Manchester City - The Masterplan

After many years in the wilderness, these are good times to be a Manchester City fan. Last season their team recorded its best ever performance in the Premier League by finishing third, thus qualifying for the Champions League for the first time, and won its first major trophy for 35 years when defeating Stoke City in the FA Cup final.

Their momentum has continued this season (at least on the domestic front), as they lead the Premier League by five points after a series of impressive victories, including an astonishing 6-1 triumph against local rivals Manchester United at Old Trafford, and have reached the semi-finals of the Carling Cup. However, they have found life more difficult in Europe, where they now have to rely on others to avoid elimination at the Champions League group stage.

Nevertheless, the force appears to be with the Citizens, boosted by the £800 million or so that Sheikh Mansour has invested since his Abu Dhabi United Group bought Manchester City three years ago. Quite simply, this is a club transformed.

Of course, that is most clearly seen in the huge amounts of money spent on recruiting new players, which has had a dramatic impact on the club’s performance, both on the pitch and on the financial side of the “project”.

In fact, they have just announced the largest loss in English football history of £197 million, which easily surpassed the previous record of £141 million reported by Chelsea in 2004/05, the first full year after the acquisition by their Russian benefactor Roman Abramovich. In fairness, £34 million of the deficit was due to exceptional items that should not be repeated in future seasons, but the loss would still have been a hefty £163 million.

Admittedly, most football clubs are loss-making with only 4 of the 20 Premier League clubs registering profits in 2009/10, but few have burned through the cash like City, who have accumulated losses of £411 million in the last three years: 2009 £93 million, 2010 £121 million and 2011 £197 million. This is not quite unprecedented, as Inter suffered aggregate losses of around £440 million in the three years between 2007 and 2009, but it’s rare for large clubs to lose this sort of money.

Bayern Munich and Real Madrid are consistently profitable, the German club reporting profits for an incredible 19 years in a row, while even Manchester United managed to make money last year, despite the significant interest burden on the loans taken out by the Glazers.

However, perhaps the closest equivalent to City are Chelsea, whose wealthy owner also chose to aggressively splash money on talent in a bid to compete with clubs that generate more revenue. Here there is some encouragement for City’s financials, as Chelsea have managed to reduce their losses over the years – though they are still a long way from break-even.

City are looking to follow that example, though they would hope to improve on the end result. As such, they tried to place the latest loss into context, “This result is consistent with the guidance provided in the first MCFC annual report that losses would peak in the 2010-11 financial year, as a result of the accelerated investment programme that the club undertook between 2008 and 2011.”

Chief Operating Officer, Graham Wallace, went further, “These financial results represent the bottoming out of financial losses at Manchester City before the club is able to move towards a more sustainable position in all aspects of its operations in the years ahead.”

The main reason for City’s increasing losses is the investment in the playing squad, which is at the core of that “accelerated recruitment process.” As an example, the 2010/11 figures reflected the signings of Yaya Toure, David Silva, Mario Balotelli, Aleksandar Kolarov, James Milner, Jerome Boateng and Edin Dzeko for the first time.

This acquisition policy has resulted in the wage bill more than tripling since 2008 from £54 million to £174 million, again the highest ever recorded in English football, just above Chelsea’s £173 million in 2009/10. Similarly, player amortisation, namely the cost of writing off transfer fees over the length of a player’s contract, has also grown by more than 200% in the same period from £25 million to £84 million.

As would be expected, the important wages to turnover ratio has also been rising (deteriorating) from a respectable 66% in 2008 to 114% last season. Although some Premier League clubs with very low revenue also have uncomfortably high ratios, City are the only club where the wage bill actually exceeds turnover – and by a whopping £21 million. As a comparison, England’s other Champions League qualifiers have much lower ratios: Manchester United 46%, Arsenal 55% and Chelsea 82%.

The good news is that City’s revenue is rapidly growing, increasing by 22% in 2011 alone from £125 million to £153 million, breaking through the £150 million threshold for the first time in the club’s history. All revenue streams rose: gate receipts by 8% from £18 million to £20 million; media by 28% from £54 million to £69 million, partly due to success on the pitch, including good runs in the FA Cup and Europa League, and partly due to the new Premier League TV rights deal; and commercial income up 22% from £53 million to £65 million.

City’s commercial operations have been the engine driving their growth with revenue surging from £23 million to an impressive £65 million since 2009, mainly due to the impact of new partnerships with Etihad Airways, Umbro, Aabar, Abu Dhabi Tourism Authority and Etisalat, though the new retail agreement with Kitbag has also contributed. City’s commercial income is now only second to Manchester United in England, though Liverpool and Chelsea may have also advanced in the last financial year (accounts not published yet).

What is clear is that City’s revenue growth has been explosive compared to other clubs. Since 2009 their revenue has increased by an amazing 76% (from £87 million to £153 million) with Tottenham the only leading English club to come anywhere close with 46%, almost entirely due to their participation in the Champions League last season. Manchester United and Chelsea achieved a decent 19% and 18% respectively, though were left in City’s slipstream, while Arsenal and Liverpool barely grew at all.

Even before this year’s growth, City had established themselves as one of Europe’s elite in terms of revenue, rising to 11th in Deloitte’s 2009/10 Money League with £125 million. That’s no mean feat, yet, paradoxically, only serves to emphasise the magnitude of City’s task, as the leading clubs generate significantly higher revenue, e.g. last year’s top five earned as follows: Real Madrid £359 million, Barcelona £326 million, Manchester United £286 million, Bayern Munich £265 million and Arsenal £222 million.

While it is true that City’s revenue has since grown to £153 million, the problem is that the revenue is still growing apace at many of the top clubs. Manchester United have advanced to £331 million in 2011 on the back of significant commercial deals, while the Spanish giants have also reported substantial gains in 2011: Real Madrid to £417 million and Barcelona to £392 million.

City’s position in the Money League is even more impressive if you consider that they are the highest ranked of the clubs that did not qualify for the Champions League, a failing that they have obviously resolved this season. The importance of this additional revenue to a club’s finances cannot be over-stated, as seen by the sums earned in Europe last season by English entrants. The four Champions League qualifiers received an average of £35 million in TV money, ranging from £26 million for Arsenal to £47 million for Manchester United, while City and Liverpool both earned just £5 million for their adventures in the Europa League.

The revolution in the blue half of Manchester can be starkly demonstrated by their activity in the transfer market, where they have massively outspent the other leading English clubs in the last five years. In fact, their net spend (purchases less sales) of £440 million is more than the combined net spend of the other five leading clubs: Chelsea £149 million, Liverpool £68 million, Manchester United £53 million, Tottenham £52 million and Arsenal (net sales) £29 million.

