May 6, 2014, 11:12 PM EDT
The potential for creative accounting between Manchester City and the club’s new teams in North America and Australia looked like an interesting Financial Fair Play (FFP) loophole, but with UEFA already looking at the relationship between the Citizens and its offshore subsidiaries with skepticism, that loophole may be smaller than originally thought. With New York City FC still 10 months from playing its first competitive game, the 2015 Major League Soccer expansion team is being drawn into its parent team’s FFP drama, with UEFA apparently scoffing at intellectual property licensing agreements between the two clubs.
Word of the scrutiny comes from The Guardian, whose Tuesday reporting indicating Manchester City was ready to fight UEFA sanctions set to be imposed or overspending. City’s case for compliance hinges in part on the legitimacy of some of its partner deals, three of which were identified as potentially specious:
Uefa’s accountants are believed to have concluded that Manchester City’s £350m 10-year deal with Abu Dhabi’s national airline Etihad and a series of licensing deals have been significantly overvalued.
… Manchester City said it had sold players’ image rights for £24.5m to a separate company and raised £22.45m from licensing intellectual property to “third parties” – widely believed to be new City franchises in New York and Melbourne.
The mere existence of a deal between Manchester City and its new clubs isn’t the problem. UEFA, however, will flag any deal that appears to be out of line with a reasonable market expectation. If the deal doesn’t pass their scrutiny, the income won’t count toward Financial Fair Play.
The term “intellectual property” is so broad, it screams potential abuse. Manchester City can send a business operations manual back stateside with Jason Kreis, value it at whatever they want, and write it off. Ultimately, no money goes outside the team’s bigger, multi-club umbrella, but in terms of the more limited UEFA portion of that picture, City can play its shell game and try to comply. Only now, it looks like UEFA’s Club Financial Control Body (CFCB) is going to take a long, hard look at the shells, making sure nothing slips from the table.
Regardless, any notion that City won’t try to use its MLS and A-League franchises to help with FFP may soon be dispelled. Clubs are going to great lengths to find new ways to maximize their potential expenditures under the rules. For some that means new commercial efforts in North American and Asia. For others, that means placing, developing, and selling increasing numbers of players. For Manchester City, that means teams in North American and Australia – teams they can not only use to loan out contracts but also do more creative things, like sell intellectual property.
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