Hearing about the Man City 2 year Champions League ban ruling, I like many was surprised that UEFA has the guts to put such a tough punishment forward. Many articles have hit on the peripheral issues, but few have looked to the core of the issue (hint: it’s always money). At first glance the financial hit the Citizens would take hurts, but after following it all through, the bottom line is this ban is an absolute catastrophe for Man City … much more than anyone is making it out to be.
Below is the background and standard consequences that many have already put forward, but then we will quickly move into what is being missed. (The background comes into play financially, you’ll see.)
What Did They Do?
To keep it simple, Man City lied about how much money they made … again. Being owned by middle eastern oil money, their owner (Sheikh Mansour) is eager to pump as much money as possible into the team, so they inflated sponsorship money. And before people tell you this is too harsh a punishment, this is the second time they have been caught; not the second time they did it, the second time they’re caught. (Having worked a career in finance, I can tell you a lot of shenanigans happen, but few are caught, so to be caught twice, there’s a lot going on.) First was in 2014 and their punishment was minimal and most of the fine was suspended.
Fair Play Rules
This type of inflation is the type of behavior is why Fair Play rules were created in 2011 (as an idea, Man City was bought by Mansour in 2008 – the timing is telling). Basically, fair play rules state that teams cannot run a money losing operation. So you can only spend as much money as you earn (caveat: it’s over 3 year total, there’s certain exceptions, little stuff that doesn’t really matter here).
Inflating Sponsorship Money
Inflating a sponsorship is basically paying more than it’s worth. In this case, one or more sponsors related to the Man City owner paid more than is reasonable to sponsor a team of that caliber and fame. (This point will come back later.) Leaked emails showed that the team was aware they would not be in compliance with Fair Play rules and they added money to the sponsorship deal with companies owned by Mansour.
Personnel Consequences
The Coach
Pep Guardiola is a clever man. He has shown that on the pitch and he has shown it with his words. Pep has committed to the team for the future. He has been clear he is not leaving. But he was also clear that he believes management when they say they did not breach rules. By his own admission winning the Champions League title is all that matters, and now he will not be able to compete for it for 2 years. Pep is not a long term, build a dynasty coach. He’s already past his usual exit date. For now his out is simple, management lied to him so he is not staying like he promised to. Period.
The Players
This is a big whammy, because there are players like Raheem Sterling who have refused to sign a new contract until they are sure that Pep is staying. He’s not and neither are they. Also, the best players in the world want to play on the biggest stage, Champions League and that is something Man City can’t offer for a couple years. Players won’t be happy. Also playing in Champions League raises the profile of a player which opens the door to more sponsorship opportunities and more online followers, so potential money non-salary income is lost as well.
The other thing we don’t know is what performance bonuses are in the Man City player contracts. We do know that Man U have a clause in play contracts that if they don’t play in Champions League then their contracts are cut by 25%. If any of the players have that type of clause, it’ll be hard to swallow. That’s a lot of money to lose for a management screw-up. So you say couldn’t management just remove the clause and the players get their money, well maybe, but do they have the money if they’re not playing in Champions League?
Money Consequences
While most have spent their time focusing on the coach and the players, the money issue is HUGE. And it does not look pretty.
Sponsorships
Simple math tells us that Man City has been inflating their sponsorships, so going forward, the sponsorship money is coming down. How much is to be decided, but they are losing revenue on correct sponsorships for sure.
There is some good news for Man City in that they just signed a new agreement with Puma for 10 years apparently worth £65M per year (compared to Liverpool’s deal with Nike worth a reported £30M). But there’s more than meets the eye. First, who knows what clauses are in the contract regarding the team being in good standing with UEFA. We haven’t seen the deal so we don’t know, but it would be surprising if there wasn’t something there. Could it cost money or even terminate the agreement, who knows.
But we know this for sure, the deal isn’t actually £65M per year. It’s up to £65m. Like all major teams, they are given more money based on performance. So if they lose coach and player and place lower in the EPL, they make less money. If they don’t qualify for Champions League (which they won’t for 2 year) they will make less money. So the shine is coming off that £65m.