Up until the recent injection of funds, City had actually been a selling club with net sales of £5 million in the five years up to 2007. However, last season the club reduced its activity in the transfer market with net spend of “only” £57 million compared to over £100 million in each of the three preceding years.

Of course, the purchases of Sergio Aguero, Samir Nasri, Gael Clichy and Stefan Savic would still be beyond the means of most clubs, but this was at least in line with the promise made by Chairman Khaldoon Al Mubarak regarding the 2011 budget, “It won’t be like last summer or the summer before. What you will see this year is strengthening the squad in areas that we feel require more depth.”

None of this big spending would really be an issue if it were not for the advent of UEFA’s Financial Fair Play (FFP) regulations, which essentially aim to force clubs to live within their means, i.e. break-even. Clearly, City are currently a long way from achieving this, a point acknowledged by Chief Football Operations Officer Brian Marwood, “We’ve got a huge amount of work ahead of us to make sure we are sustainable.”

City’s challenge was highlighted by no less than UEFA President, Michel Platini, when he specifically mentioned the club last year during the announcement of the new financial rules, “Manchester City can spend £300 million if they want to, but if they are not breaking-even in three years, they cannot play in European competition.”

However, City’s former chief executive Garry Cook never seemed too concerned, “We have a very open dialogue with UEFA. We have had several meetings with them and they are very supportive of our plans.” This is a theme echoed by Graham Wallace, “As we undertake the club’s commercial transformation, we are cognisant of the incoming UEFA Financial Fair Play regulations and consequently we continue to maintain positive and ongoing dialogue with all appropriate football authorities.” As the actor Bob Hoskins used to say in the BT advert, “It’s good to talk”, but what does FFP mean in practice?

The first season that UEFA will start monitoring clubs’ financials is 2013/14, but this will take into account losses made in the two preceding years, namely 2011/12 and 2012/13, which means two things: (a) the £197 million loss in 2010/11 is not relevant for the FFP calculation; (b) City’s accounts need to be in better shape pretty quickly.

However, they don’t need to be absolutely perfect, as wealthy owners will be allowed to absorb aggregate losses (so-called “acceptable deviations”) of €45 million (£39 million), initially over two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions, which is a fairly safe assumption in the case of Sheikh Mansour. The maximum permitted loss then falls to €30 million (£26 million) from 2015/16 and will be further reduced from 2018/19 (to an unspecified amount). Note that these sums represent aggregate losses, not a yearly loss.

"Silva and Gold"

Even with all these allowances, the popular view seems to be that City have little chance of reaching break-even in the near future, as expressed by Bayern Munich chief executive Karl-Heinz Rummenigge, who is also chairman of the European Club Association, “Maybe they know a trick I don’t that will allow them to take part in the Champions League.”

Clearly, City have a long way to go to reach break-even, but it’s not completely out of the question, as we shall see from the 15-point plan below, which looks at how City can improve their finances both in the short-term (over the next two seasons) and in the long-term, starting from their current pre-tax loss of £197 million.

It should be noted that this plan is not necessarily a prediction of City’s next set of financials, but merely an example of how they could substantially improve their figures. A number of assumptions have been made particularly regarding transfer fees and salaries, which are notoriously untrustworthy even though they are widely reported. Nevertheless, any minor inaccuracies should not materially affect the principal conclusions.

1. Exceptional Items

The 2010/11 loss included £34 million of exceptional items, comprising £29 million for the impairment of player registrations and a £5 million provision for a “disputed employment costs settlement”, which is not explained, but probably relates to the departure of former manager Mark Hughes and his coaching team.

Impairment is an accounting term for reducing the value of players in the books, as the club decides that they are no longer worth so much. Although the names of the players are not divulged, my guess is that this relates to those players who were released for free (namely Craig Bellamy and Jo) and those who are unlikely to command a fee in future, due to their high wages (e.g. Roque Santa Cruz and Wayne Bridge). My calculations suggest that writing the value of those four players down to zero would have cost almost exactly the £29 million impairment charge.

In any case, such charges by definition should not be repeated every year. Similar treatment might be required for Carlos Tevez and Emmanuel Adebayor, though their net book value in the accounts is probably now low enough to be covered by reduced transfer fees.

"Samir's Town"

2. Financial Fair Play Adjustments

It is not generally appreciated that UEFA’s break-even calculation is not exactly the same as a club’s statutory accounts, as it excludes certain expenses, including depreciation and finance costs on tangible fixed assets plus expenditure on youth development and community development activities.

In City’s case, this means that £6 million of depreciation can be removed right off the bat. Finance costs are not so clear, but I have also excluded the £3 million charge on stadium finance leases, though I have not considered the £5 million interest charge, as the link to tangible fixed assets is not clear-cut.

It is also difficult to assess the youth development expenditure, as this is not separately disclosed in the public accounts, but we can make a reasonable estimate of £10 million based on similar reviews of other clubs. The formation of the Elite Development Squad plus other investment in the academy should easily justify such a sum. In addition, I have excluded a notional £2 million for community development, which may be a little conservative, given City’s strenuous efforts in this area.

Therefore, in total, the Fair Play rules allow City to reduce their expenses by £21 million: £6 million depreciation, £3 million stadium finance lease charges, £10 million youth development and £2 million community development expenditure.

3. Wages – New Signings

The 2010/11 accounts do not include the cost of any new signings after 31 May 2011, which means that we need to add the wages for Aguero, Nasri, Clichy and Savic. Taking Nasri as an example, his wages have been estimated at £150,000 a week, which works out to £8 million a year. In addition, Dzeko joined in the January 2011 transfer window, so the last accounts did not include a full year salary, meaning the remainder has to be added to future years. Although players’ salaries are not divulged, we can make reasonably accurate estimates, giving us a total of £30 million increase in the wage bill.

4. Wages – Departures

On the other hand, six high-profile players left this summer, namely Jerome Boateng, Jo, Shay Given, Shaun Wright-Phillips, Craig Bellamy and Felipe Caicedo, which should have removed around £22 million from the wage bill. It is true that Bellamy and Caicedo were on loan last season to Cardiff City and Levante respectively, but rumour has it that the vast majority of their salaries were still covered by City, so that should not be too much of a factor.

5. Wages – Loans

One consequence of City’s large squad is that they loan out many players to other clubs. Although this also happened last year, it is clear that this policy has been ramped up this season with the annual report noting that the club have “successfully loaned out 22 players.” Therefore, it seems a fairly safe assumption that this has taken a further £5 million off the wage bill. Note that I have not included Adebayor (loan to Tottenham) or Santa Cruz (Betis) in this calculation, as they will be covered by a later point (15).

