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Afolabi Ezekiel - October 19, 2024
This article explores the concept of shareholder loans in Premier League clubs, focusing on their financial implications and the recent legal challenges surrounding these practices. It examines the potential consequences of the Manchester City case on the league’s financial regulations and the impact on individual clubs.
This is an amount of money loaned to a club by the owners/shareholder. This is a means for these individuals to invest funds in the club’s project without seeking for equity in return. More times than often, this loan is interest free.
Premier League clubs are now taking advantage of this scheme as fourteen of the twenty clubs in the division had owners/shareholder loans recorded in their financial books. An exhibit Manchester City’s lawyers presented in court during their APT case against other Premier League clubs recently.
The Premier League before now, excluded this form of loan from APT rules because they are trying to encourage investment in clubs. The Premier League also proved this by reminding the media that 19 of the 20 clubs in the division were responsible for voting through the existing APT rules, with only Newcastle standing on the other side of the fence.
Three teams lead others by a mile on this list, they are Everton, Brighton and Arsenal.
Everton’s tops this list with £451million borrowed from their Iranian businessman Farhad Moshiri, an amount set to be written off when the Friedkin Group completed the takeover of the club.
Brighton and Hove Albion is second on this list with £373million owner to solve owner, Tony Bloom, in an interest free arrangement. Arsenal is third on this list with £259million. According to the Athletic, the precise rates of interest on that shareholder loan have not been disclosed, but Arsenal’s last two sets of accounts showed interest paid on total debts (including £10.2m worth of debentures) to be £4.3m.
Other teams who have benefited at least £100million from this arrangement include Chelsea (£146million), Liverpool (£137m), Bournemouth (£115m) and Leicester City (£132m) whose figure has been reportedly reduced after £194m of loans to the club’s parent company, got capitalized into equity in February last year.
On the other hand, clubs like Man City, Man United, Newcastle and Tottenham has no shareholder loans in their recent financial books.
The recent tribunal ruling regarding Manchester City’s shareholder loans under the Premier League’s Annual Profitability and Sustainability Test (APT) rules could have significant implications, including for Newcastle.
Legal experts suggest that the Premier League must proceed cautiously, as its current rules have been deemed to violate competition law. The ruling grants clubs the right to seek injunctive relief against unfavorable regulations, but also blocks the retrospective application of new rules.
The Premier League claims the situation is manageable, and no retrospective actions on shareholder loans are expected, meaning clubs won’t face penalties. However, experts warn that Manchester City’s legal victory on shareholder loans could require the Premier League to amend its rules to explicitly include such loans.
If the current APT rules are invalid, the league may have to revert to older rules (RPT), which would require the inclusion of shareholder loans in financial assessments starting from December 2021. This could lead to the reevaluation of past board decisions and financial calculations for all clubs.
Legal professionals believe City will likely challenge any attempt by the Premier League to maintain or reinterpret the current rules. Should the APT rules be deemed unlawful, retrospective reassessments could cause complications, with some clubs, such as Everton, potentially facing significant financial strain due to reassessed loans. Meanwhile, teams like Brighton, which have been compliant with UEFA’s financial fair play (FFP) rules, may be less affected.
The impact of this case could ripple through the league, forcing a revision of how shareholder loans are handled moving forward, with the potential for compensation claims from clubs that had sponsorship deals revised. This situation has opened a complex legal dilemma for the Premier League, and shareholder loans are likely to be scrutinized more closely in the future.