And other companies (not owned by the Mansour) will be reevaluating how much a deal with Man City is worth given they are no longer in Champions League for two years and that their name is tarnished. Again, the first violation is not good but people get over it. It’s often the repeat offense that turns people off. Additionally while a deal with Puma is more money than Nike was willing to offer (probably, I mean they wouldn’t have signed otherwise, right?) Puma does not have the exposure and pull the Nike has. So building the brand under Puma to potentially gain exposure to encourage better deals with other sponsors will be harder than under Nike partnership.
But we do know that bottom line, for at least 2 years Man City sponsorship money is dropping, now it’s a question of how much and will it have a longer effect.
2 Year Champions League Ban
This loss cannot be overstated from a financial point of view. Last year Man City earned £535M of which £78M was from Champions League. That’s about 15% of their revenue coming from a competition they will no longer be in. This is especially significant because while Man City touted their revenue increasing significantly from prior year, almost all the increase was due to an increase payment from Champions League. The deeper meaning there is that Man City in not increasing their revenue through expansion and brand growth meaning they have become stagnant:
| (in millions) | 2017-18 | 2018-19 |
| Matchday Revenue | £53.0 | £51.8 |
| Broadcast Revenue | £198.0 | £238.4 |
| Commercial Revenue | £220.6 | £216.7 |
It is clear that matchday revenue is down, commercial revenue is down (although the Puma deal should help that a bit but who knows after this fallout), and the gain is in broadcast revenue thanks to Champions League. Now for the next two years the broadcast revenue will be down by £78M.
There is also EPL money to consider. One of the sources is how many games are broadcast, with each game being about £1M pounds extra for the team. if Man City loses it’s high powered coach or any of the high powered players, they become less desirable to show. Additionally, if they’re not fighting for the title which would be unlikely with departures, they wouldn’t be fighting for anything since they can’t partake in Champions League or UEFA League. I can’t say how many games less that will be, but it’s safe to assume at least a handful.
The 10 Years of Champions League Damage
Payment to teams in Champions League totals £1.69B and depends on a number of items such as wins, how far in the tournament you proceed, and something called the coefficient score. The coefficient score which is worth 30% of the total payout, is arrived at base on how well you have done in the past 10 years of Champions League. And a big part of the score is actually being in Champions League.
As an example, Man City have never proceeded to a final and Liverpool have been in the last two, winning one of them, and yet because over the last 10 years Man City have qualified for Champions League every year while Liverpool have missed 3 years, Man City has a high coefficient and a higher payout. In fact, despite Liverpool’s stunning 3 year run of a UEFA League Final, Champions League Final and Champions League win, Liverpool are in 14th place in coefficient and behind teams you wouldn’t expect like Bourassa Dortmund, Benfica and Porto. Bottom line is for maximum payout in Champions League, showing up matters a lot. But with Man City missing for 2 years, their cumulative coefficient when they return will be affected. For 10 years!
Breaking Point for Man City?
This ban hurts a lot. There is a lot of speculation being thrown about regarding the coach and the players, but all that is still in the air. Whoever will want out due to lack of Champions League and potentially Pep leaving will hurt the team, but that’s still an open item. What is decided is that Man City will have money problems and we can add them all up:
- Existing sponsorship money is going to come down for whatever the UEFA investigation found was overstated
- The increase revenue from the Puma deal will be tempered by not meeting Champions League clauses
- £78M will be lost from not participating in Champions League for 2 years
It’s not hard to believe that all three of these will add up to about £100M in lost revenue that Man City was expecting to have. And keep in mind that Man City in the last two years made only a £10M profit in large part due to having the highest wages in the EPL and spending constantly and consistently in the transfer fees.
So it’s not hard to guess that the incoming transfers will stop for a couple years and some players may need to be offloaded to reduce the astronomical wages. So looking at a Man City team losing top talent and not bringing in high priced players, with or without Pep at the helm, this might be the breaking point for the team, at least for the near future.
Daniel is a professionally designated accountant who has spent 20 years in the finance and data analytics field which has skewed his view of the sporting world. Instead of seeing simply an athletic competition, he sees a financial exercise waiting to be unlocked by data analysis. He enjoys reading professional publications such as the annual deloitte football report and team financials as well as spending hours putting together and analyzing football data, which saves his readers from having to do it themselves.
