rules in breach of competition law 'by object', a serious and damning infringement.
While the APT rules were brought in after the time period involved in the 115 charges, the panel's findings may well trigger panic among City's rivals across the league, with concerns already raised over costs.
Within the ruling it also emerged that Arsenal, Manchester United, Liverpool, and West Ham gave evidence in favour of the Premier League, along with Brentford, Bournemouth, Fulham, and Wolves.
The panel consisting of Sir Nigel Teare, a retired High Court judge; Christopher Vajda KC, a former judge of the European Court of Justice and Lord Dyson, former Justice of the Supreme Court, also found the rules unlawful because clubs could not comment on data from other deals relied on by the Premier League before it determined whether a deal was at fair market value.
The Etihad verdict was 'procedurally unfair' and 'must be set aside' because City did not have the opportunity to respond to the Premier League's analysis before it reached its decision. The deal with First Abu Dhabi was also unfair because City were not given details of transactions with other clubs the Premier League referred to in its final decision and that there was an 'unreasonable delay' of around three months.
Among their arguments City said the changes were down to 'fearmongering' after the Saudi takeover at Newcastle. They had also claimed that the rules were specifically aimed at Gulf-owned clubs, citing an email from one club on behalf of 11 in total, but the panel found that not to be the case.
The panel members also made a number of findings in support of the amendments with the ex-judges pointing out that there 'was a sufficient evidential basis for the Premier League to conclude…that the (old) rules were ineffective in controlling APTs'.
Multiple clubs including perennial rivals Arsenal, Manchester United, Liverpool gave evidence in favour of the Premier League
They dismissed many of City's five claims, stating that Fair Market Value (FMV) while 'not an exact science' was an 'inherent' part of profit and sustainability rules and that there was no element of price fixing nor an unclear criteria. But that will be of little consolation to the league or City's rivals.
Last week, Mail Sport reported how the last-minute withdrawal of a proposed amendment to APT rules was dropped from a Premier League meeting agenda in what had been interpreted as a clear indication of which way the case had gone.
The Premier League's case against City over 115 alleged breaches of financial rules is now in its third week of an expected 10. Should the club be found guilty it could lead to vast fines, or even relegation for Pep Guardiola's side.
However, while there may be no direct impact, City officials have delivered a bloody nose to the competition and will no doubt hope the ruling sets a clear precedent.