6. Wages – Normalised Level

As a result of City’s accelerated acquisition of players, their wage bill has surged to £174 million. As recently as 2008, this was lower than Chelsea, Manchester United, Arsenal, Liverpool and Tottenham, but has overtaken all of them in just four years.

However, there are three reasons to expect this to fall in future: (a) City should be able to offload those fringe players who are unlikely to feature for the first team again and are thus surplus to requirements, notably those bought during the Mark Hughes era, such as Adebayor, who would save nearly £8 million alone. (b) Up until recently, City have had to pay a premium to attract players from more established clubs, but a period of success should remove that. (c) More players should progress from the academy.

In theory, the wage bill could be slashed, but I have conservatively assumed a reduction long-term of £21 million to £153 million to be in line with Manchester United’s latest figures, though well ahead of Arsenal’s £124 million. Chelsea’s last reported 2009/10 figures of £173 million are out of date and likely to fall, as the departure of many high earners should have offset the arrival of new signings.

7. Reduced Player Amortisation

When a player is purchased, his costs are not immediately booked to the profit and loss account, but they are capitalised as an asset and written-off over the length of his contract, so there will be a cost impact for a few years. As an example, it was reported that Sergio Aguero was signed for £35 million on a 5-year contract, so his annual amortisation is £7 million (£35 million divided by 5 years).

The impact of signings and departures in 2011 on the next accounts can therefore be reasonably estimated and works out to an increase of £20 million for new arrivals less £14 million for those leaving.

However, City have also been quite astute with their impairment in 2010/11. If I am right in my assumption that they have written-down the value of Santa Cruz and Bridge to zero, that means that there is no more amortisation for those players, reducing the annual charge by £6 million.

Adding together all the adds and drops suggests that the player amortisation will be more or less unchanged next year, though it should fall over time as players come to the end of their contracts, especially if City continue to lower their activity in the transfer market. There is an obvious precedent for this, as Chelsea’s player amortisation decreased from £83 million in 2005 to £38 million in 2010.

"Captain Sensible"

One incentive for City to sell Tevez at a bargain price is to remove his player amortisation from the accounts, which could be worth as much as £9 million a year.

Another policy that I would expect City to apply is to extend player contracts, as any remaining written-down value is amortised over the extended period, which means that the annual amortisation will reduce. For example: a player is bought for £20m on a 4-year contract, so the annual amortisation is £5m. After 2 years, his contract is extended by a further 2 years, meaning that he now has 4 years left on his contract. At the point of renegotiation, his value was £10m (£20m cost less 2 years amortisation at £5m). The new amortisation charge would be £2.5m a year (the remaining £10m divided by the 4 years now left on the contract).

My assumption is that in the long-term City will manage to lower player amortisation by £34 million from £84 million to £50 million, which is still 25% higher than other leading clubs (Liverpool £40 million, Manchester United £39 million and Chelsea £38 million).

8. Etihad Sponsorship

The astonishing 10-year sponsorship deal with Etihad Airways was not included in last year’s figures and will have a major impact. The financials have not been divulged, but a range of £350-400 million has been widely reported. Given City’s need to improve the figures, I shall assume the higher figure, which means £40 million a year. Again, the split of the deal has not been published, but in an earlier piece I assumed that the shirt sponsorship is worth £20 million a year, the stadium naming rights £10 million and the campus another £10 million.

UEFA have yet to decide whether this deal falls foul of their “fair value” ruling, but it is my belief that this will be passed. In any case, even if UEFA rules that City’s deal is above fair value, it is only the excess that would be deducted from the club’s income for the purposes of the FFP break-even calculation and not the entire agreement, so if the deal is worth £40 million a year and UEFA consider the fair value to be £35 million, only £5 million would be deducted.

As Etihad already pay £7.5 million for shirt sponsorship, the uplift would be worth £32.5 million.

9. Other Commercial Deals

City have already gone great guns in increasing commercial income, adding partners like EA Sports, Mansion Group, Thomas Cook, Jaguar and Heineken, but are gearing themselves up to really boost this activity, e.g. by establishing a permanent office in London in a bid to emulate Manchester United’s record-breaking performance here.

Recently, the national media reported that they were set to agree a new £200 million kit deal with Umbro at the end of the season. Even though they are only three years into a 10-year deal, City’s progress means that this can be reviewed and there is talk of a significant increase in the annual payment from £6 million to £26 million. This might seem outrageously high, but is on a par with the sum Umbro already pays for the England team and is around the same level as the sums received by Liverpool from Warrior and Manchester United from Nike (though the latter is likely to rise to £35 million).

"Hand to Mouth"

As well as the £20 million increase from Umbro, I have assumed four more secondary sponsorship deals at £1.5 million a time, which would produce another £6 million, giving a total increase of £26 million. In the long-term, I have been very cautious by only adding a further two secondary deals (worth £3 million), giving long-term growth of £29 million.

That does not include any potential clauses for increases in sponsorship deals from competing in the Champions League. Nor have I attempted to assess any additional commercial revenue from City’s ambitious Etihad Campus development.

10. TV – Premier League

One of the reasons for City’s revenue growth last season was an additional £6 million from the Premier League, giving £55 million, mainly due to the substantial increase in overseas rights for the new three-year deal. At the top of the league, there’s not an enormous financial difference between finishing places, due to the equitable nature of the distribution methodology.

Each club gets an equal share of 50% of the domestic rights (£13.8 million) and 100% of the overseas rights (£17.9 million). However, facility fees (25% of domestic rights) depend on how many times each club is broadcast live, and this was worth £10.2 million. Finally, merit payments (25% of domestic rights) are worth £757,000 per place in the league table (£13.6 million).

However, if City were to maintain their current first place and be shown more often live on television, they would receive around £60 million, i.e. an increase of £5 million. In the long-term, it is likely that TV rights will be worth even more, but again I have been conservative by only assuming an additional £5 million, partly because it is unlikely that City will win the Premier League every year.

11. TV – Champions League

Last season the lowest sum received by an English club in the Champions League was €30 million (£26 million) for Arsenal, who were eliminated in the last 16. I have assumed that City do not make it out of the group, so will not receive the €3 million performance prize for the last 16 and will receive less money from the TV pool, working out to €23 million. I have also added €2 million for money earned from dropping down to the Europa League, giving a total of €25 million (£22 million), which is £17 million higher than the £5 million earned last season in the Europa League.

