[Week 40 of 2026] Football Finances

Welcome back to Price and Prejudice with a few musings from Week 40 of 2026. Today we talk about Manchester City, aggressive accounting, and what football's financial rules have in common with bank regulation.

Football (a.k.a. soccer) is the most popular sport in the world by most standards. A stylized view of most football leagues, which I think is pretty accurate, is that if you spend a lot of money on player wages, you can be good at football, and if you are good at football then you can make more money from broadcast, matchday, and commercial deals.

But if you spend too much money on players — if you spend more money than you bring in from broadcast, matchday and commercial deals — then you will need to get that money from somewhere. That somewhere is generally the owner. In the English Premier League, the most commercially successful league as of today, football clubs tend to have rich owners who want the team to do well and are willing to put in money to make it do well. So as a business, a football club often has a soft budget constraint, where it keeps losing money but its owner keeps covering the losses.

But if you run a football league, you might have mixed feelings about this. You might not want your league to be composed entirely of money-losing vanity projects for rich people. You might want to create some rules — the Premier League has long had “Profit and Sustainability Rules,” which used to be called “financial fair play,” which gives you the idea — to make sure that teams are run in a financially sustainable way, and to limit how much money owners can spend to compete with each other. So the basic rule is that owners can spend only so much money propping up their teams.

This creates some obvious incentives for, let’s say, aggressive accounting: One thing that you could do to get around the rules is to spend more money than you are allowed to, but to pretend that the money came from revenue rather than from the owner. And this turns out to be a pretty popular thing to do! Last week, it was announced that Manchester City had inflated its reported revenue and hidden some of its expenses, while at the same time violating most of the Premier League’s rules about cooperating with the investigation.

Some background – City has been owned since 2008 by Sheikh Mansour of Abu Dhabi, through his investment vehicle, Abu Dhabi United Group (ADUG). The case started with leaked documents published by Der Spiegel in 2018, the Premier League opened an investigation that December, and it charged City in February 2023 with what became known as the "115 charges." On September 29, an independent commission found the financial charges proven, along with three of the four charges about not cooperating. City has appealed and maintains its innocence, and the punishment has not been decided yet.

Specifically, the allegation is that City's sponsors paid only part of the fees recorded in its accounts, and that Abu Dhabi United Group (ADUG) funded the rest. In other words, money that the owner put into the club was recorded as sponsorship revenue rather than as equity. The issue concerns how the club reported money it actually received. The club had the cash either way, but presenting the owner's money as sponsorship required contracts that misstated who was paying. In non-sports finance, the practice is sometimes called "propping," which is opposite the better-known term of "tunneling," in which controlling shareholders take resources out.

Why would an owner who can afford to put the money in openly bother to disguise it? Because of how the rules count. Under the old rules, a club could lose at most £105 million over three years. Sponsorship revenue makes your loss smaller, while money from the owner does not. It just pays for the loss, which still counts against the cap. So the same pound helps you comply if it shows up as a sponsorship deal, and doesn't if it shows up as equity. For what it's worth, City's reported commercial revenue went from about £20 million in the season before Mansour bought the club to about £232 million ten years later, roughly 11 times, compared with about 4 times at Manchester United over the same period.

What makes the series of events harder to interpret is that the regulatory landscape keeps changing. For example, the Premier League replaced its old loss limit rule with two sets of rules. A Squad Cost Ratio (SCR) limits squad spending to 85% of football revenue plus net profit on player sales, with an additional allowance of 30 percentage points. A second set of rules, called Sustainability and Systemic Resilience (SSR), requires clubs to keep £12.5 million of working-capital headroom each month (i.e., a buffer of short-term assets over short-term obligations), to show enough liquidity to absorb an £85 million stress scenario, and to keep liabilities at or below 90% of adjusted assets, falling to 80% from 2028/29.

To a finance person, the second set of rules will look very familiar. A liquidity requirement, a stress scenario, and a cap on liabilities relative to assets are similar to the liquidity, stress-testing, and leverage rules that apply to banks. And SCR is sort of like a bank capital rule, except that instead of capping the amount of stuff you own (relative to your loss-absorbing equity capital) it caps the amount of expenses you have. Or the NBA has a salary cap with a bunch of exceptions, and Major League Baseball has a “luxury tax” where teams can in effect spend as much as they want but, if they spend above $244 million, they have to pay an increasing tax to the league.

Notice, though, that the new spending limit is still a percentage of revenue. If you could inflate your revenue, you could still spend more. So the new rules do not remove the incentive that got City into trouble; they mostly add bank-style tests of whether a club can pay its bills. Football's rules also differ from bank rules in one interesting way. Bank regulators want owners to put in more equity, since equity absorbs losses. Football's rules instead cap the losses that owners' money can fund, because the goal is not only solvency but also stopping the richest owner from buying the league.

So to a first-order, the Premier League has all the basics of a modern-day financial regulation:

• You detect bad stuff, and punish people for doing it, and
• It is easier to detect bad stuff if you have rules about disclosure and related-party transactions and keeping accurate financial statements and so forth.

A lot of financial regulation — and I feel like the Premier League is at least directionally doing this too — is like, if you run a big financial institution, we will work closely with you and send our inspectors to your office and chat with you and give you notes and generally have a nice friendly relationship. But if you are not a big financial institution, and you do financial crimes, then we will be extremely mad at you and fine you a lot of money.

City is about as big an institution as the Premier League has, and the clubs write the league's rules themselves, so City's regulators are, in effect, its rivals. That makes this case a test of whether the league can be extremely mad at one of its own biggest members. A new Independent Football Regulator, created by Parliament in 2025, starts taking license applications this November. It does not write the spending rules, though, so the Premier League will keep doing that part itself.

Under this model, the actual size of the fines is perhaps less important than the fact that, if you cheat, you will get caught and will get fined. City's case shows how hard the catching part can be – UEFA tried first and banned City from European competition for two seasons in 2020, but the Court of Arbitration for Sport overturned the ban, partly because many of the allegations were more than five years old and partly because the evidence on the Etihad deal did not hold up. In this case, the Premier League did eventually make it stick, but it took almost eight years from opening its investigation to publishing the findings, City is appealing, and the titles it won in the meantime have already been won. And so now everyone is mad.

(Disclosure: I am an Arsenal fan.)