Are Manchester City guilty of 'financial doping'?

Ever since the takeover by Sheikh Mansour, Manchester City have often been accused of financial doping. But are they actually guilty of it?

The first thing is to understand what it means. Most people take it to mean the club is living beyond it's means with a wealthy owner pumping money in to keep the club going. It is called doping because the extra finance, which the owner will not get back again, gives the club a perceived unfair advantage over other teams, who only have the money they generate themselves in which to pay for players. By putting additional money in, the owner allows the club to have players they wouldn't otherwise have been able to afford, improving the team by a method that is perceived to be unfair.

Currently that appears to be what is happening at Manchester City. Large sums of money have been lost by the club, paid for by the owner putting more money, in the form of equity, into the club. They certainly aren't the first club that has had an owner doing this. For example, Jack Walker and Dave Whelan put their money into Blackburn and Wigan respectively. Both got promotions and won a trophy as a result. Other owners have done the same.

There are also other cases of shareholders investing money in a club. Tony Adams has claimed the real reason for Arsenals success was money invested by Danny Fiszman. I've heard several Arsenal fans claim this isn't financial doping as the investment was in the form of loans which were eventually repaid. According to this logic, a club can temporarily live beyond it's means as long as the money is eventually repaid and it's not financial doping. This has some logic to it. It allows, for example, for investments which would lead to an increase in revenue such as a new stadium.

Which leads us to some observations on what is happening at Manchester City. After the takeover there was a statement from Sheikh Mansour which contained the following:

• "I have bought the club in a private capacity and as part of my personal business strategy to hold a wide portfolio of business investments."
• "I am.....a long-term investor"

The above imply that, in the long term, Sheikh Mansour wants to see a return on his investment. That is, Manchester City are temporarily living beyond there means and eventually the owner will get his money back. If that is correct, how is that different from the investment by Danny Fiszman in Arsenal? The scale in terms of amount invested and time to get a return are different, but the basic principle is the same.

There is an obvious question of if there will be a return. The club is about to issue new accounts, but it's unlikely there will be a profit at this stage. The ongoing investments (such as the vast Etihad Campus) will prevent that. But there has been some return already. The club is worth a lot more than when it was purchased. This is obviously not yet enough. However, I doubt Sheikh Mansour expects to get his money back yet. In Abu Dhabi, there are vast investments which are being made with a view to life after they run out of oil. They are thinking of very long term investments.

If we accept that Sheikh Mansour intends to eventually make a profit on his investment, then the answer to the question of financial doping depends on if you think there should be a time limit to how long a club can live beyond it's means. UEFA thinks there should be some limits, which is why the Financial Fair Play rules are being introduced.

So are Manchester City guilty? That depends on the answer to two questions, will Sheikh Mansour see a return on his investment and how long should he be allowed to wait for a return?

Update 29/1

Today City announced their latest financial results. While there was still a big loss, it was almost half the previous year. The trend is clearly down. There is also a huge amount of long term investment being done - the Etihad Campus, New York City, the women's team etc - none of which will see a return for years, and plans for more in the form of a stadium expansion. And there is the effect of the significant increase in the TV deals for both the Premier League and Champions League which has yet to kick in. I do think Sheik Mansour intends to see a return on his investment in the long term as discussed above, and that may start sooner rather than later.

New York City and Financial Fair Play

In a revealing interview with Ferran Soriano in the Telegraph about the investment in New York City and the future of Manchester City, he claimed that "this project [NY City] has nothing to do with FFP". That may be true, that the investment is not designed to help with Financial Fair Play (FFP), but it surely has FFP implications for Manchester City.

The first and most obvious implication is how would the initial investment in the new franchise be accounted for? And will this spending be counted when City are assessed for FFP? Initial reports suggest that the fee to buy the franchise is $100 million, and a stadium will be built at a cost of of $340 million. Combined with the inevitable start-up costs this means a total investment in the region of $500 million looks likely. While this will be shared with the partners in this, the New York Yankees, and there may be borrowing against the stadium to finance its construction, it is inevitable that this will mean Manchester City spending a considerable amount of money in the short term.

So from an FFP point of view this looks like it should make it harder for Manchester City to pass. Under Financial Fair Play, clubs losses are limited to €45 million in the initial monitoring period so additional investment such as this, which is unlikely to see any return for a few years, should make it harder to pass. But the regulations are not straightforward and contain rules allowing the exclusion of certain types of expenditure from the FFP calculations.

One of the exclusions covers investment in infrastructure. This is designed to allow investment in new stadiums, training facilities etc. At face value it looks like investment in a new football team and stadium could be discounted from FFP under this exclusion. However, I'm sure that when the regulations were written, the intention was to exclude investment in the teams own stadium and training facilities. Additionally the new team is outside of UEFA, who are behind the regulations. This means this may well fall into a grey area within the regulations. It's likely it will be excluded (as I'm sure City will have had lawyers and accountants checking this) but this isn't certain.

Once the initial investment has been accounted for, there is the ongoing implications due to the day-to-day operations of both clubs. Firstly any profits from the new team should be able to be counted as they are from a football related activity. Secondly there is a great deal of scope for mutually beneficial commercial cooperation between all three parties in this (Man City, NY City and NY Yankees). For example, I would not be surprised to see all three selling each others merchandise. These should all have a positive impact by providing additional revenue, assuming NY City are financially successful.

There is also much scope for cooperation in player transfers, loans etc. This is unlikely to be a blatant mis-use of the system. For example, we won't see NY City buying Cristiano Ronaldo for £100 million then selling him to Manchester City for £1. The MLS single entity structure, and the involvement of the Yankees, mean this will not be possible. While the majority of the benefits are outside the scope of this blog, there could be benefits financially from the cooperation, one example being Man City having somewhere to send players out on loan easily (thereby reducing the wage bill). But this impact will be small and I'm sure UEFA will check any transfer fee's between the two clubs for 'fair value'.

It's the role of the NY Yankees that makes me think this won't have a major impact on FFP. There will be a temptation for some to think Man City could play financial games, shifting revenue and costs between the two in a similar way to what we have seen from other companies. But this would mean the Yankees losing out which should mean it won't happen. So as long as the initial investment can be excluded from FFP, it looks like this deal will only have a small positive effect as it will help increase revenues from the commercial side of the football club.