In the long-term, I have assumed that City will be more effective at European level and earn £30 million, which would represent growth of £25 million. Of course, if they were to reach the final, that would be worth at least £45 million.

"Kompany man"

12. Bonus Payments

The price of success on the pitch is higher bonus payments. Frankly, this is impossible to accurately estimate without knowing how much was paid last season (but this is not separately analysed in the accounts) and each player’s remuneration scheme, so I am only going to include a placeholder of a £10 million increase in the short-term (up to £20 million in the long-term). This may be on the low side.

13. Profit on Player Sales

City made £5 million profit on player sales in 2010/11, but it is not unreasonable to assume that they could make £10 million a year from this activity, especially if the academy really starts to deliver. According to my calculations, that is what they should gain in 2011/12 (assuming that the value of Bellamy and Jo was impaired).

Even though there is a temptation to get players off the wage bill, Roberto Mancini has argued that the club should not let players leave for nothing, “They are good players and if there is a club that wants one of them, they must pay.” That might be bravado, but even if players are sold for a cut-price fee, there may well be a resulting profit after cumulative amortisation is taken into consideration.

Of course, City could easily raise significant funds by selling the likes of Silva, Yaya Tore and Balotelli, but that sort of defeats the object.

14. Match Day

City’s Achilles’ heel is their very low match day income, which is only £26 million (gate receipts plus re-allocation from commercial revenue per Deloitte Money League). This works out to around £1 million a match, which is very low compared to Manchester United £3.7 million and Arsenal £3.3 million. It’s not just a question of stadium capacity either, as Chelsea and Liverpool earn £2.4 million and £1.6 million, even thought their grounds are smaller than City’s.

City have partially addressed this shortfall via a new agreement with the council, whereby the club pays them a fixed amount regardless of the attendance instead of the previous percentage, but there is surely room for further growth. This might mean raising ticket prices, increasing the corporate seats or expanding the capacity of the stadium. The first two moves would be unpopular with fans, though a logical ghastly consequence of FFP, while the stadium expansion would be longer-term in nature.

Plans exist to increase the capacity of the stadium from 48,000 to at least 60,000, but this would not be entirely straightforward, due to its awkward design. There have been some concerns that City would struggle to fill a larger stadium, even though their attendances have always been good (4th highest in the Premier League), but this season their crowds have been virtually at full capacity (99%).

Given the higher attendance, especially in Europe, I have assumed a 10% (£3 million increase) in the short-term, while a reasonable long-term aspiration would be to match Liverpool’s match day revenue of £43 million, as the grounds have similar capacity and both clubs operate in the north-west of England (as opposed to the wealthier south), resulting in growth of £17 million.

15. Wages – Players signed pre-June 2010

The small print in the FFP regulations (Annex XI) states that clubs will not be sanctioned in the first two monitoring periods, so long as: (a) the club is reporting a positive trend in the annual break-even results; and (b) the aggregate break-even deficit is only due to the 2011/12 deficit, which in turn is due to player contracts undertaken prior to 1 June 2010.

In other words, City would be allowed to exceed the “acceptable deviation” of €45 million by the costs of pre-June 2010 signings, so long as the 2011/12 deficit was only due to this factor.

Assuming that this clause refers purely to wages (and does not include player amortisation), I have calculated this cost for “big name” players to be £53 million. Note that players whose contracts have been extended since 1 June 2010 are not counted (as explicitly noted in the regulations), so I have excluded Joe Hart, Pablo Zabaleta, Adam Johnson and Micah Richards. This might explain why City are delaying extending contracts for the likes of Vincent Kompany and Nigel De Jong.

In truth, this still does not completely satisfy the condition that the entire 2011/12 break-even deficit is due to these costs (unless player amortisation is also considered), but it is so close that my guess is that UEFA would look favourably upon this, especially if the trend was going the right way.

So, there you have it, Manchester City’s loss could come down to £88 million (still enormous), but for the purposes of FFP this would represent a break-even deficit of only £14 million. This is clearly by no means a done deal, but if they achieved that in the short-term, it would be extremely difficult for UEFA to throw the book at them.

Longer-term, this plan would produce a comfortable FFP result of £11 million (with a loss of just £10 million reported in the accounts). This would require revenue to grow from £153 million to £266 million, almost entirely from commercial operations, which would need to rise by around 100% from £59 million to £120 million. On the face of it, that might sound absurd, but with the Etihad sponsorship and an improved Umbro deal, it’s not completely pie in the sky. As Ian Cafferky, City’s Chief Commercial Officer said in a recent interview with Sports Pro Media, “We’re trying to double our revenues approximately by 2017.”

As a comparative, Manchester United’s current revenue is £331 million, but we know that this will increase, again largely due to commercial gains, so City’s revenue projection is aggressive, but not unrealistic.

"Toure of Duty"

In any case, many believe that UEFA will never throw a leading club out of their competitions, as this would be the equivalent of biting the hand that feeds. Their General Secretary, Gianni Infantino, talks a good fight, “We will apply these rules strictly in order to safeguard the future of our game”, but exclusion is considered to be very much a last resort only to be applied to repeat offenders.

However, UEFA will be acutely aware of the threat of legal reprisals. As Arsenal manager Arsene Wenger, a staunch supporter of FFP, forlornly commented, “With what happened with Sion challenging UEFA, they have lost a lot of power.” A sliding scale of sanctions is set to be announced in January, to be ratified by UEFA’s congress in March, and is likely to feature a number of financial penalties, including fines and the withholding of participation money, and potentially transfer bans (though even these could be challenged as being a restraint of trade).

In the background, City have been lobbying hard to convince UEFA that the club is committed to a sustainable future, based on the significant investment in the academy, which will be seriously impressive, catering for up to 400 young players, with 16 football pitches, a 7,000 capacity stadium for youth matches and on-site accommodation.. As the annual report stated, “In order to achieve this long-term ambition, youth development must be, and is, our top priority.”

"Baldrick, I have a very cunning plan"

This is completely aligned with UEFA’s objectives, as are the community benefits from the ambitious plans to regenerate the local area. Andrea Traverso, UEFA’s head of club licensing, has already visited the Etihad Stadium for a briefing on City’s intentions and he surely won’t be the last to be given the grand tour.

Anyhow, it’s by no means an impossible dream for City to get close enough to break-even in order to satisfy FFP. It’s not quite the Masterplan that their famous fans, Oasis, once sang about, but it’s a smart strategy that has every chance of succeeding – as long as the team continues to do the business on the pitch.

