How Manchester City made shareholder loans the Premier League’s new battleground

Amid the claims and counter-claims that spewed forth after Manchester City’s legal challenge to the Premier League’s associated party transaction rules, one fact was undeniable: shareholder loans have now joined APT, PSR and FFP in the lexicon of football fans.

City’s lawyers argued that if their sponsorship deals with Abu Dhabi entities such as Etihad are to be subject to forensic scrutiny over whether they were struck at fair market value, then so should loans provided to Arsenal by Stan Kroenke.

While the arbitration panel dismissed the majority of City’s objections to the current APT rules, they did accept the point on shareholder loans, which – perhaps not entirely coincidentally – has potential ramifications for many of the champions’ domestic rivals. 

Why are shareholder loans in the spotlight?

Clubs typically borrow from their owners rather than banks or other commercial lenders because the interest rates are lower – or in some cases non-existent. City argued that this gives those teams an advantage in meeting profitability and sustainability (PSR) rules.

In its written decision, the panel said: “A difference of treatment between shareholder loans and other APTs is, in our view, an obvious distortion of competition as it permits one form of subsidy, namely a non-commercial loan, but not another, a non-commercial sponsorship agreement.” 

What happens next?

The Premier League has said the exclusion of shareholder loans from APT assessment can “quickly and effectively be remedied”, and has called a meeting of its 20 clubs for Thursday 17 October with a view to passing the necessary amendments. 

“The rules as they stand are unlawful. In order to make them lawful, the panel has made it very clear that they need to be addressed,” Simon Leaf, a partner at Mishcon de Reya, told City AM.

“Shareholder loans will need to be considered as part of that [APT] calculation. I’ll be surprised if that doesn’t happen, but there will be some debate about how it will look.”

Which teams have shareholder loans?

More than half of Premier League clubs had outstanding shareholder loans in 2023, with £1.5bn of a total £4bn of borrowing coming from owners. 

Everton (£451m) and Brighton (£373m) benefited the most, followed by the three teams currently vying with City in the top four: Arsenal (£259m), Chelsea (£146m) and Liverpool (£137m). City, Manchester United and Tottenham Hotspur are among those clubs with no shareholder debt at all.

So will those clubs now fail PSR?

If clubs are forced to record all loans at commercial rates at least for the purposes of PSR calculations, then it could make it harder to meet permitted thresholds. Breaches can mean points penalties, as Everton and Nottingham Forest found last season.

Crucially, however, this is only expected to affect shareholder loans taken out after the APT regulations are amended. In that scenario it would cut off a cheap source of cash but not clobber City rivals Arsenal, Chelsea and Liverpool with backdated interest on big loans – or see their previous PSR sumissions reassessed.