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Football finances: what’s going on with Manchester City?

Manchester City FC are under scrutiny for allegedly breaching the Premier League’s financial regulations. In theory, these rules are in place to prevent mismanagement driving clubs into the ground. But their effectiveness, as well as the potential role of an independent regulator, remains uncertain.

The Premier League recently announced 115 alleged breaches of financial rules by Manchester City. This came after an investigation spanning more than three years. What’s more, in 2014, the club had accepted that it had broken the financial fair play (FFP) regulations set by UEFA, European football’s governing body, but then in 2020, successfully overturned a guilty verdict found against it.

Put simply, City are once again alleged to have broken the rules governing the finances in football. These regulations are designed to prevent football clubs being too reckless financially, in response to many financial implosions over the years. The rules also aim to maintain some level of competitive balance in the league.

Such rules have laudable aims. Over the years, many football clubs have been badly financially mismanaged, with significant consequences. The footballing communities in Bury and Macclesfield no longer have clubs anywhere near the Football League, and a significant number of other clubs have fallen into leagues below where they would expect to compete given local populations and fan bases. Derby County is but one recent example, with Coventry City, Ipswich Town and Portsmouth all falling into the third or even fourth tiers of English football.

Why does financial mismanagement appear to be such a problem in professional football?

While in more ordinary lines of work, mismanagement has the consequence of a firm being taken over or going out of business, football clubs are more distinct due to the vast numbers of stakeholders they have in their communities (and further afield). Over the years, regulations have been developed with the aim of protecting fans from the consequences of such mismanagement. But as with most sets of rules and restrictions, they bring with them substantial consequences.

Rules that restrict the losses that football clubs can incur can hamper competition. Such regulations can end up blocking teams from benefiting from rich owners seeking to spend money with little or no concern for monetary rates of return. This has long been the model of sports club objectives favoured by economists when looking at European football in particular – with 'win maximisation' subject to some (fairly loose) solvency constraints, rather than the more conventional profit maximisation model. In plain English, winning trophies matters more than turning a profit in the traditional sense.

But what about Manchester City? They are a club that has benefitted from this model of ownership, moving from mid-table Premier League at best, to completely dominating the competition, through the ownership of Sheikh Mansour of the United Arab Emirates. The sums of money that have been pumped into the club are huge. Looking at players alone, as of July 2022, Manchester City had spent $1.1 billion (£895 million) assembling their squad at the time – making it one of the most expensive in the world.

There is also, undoubtedly, a concern about a regime with a poor human rights record trying to improve its global reputation through investing in sport – a concept known as ‘sportswashing’. But in the context of the 115 Premier League charges against Manchester City, the nationality or governmental status of investors is irrelevant.

How long has this being going on?

Right back to the professionalisation of football, there has been a history of financial fraud. Competitive pressures often lead to unethical behaviour. In the very early days, the simple act of paying players was illegal. Then, once professionalism was allowed, maximum wage legislation was frequently broken. Even after such regulations on labour market activity were loosened, match fixing scandals remained common.

So, financial fraud in football is nothing new. And the current scale is only in line with the increasing financial clout of English football’s premium competition. The mechanism through which it is being brought – the Premier League – is also novel, and differs from the Football Association or Football League.

The Premier League makes decisions through its members (each team has a share, with relegated clubs transferring theirs to promoted clubs, with a slight tweak in recent years allowing long-standing members slightly more representation). This means that it can appear as if 19 teams are taking an issue with one – in the case of Manchester City, the most successful club of recent times.

The other political angle relates to the (likely) imminent arrival of an ‘independent regulator’ in football. This is something that the Premier League, as a successful, self-governing entity, is apparently not keen on. But it has also been argued that an independent regulator may be a good thing for situations like this, where the Premier League has to discipline a member of its own.

Manchester City have already pushed back against the verdict of the league. Since the announcement, they have protested their innocence and made many accusations about the motivations of the Premier League’s accusations, as well as their timing.

But it seems likely that City did break the rules. After all, they became a successful team while doing precisely what the financial fair play (FFP) regulations were designed to prevent. In the process, the club spent much more money than their revenues could ever support. Yet, this specific breaking of the rules points to their restrictive nature: arguably, cementing a particular footballing elite by making it illegal for other clubs to break into that small group of clubs able to win the Premier League.

Even so, these are rules that all 20 Premier League teams agreed to. It can be argued that the biggest teams are predisposed to agree to them, since the rules help to keep them at the top (by limiting rapid spending by ‘new’ rivals). But the rest of the league also agreed to the restrictions. FFP rules weren’t imposed on the rest of the Premier League – the decision was mutual.

What next for Manchester City and English football?

The way this current story plays out, given the context, will be fascinating. How long will it all take? Will the Premier League hold firm? Will City be punished, and how severely? Finally, how will an independent football regulator fit into this?

The answers to these questions will have a substantial effect on Manchester City. Sanctions against the club could harm their finances and prevent the club from recruiting new players (putting them at a competitive disadvantage). Reputational damage could also affect the club’s ability to attract new corporate sponsors.

The long-run outcome of the City controversy will also have substantial implications for the rest of the Premier League. After all, it is not just the blue side of Manchester that is willing to splash the cash: Manchester United have spent eye-watering amounts of money over the past ten years.

Chelsea too, having only recently been subject to sanctions directed at their former owner, Roman Abramovich, in the wake of Russia’s invasion of Ukraine, have just broken the record for the amount spent during a season by an English club ($600 million). Whether this behaviour will come under regulatory scrutiny remains to be seen.

Where can I find out more?

  • This article explains UEFA’s financial fair play (FFP) regulations in more detail.
  • These data from Statista list the most expensive transfers of all time. Note: only one signing relates to Manchester City: Jack Grealish.

Who are experts on this question?

  • Peter Dolton
  • James Reade
  • Carl Singleton
  • Stefan Szymanski
Author: James Reade
Picture by Coward Lion on iStock
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