Manchester City's Amazing Deal: Know Your Rights

When Manchester City announced that their commercial agreement with existing shirt sponsor Etihad Airways was to be expanded into a 10-year deal worth up to £400 million, the reaction of most observers in the football world was one of disbelief. This hugely lucrative contract includes the renaming of the City of Manchester Stadium in a naming rights deal that is likely to be the highest ever signed in football.

Indeed, Garry Cook, City’s ebullient chief executive, described it as “one of the most important arrangements in the history of world football”, while the CEO of Etihad Airways, James Hogan, was even more effusive, employing the full range of business buzzwords, “This is a game changing partnership agreement that redefines the traditional sports sponsorship paradigm.”

Of course, many people immediately assumed that one of the principal drivers of this deal was City’s need to boost their revenue in order to cope with the imminent arrival of UEFA’s Financial Fair Play (FFP) regulations that compel clubs to live within their means (if they wish to compete in Europe). This was tacitly confirmed by Cook, when he admitted, “The backdrop, of course, is UEFA’s Financial Fair Play and this deal helps (us) to continue to make significant progress in that area.”

Exactly how much is impossible for external analysts to say, as City have yet to publish the financial aspects of the deal. Initially, most newspapers suggested that it was worth £100-150 million, but now seem to have settled on £300 million, rising to £400 million. The truth is that nobody outside the club really seems to know for sure. Indeed, City released a statement to this effect, “The financial details of the comprehensive agreement announced last week between Manchester City and Etihad Airways remain confidential and figures being speculated about are not accurate.”

"Cooking up a good story"

The lack of certainty over the value of the sponsorship has not prevented prominent figures at other clubs from criticising the deal. The first to express his doubts was Arsenal manager, Arsène Wenger, who has often lambasted the practice of “financial doping” in the past, “It raises a real question about the credibility of the financial fair play. That is what this is all about. They give us the message that they can get around it by doing what they want.”

Liverpool’s new owner, John W. Henry, quickly followed suit, when he claimed that “Mr. Wenger says boldly what everyone thinks.” The Reds’ managing director Ian Ayre was unsurprisingly of the same opinion, questioning the transparency of the arrangement, given the close relationship between the sponsors and City’s owner, “The guys from UEFA said there would be a robust and proper process about related pay transactions.”

Wenger agreed, “It looks to me that Platini is very strongly determined on this. He is not stupid. He knows that some clubs will try to get around that and I believe they are studying behind closed doors, how they can really strongly check it.”

Certainly, UEFA talked tough last year, when Andrea Traverso, their head of club licensing and financial fair play, described what would happen if clubs attempted to beat the system by taking advantage of loopholes, “Should the clubs put in place specific structures that allow them, in ways we didn't think about, to easily get around some of the principles, we could amend these rules to catch up with these situations.”

"Michel Platini: this is how FFP will work"

UEFA President, Michel Platini, ostensibly substantiated the concerns of City supporters that he was targeting their club when he specifically mentioned them last year during the announcement of the new financial measures, “Manchester City can spend £300 million if they want to, but if they are not breaking-even in three years, they cannot play in European competition.”

However, Garry Cook did not appear overly concerned, “We have a very open dialogue with UEFA. We have had several meetings with them and they are very supportive of our plans.”

Indeed, UEFA’s response to City’s mega deal was far more measured than a year ago, “We are aware of the situation and our experts will make assessments of fair value of any sponsorship deals using benchmarks.” So, City are no longer being singled out, at least publicly, with UEFA keen to stress that they will investigate all major sponsorships whatever the club, which “will then be considered by the Club Financial Control Panel, together with any relevant information the clubs present regarding the deals, when they assess the break-even requirements.”

So how will UEFA assess City’s deal?

This is effectively a three-stage process. First, they have to decide whether the deal is a “related party transaction”. If they believe that it is, then they have to estimate the “fair value” of the deal. Finally, if the actual value is higher than the fair value, the difference is deducted from the revenue included in the FFP break-even calculation.

"Every cloud has a Silva lining"

The notion of related party transactions is evidently important to UEFA, as no fewer than three pages of the FFP regulations are dedicated to defining exactly who or what is a related party. The key point here is that “close members of the family” are considered to be related parties, so long as they have “control” or “significant influence” over the club.

In this case, Etihad Airways is owned by the government of Abu Dhabi, whose ruler Sheikh Khalifa bin Zayed Al Nahyan is the half-brother of City’s owner Sheikh Mansour bin Zayed Al Nahyan. It is conceivable that City might be able to demonstrate that no influence exists, but it would appear that there is a prima facie case to answer.

It is not clear whether the fact that the majority of City’s commercial sponsorships come from the Gulf state, including the Abu Dhabi Tourist Authority, Etisalat and Aabar Investments, will have any bearing on UEFA’s ruling, but Cook himself has admitted that it is “clearly evident” that there is a strong Abu Dhabi bias. Anyway, for the purpose of our analysis, let us assume that UEFA do indeed treat this deal as a related party transaction.

In fact, the FFP regulations expressly include “sale of sponsorship rights by a club to a related party” as their first example of “transactions that require a licensee to demonstrate the estimated fair value.” This has also been verbally confirmed by UEFA’s general secretary, Gianni Infantino, who said that such transactions would be compared to similar deals already in place.

"Fast Kompany"

Again, John W. Henry expressed his scepticism, when he asked, “How much was the losing bid?” Wenger also cast doubts on the value of the deal, “If FFP is to have a chance, the sponsorship has to be at the market price. It cannot be doubled, tripled or quadrupled, because that means it is better we don’t do it and leave everybody free.”

However, Garry Cook argued, “There’s real value in that partnership. Financial Fair Play isn’t the driver, commercial growth is the driver.” That obviously makes sense for City, but how about Etihad? The airline’s executives would contend that this deal has already been superb for their profile, as evidenced by last week’s intense media exposure, and will provide them with a more than acceptable return on their investment.

Not only do City compete at the upper levels of the most viewed league in the world, but their global visibility has been dramatically enhanced by their qualification for the Champions League. Indeed, it is quite possible that the airline gets more bang for its buck with City compared to more established clubs, as the exposure is higher with such a project. Big money deals may be old hat at clubs like Manchester United or Real Madrid, but it’s a relatively new phenomenon at Eastlands, sorry, the Etihad Stadium.

"Nigel de Jong - Dutch courage"

Some have questioned how it could make sense for a loss-making company like Etihad Airways to splash out such a large sum in sponsorships, but that ignores the fact that this investment is all about “building the brand” in the same way as Emirates have done in the past.

At this stage, it’s worth pointing out that the FFP regulations refer to “fair value”, as opposed to the “market value” that is incorrectly used by much of the media. The difference can be seen by an analogy in the housing market. If you decide to sell your house and 99 people offer you £250,000, that would be considered fair value, but if one enormously wealthy individual likes it so much that he bids £500,000, that is the market value.

This is an important distinction, as market value would be easy to prove. Sports lawyer Andrew Nixon of Thomas Eggar LLP asserted, “Competition law challenges rarely succeed on sponsorship deals. There is a vast number of football teams and leagues airlines can sponsor and there are many viable market alternatives.”

Importantly, even if UEFA rules that City’s deal is above fair value, it is only the excess that would be deducted from the club’s income for the purposes of the FFP break-even calculation and not the entire agreement. In other words, if the deal is worth £30 million a year and UEFA consider the fair value to be £25 million, only £5 million would be deducted.

"Don't cry for me, Argentina"

UEFA’s difficulties in assessing the fair value of the deal are compounded by the structure of the deal, which covers far more than the stadium naming rights that were initially reported. This is just one element of a broad agreement that also includes an upgrade of the current shirt sponsorship and naming rights for the Etihad Campus, which encompasses a large part of the Sportcity site in East Manchester.

Furthermore, given the long-term nature of the contract, City could argue that they have built in uplifts, as the sponsorship market might be even more lucrative in ten years time. In addition, part of the money is almost certainly based on performance bonuses, e.g. qualifying for the Champions League or winning the Premier League, which might make it more palatable to the powers that be.

As I said earlier, nobody can honestly claim to know the actual revenue split of the deal, but we can make a reasonable working assumption that the shirt sponsorship is worth £20 million a year, the stadium naming rights £10 million and the campus another £10 million. As we assess each element for fair value, it will become clear why these values have been chosen.

An assumed shirt sponsorship value of £20 million would place City right at the top of English deals, generating the same annual revenue as Liverpool and Manchester United. Those clubs might argue that City’s historical performance should not allow them to be at the same level, but the counter-argument would be that nobody complained about Liverpool increasing their sponsorship deal by £12.5 million a season when they replaced Carlsberg with Standard Chartered last season, even though they had not qualified for the Champions League. Similarly, Tottenham managed to increase their sponsorship by nearly 50% from £8.5 million to £12.5 million (via an innovative combination of Autonomy and Investec), based on just one season in the Champions League.

If the net is cast a little wider, Bayern Munich’s sponsorship deal with Deutsche Telekom is worth around £23 million, though performance bonuses could take that above £25 million. That might seem reasonable for a club with Bayern’s tremendous record, but the value of deals at other German clubs is more debatable, particularly Schalke’s money-spinning deal with Gazprom.

Equally, the announcement of Barcelona’s first ever shirt sponsorship deal with the Qatar Foundation, a non-profit organisation, did not attract the same levels of opprobrium as City’s. This has been widely reported as €150 million over five years, but is actually worth up to €170m, as it also includes €5 million trophy bonuses and €15 million for “the concept of commercial rights”. So, it is likely to be worth €34 million a year (or just under £30 million at the current exchange rate).

"The Italian Job"

Others have pointed disapprovingly at the magnitude of the increase in City’s shirt sponsorship, but they have cited a current value of £2.3 million for the Etihad deal, which looks far too low. Deloitte and other reputable sources have said that this deal is worth £25 million over three seasons, so with uplifts, it’s around £7.5 million as we speak. Other commentators have probably confused this with City’s previous deal with Thomas Cook that was worth £2.3 million.

If UEFA genuinely want to investigate the value that companies obtain from sponsorship, it might be pertinent to ask why they don’t also take a look at Emirates, which sponsors many different clubs. Or indeed the ethicality of clubs being sponsored by gambling sites, which is a growing trend in football marketing.

Probably the most contentious aspect of the deal is the stadium naming rights, which is virtually unprecedented in football at its estimated value. There are very few decent benchmarks in the Premier League with the obvious comparative being Arsenal’s deal with Emirates, which was worth £90 million (£100 million less £10 million fees), covering 15 years of stadium naming rights (£42 million) and 8 years of shirt sponsorship (£48 million).

This works out to just £2.8 million a year for the naming rights, which is considerably lower than City’s deal, but it’s not really a fair comparison for many reasons. Not only have sponsorship values in general grown significantly since the agreement was signed, but also this particular deal is very much a special case, as Arsenal compromised on the total value so that the cash payments would be heavily front-loaded to help finance the construction of the stadium. When questioning the merits of City’s deal, Arsène Wenger drily observed, “We must have done a bad deal”, but there’s more than a grain of truth in that assertion with Emirates admitting that they “did well with Arsenal.”

"Get your Yaya's out"

It’s worthwhile looking at Germany for a more considered view on naming rights, as the market there is more than four times as large as in England, according to Sport + Markt’s 2011 Naming Rights report. Many clubs in the Bundesliga have sponsorship deals for their stadiums, including Borussia Dortmund (Signal Iduna), Hamburg (Imtech), Wolfsburg (Volkswagen), Stuttgart (Mercedes-Benz) and Eintracht Frankfurt (Commerzbank).

However, perhaps the best known is Bayern Munich, whose deal with Allianz is worth €90 million over 15 years, producing €6 million (£5 million) a year. On the face of it, this might suggest that City’s £10 million deal is over-valued at double the money, but this is far closer than the difference in overseas TV rights, which are around 14 times higher in the Premier League than the Bundesliga. Obviously, this is not quite the same thing, but it’s food for thought.

Or UEFA might look even further afield to America, where naming rights are a well-established feature of the sporting landscape. Virtually every major sports arena is now named after a sponsor that provides the club with a healthy source of income. The concept is nothing new under the sun either, as Times Square was named after the New York Times way back in 1903.

Although the link between football and American sports like baseball, NFL and NBA may seem rather tenuous, fundamentally the principle is identical and it seems quite pertinent with the influx of foreign owners into English football. Some of the stadium deals signed on the other side of the pond provide an indication of where this market may go in the future, going as high as $30 million a year paid by JP Morgan Chase for Madison Square Garden. Citigroup and Barclays both pay $20 million a season, the former to the New York Mets, the latter to the New Jersey Nets. Farmers Insurance have paid an astonishing $700 million over 30 years to name a stadium in Los Angeles where a team is not even established yet.

This does rather beg the question of how the sponsor benefits from such a deal: what’s in a name? The obvious answer is brand awareness with a raised profile, which is particularly well served if it is a new stadium. This point was seized upon by Ian Ayre, Liverpool’s managing director, who noted, “It hasn’t happened in Europe that a football club has renamed an existing stadium and it’s had real value.” This is correct, but it’s doubtful whether too many fans are attached to the name Eastlands (or even the City of Manchester Stadium). It would be a different story if this had been Maine Road. This is why it would be difficult to sell naming rights for grounds like Anfield or Old Trafford, as whatever name anybody tried to call the stadium, everyone would still use the old/real one.

One valid point about City’s agreement is that other Premier League clubs have to date been unsuccessful in securing large naming rights deals, though paradoxically this announcement could potentially help others make progress in their discussions. Chelsea have been looking to secure a partner for some time with analysts suggesting that £10 million is the objective, while Liverpool would be equally eager if they move to a new stadium, as Ayre confirmed, “We already have a very healthy dialogue in place with several leading brands regarding naming rights.”

"Hart and Soul"

That said, the Sports + Markt report confirmed that the value of stadium naming rights has been steadily rising, up over 60% from €48 million in 2007 to €78 million in 2010 with the total projected to increase to €87 million in 2011.

Given the difficulties inherent in finding solid comparatives for naming rights, it is possible that UEFA might look at this as just another commercial deal. If they did so, they could not help noticing that the bar is being constantly raised in the commercial sphere, e.g. contracts with kit suppliers. Liverpool’s recent £25 million deal with Warrior Sports is more than double the amount that they previously received from Adidas, helped by the relationship that the new owners enjoyed with the company, which already provides kit for the Boston Red Sox.

Similarly, Manchester United are in discussions to extend their deal with Nike for a record £450 million, which would be worth around £35 million a year, a £10 million increase. If you think that’s impressive, the French national team’s deal with Nike is worth €320 million over 7½ years, which works out to about £37 million a year for just a handful of matches.

In short, commercial opportunities in football are big business these days and City’s deal should be assessed in that light. In a strange way, it brings to mind the movie “The Wizard of Oz” and the famous line about not being “in Kansas anymore.”

With the exception of Manchester United (£81 million), English clubs have lagged their continental counterparts when it comes to making money from commercial opportunities, growing fatter on a diet of ever-increasing TV contracts. Not only do the Spanish giants, Real Madrid and Barcelona, earn substantially more at £124 million and £100 million respectively, but German clubs also consistently generate more income. This description does not just refer to Bayern Munich, who earn an astonishing £142 million commercial revenue a year, but also clubs like Schalke, Hamburg and Dortmund.

There’s certainly room for improvement, which is exactly what English clubs are belatedly doing. In 2010/11, Manchester United’s commercial revenue will exceed £100 million, while Liverpool’s £62 million will ultimately be boosted by £25 million growth from the Standard Chartered and Warrior deals. Likewise, Chelsea will increase their revenue by £12 million from £56 million following better deals with Adidas and Samsung.

In other words, it’s become a commercial arms race with each of the leading clubs significantly increasing their commercial revenue in their own way – and City are no exception.

Actually, I tell a lie, as City’s deal includes one unique element, the Etihad Campus, which is perhaps the cleverest and certainly the most innovative part of the agreement. This is a gigantic redevelopment project on 80 acres of land adjacent to the stadium, including a relocated training ground, youth academy, a sports science facility, office space, a call centre and City Square retail outlets. The academy will be seriously impressive, catering for up to 400 young players, with 16 football pitches, a 7,000 capacity stadium for youth matches and on-site accommodation.

"Opportunities (Let's Make Lots of Money)"

Such a development will not only benefit the community, but will bring a raft of sponsorship opportunities. Nothing like this has been done before, so it will be very difficult for UEFA to assess and almost impossible to deem unfair. In fact, this is exactly the type of expenditure that UEFA is trying to encourage with direct youth and community development costs being totally excluded from the FFP break-even calculation. For someone with pockets as deep as Sheikh Mansour, this is effectively “free” money, at least in terms of FFP.

On top of that, Annex X allows any profits from non-football operations to be included in the calculation, so long as the operations are: (a) based at, or in close proximity to, a club’s stadium and training facilities, such as a hotel, restaurant, conference centre, business premises (for rental), health-care centre, other sports teams; and (b) clearly using the name/brand of a club as part of their operations.

That sounds very familiar, so it’s a double whammy for City: the costs for this development are excluded, while the profits from the business located there are included. Not only that, but UEFA should be positively delighted, as it’s very much in the spirit of the stated objectives of FFP. Given those factors, the temptation must be to load up the sponsorship on this part of the agreement, so the deal split might be more like £10 million on shirt sponsorship, £5 million on naming rights and £25 million on the campus. We shall see.

Even with the benefit of this deal, City are still a long way from break-even, having recorded a thumping great loss of £121 million in 2009/10. The deficit is anticipated to be even higher last season, as the impact of the previous summer’s incoming players will have further increased the wage bill and amortisation. Nevertheless, City insist that matters will improve. Garry Cook stated, “Clearly our intention is to comply. FFP is on our conscience. We talk about it at every board meeting and it’s part of our long-term plan.”

Even the spendthrift manager Roberto Mancini now appears to have accepted the new financial realities, “FFP is for everyone”, saying that City would no longer “pay £10 million more than other clubs” for new players. Indeed, so far this summer, City have only signed Gael Clichy from Arsenal for £7 million and Montenegro defender Stefan Savic for a similar amount. That’s chicken feed by the Blues’ recent standards, though there’s still time for them to splash out on another big name.

That said, City are very keen to reduce their bloated wage bill by offloading players that no longer fit into Mancini’s plans, including the likes of Emmanuel Adebayor, Craig Bellamy, Wayne Bridge and Shay Given. From this season, the club’s revenue will also be significantly boosted by a Champions League campaign and, of course, the vast growth in sponsorship deals.

They will also be helped by the UEFA’s so-called “acceptable deviations”, namely the €45 million aggregate losses allowed in the first two-year monitoring period, which means that they don’t have to actually reach break-even from day one, so long as the owner covers the losses, which I think we can safely assume.

If that wasn’t enough, the glide path is made even easier by clubs being allowed to exclude wages from players signed before June 2010, so long as they are reporting an improving trend in their accounts. Granted, that “loophole” only exists for the first two monitoring periods (2013/14 and 2014/15), but it will buy City time to execute their strategic plan.

In essence, that has been to spend big in the short-term on transfers and wages in order to break into the Premier League top four, so that they can qualify for the riches of the Champions League, which is easily worth £30 million additional revenue a season. That extra income will contribute towards balancing the books while the academy can be established, producing top class players in-house, but the growth in commercial revenue is still a vital component to that strategy.

One of UEFA’s main objectives in implementing FFP was to “curb the excessive spending and inflated transfer fees and player salaries that have endangered football in recent years.” To a certain extent, there are some signs that this is happening, but new regulations often have unintended consequences and it appears that clubs are also striving to increase their revenue, as opposed to simply cutting costs.

Even though City’s revenue grew by an impressive 44% in 2009/10 to £125 million, which pushed them up to 11th place in the Deloitte Money League, this is still a long way behind other leading clubs. For example, it’s less than half of local rivals Manchester United (£286 million) and £100 million lower than Arsenal (£224 million). On the continent, both Real Madrid (£359 million) and Barcelona (£326 million) generate £200 million more than City every season.

City could look to increase their match day revenue, which they have partially addressed via a new agreement with the council, whereby the club pays them a fixed amount regardless of the attendance instead of the previous percentage. Any further growth would mean raising ticket prices, increasing the corporate seats or expanding the capacity of the stadium. The first two moves would be unpopular with fans, while the stadium expansion is longer-term in nature.

Plans exist to increase the capacity of the stadium from 47,000 to at least 60,000, but this would not be entirely straightforward, due to its awkward design. There have been some concerns that City would struggle to fill a larger stadium. Although their attendances have always been good (4th highest in the Premier League), they do not regularly achieve full capacity. That said, the crowds have risen since the move to Eastlands and continued success on the pitch should produce a further increase, as was the case with Chelsea after Abramovich’s arrival.

Television has been the big driver of revenue growth at football clubs and the latest Premier League deal for the three years between 2010/11 and 2012/13 helped increase City’s distribution from £50 million to £56 million. However, this is a tide that floats all boats with very little difference between the leading clubs. The real distinguishing factor is the honey pot known as the Champions League, so City’s qualification will have a transformational impact on their revenue, but it’s a one-step growth.

So, with match day and TV relatively fixed, it’s really down to the commercial side, notably sponsorships, to substantially close the gap with the big boys. Even before the blockbuster Etihad deal was announced, City’s revenue from commercial activities had more than doubled in 2009/10, including an increase of almost 400% in revenue from corporate partnerships up from £6.5 million to £32.4 million.

This explosive growth has inevitably raised suspicions, particularly given the provenance of the sponsors, but the criticism of City has taken on something of the nature of a moral crusade with many commentators accusing the nouveaux riches of buying success, after Sheikh Mansour ploughed close to a £1 billion into the club since acquiring them in 2008. There’s little doubt that City have contributed to the inflation in transfer fees and wages, with net transfer spend of £343 million in the last three seasons and a wages to turnover ratio of 107%, though they are hardly alone in that.

However, there are two sides to every story and there are a couple of facets of this deal that should be commended. From the point of view of the fan, it is surely better that a club tries to grow its revenue by taking more money from sponsors than raising ticket prices. This is where Arsenal’s criticisms ring a little hollow after they hiked ticket prices that were already among the highest by 6.5% for next season.

And while I yield to nobody in my admiration for Sir Bobby Charlton, his suggestion that big clubs should not think about renaming their stadium should also be considered alongside Manchester United’s stratospheric ticket price rises. Indeed, City were top of the ING Direct Value League last season, measured by comparing clubs’ season ticket costs with Premier League performance.

City’s commercial deal will also benefit the local community, which is why the council agreed to let City sell the naming rights of a stadium that is not owned by the club, but the council. In fairness, the club had already contributed £30 million to the stadium conversion costs after the Commonwealth Games, but the council’s willingness to let the deal proceed on these terms still came as a surprise to some.

However, the council will receive £20 million over the next five years, and, more importantly, their leader points to “the regeneration of the area, delivering significant community and economic benefits”, including the creation of new jobs. Faced by severe government cuts, the cash-strapped local authority have gratefully accepted City’s proposal for this deprived neighbourhood, describing it as “great news for Manchester, reinforcing our sporting, transport and economic growth.”

Of course, other clubs have also been very active in their community, but this plan is on an altogether different scale. Yes, it might feel a little like wealthy philanthropists establishing charities as a way of reducing their tax bill, but the fact is that the community will still gain.

This has not stopped other clubs from sniping, led by Bayern Munich chief executive Karl-Heinz Rummenigge, who also happens to be chairman of the European Club Association. When commenting on City’s large financial losses, “Kalle” sniffed, “Maybe they know a trick I don’t that will allow them to take part in the Champions League.” This is the same Bayern where two of their most prominent sponsors, Adidas and Audi, each own around 10% of the club.

Similarly, Wolfsburg is a wholly owned subsidiary of Volkswagen Group, who also pay for the club’s stadium naming rights and shirt sponsorship. Little wonder that Stefan Szymanski, professor of sports business at London’s Cass Business School, said, “If there’s a question of fair value in relation to an Abu Dhabi client sponsoring Manchester City, I see no reason why the same questions can’t be raised about corporate Germany sponsoring German football.”

"Gael force"

If UEFA did decide to broaden their investigations into other sharp practices, they could also take a look at the ridiculously unfair advantage enjoyed by Real Madrid and Barcelona with their huge slice of the Spanish TV pie. And while they’re about it, what about those clubs that directly inflate the transfer market by paying over the odds for average players (naming no names)?

My simple point here is that if you look hard enough, you will surely find reasons to investigate activities at numerous clubs, so it would be very harsh for UEFA to zoom in on City. There will be many such deals sailing close to the edge and there must be a better use of UEFA’s time than to review each one. Adopting a basic tenet of the English legal system, a reasonable man will know when a deal is completely ludicrous, e.g. a £200 million annual season ticket, but to my mind City’s deal does not fall into that category.

While UEFA’s credibility over FFP is at stake, there’s every indication that they will help clubs towards break-even, instead of throwing them out of Europe. Otherwise, in City’s case, it would feel like they should re-release The Clash’s seminal “Know Your Rights” with slightly modified lyrics: “You have the right to sponsors’ money, providing of course you don’t mind a little humiliation, investigation, and, if you cross your fingers, authorisation.”

"Sometimes a picture is worth a thousand words"

There may be a whiff of creative accounting around this incredible deal, but there’s also genuine substance and benefit to the community. City’s commercial growth might have been fuelled by money from companies that are at the very least “friendly” towards their owner, but when the deals are broken down the sums are not inordinately high, so are more or less in line with benchmarks.

Furthermore, the proceeds will be invested in a state-of-the-art academy with the objective of producing homegrown young players who will ultimately replace the imported “mercenaries”. It’s a well-considered plan that seems to me to be within both the letter and to a large extent the spirit of FFP.