Former manager comes under pressure after Premier League club is found guilty of 114 charges of breaking financial conduct. City has lodged an appeal
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“It’s not a problem that concerns me,” said Roberto Mancini. The manager of Italy’s national team was responding to the guilty verdict confirmed last week on 114 of 115 charges brought against Manchester City, the football club he used to coach. It remains to be seen how long he will remain unconcerned, for his unusual double contract while at the club has quickly become a focal point of debate about whether City’s appeal against the verdict is likely to succeed.
Unless it can overturn the decision of the independent commission that heard the charges of breaking the Premier League’s financial fair play rules, the club faces potentially severe punishment that could include a points deduction, relegation or expulsion from the Premier League, and a hefty fine. Hundreds of millions of pounds are at stake and perhaps much more, if authorities outside football start to get involved – with potential lawsuits from clubs and players that claim to have lost out and a possible criminal prosecution.
The Mancini double contract is by no means the biggest monetarily of the 114 charges, but it may prove the hardest to explain away. The commission found that City paid one individual, whose name is redacted, through agreements that were a “sham”. A report published on Thursday by Tax Policy Associates (TPA), a thinktank, concluded from leaked documents that the individual was likely to be Mancini, and that “the evidence points to £12m in unpaid UK tax”. With interest and penalties, it reckons, the bill could reach £23m–£24m, and a criminal investigation could follow.
When Mancini became City’s gaffer in December 2009, he got two contracts. The first, with the club, gave him a basic salary of £1.45m per season after tax. The second, with Al Jazira Sports and Cultural Club, was a consulting agreement paying Mancini’s company £1.75m a year, with no tax deducted, for a minimum of four days’ coaching a year in Abu Dhabi. Both clubs are owned by Sheikh Mansour bin Zayed Al Nahyan, a member of Abu Dhabi’s ruling family and vice-president of the UAE. The leaked documents show that in March 2011 the first payment on the consulting contract was made from a Manchester City account and authorised by the club’s head of finance. This strongly suggests that the two contracts were in reality one, and together they were payment for Mancini to manage Man City. If so, City understated his pay in its accounts and, in all likelihood, failed to hand over the pay-as-you-earn income tax and national insurance due on it: about £12m on £8.9m of payments over four seasons, a sum so large because Mancini was paid net of tax. When TPA asked the club whether the tax had been paid, it received no reply.
‘More than £830m of owner funding was dressed up as commercial revenue to keep the club within the spending rules’
Many of the breaches of which City has been found guilty concern sponsorship by Abu Dhabi companies. Their names are redacted, though leaked emails have long pointed to Etihad Airways, the state-owned carrier, among others. The commission found that the fees recorded in these contracts were far above fair market value, and that the sponsors paid only part of them; the rest came from City’s owner, Abu Dhabi United Group. More than £830m of owner funding was thus dressed up as commercial revenue to keep the club within the spending rules. City may yet persuade an appeals panel that these were in fact independent arms-length deals in compliance with the rules. The Mancini arrangement, first revealed by Der Spiegel in 2018, looks different. TPA ranks it among the clearest shams its team has seen, and (while carefully avoiding accusing anyone of actually committing an offence) argues that the way it was set up, and the tax apparently left unpaid, justify a criminal investigation.
A few football club officials, all from lower leagues, have been convicted of tax crimes; in 1992, Brian Hillier, chairman of Swindon Town, was sentenced to a year in prison, halved on appeal, over payments made to staff without deducting income tax and national insurance. Whether anyone at City faces a similar threat is another matter. Its chair, Khaldoon Al Mubarak, has had diplomatic immunity in the UK since 2020, the Financial Times reported last week, which would shield him from criminal prosecution.
Misleading auditors can also be a crime. The commission found that City’s auditors were unaware of the club’s disguised funding scheme and describes documents to conceal the reality from regulators and auditors. That said, there are growing questions about why City’s audit firm, BDO, was not more curious about what was going on with the club’s finances, especially once Der Spiegel’s revelations prompted the Premier League to start investigating in 2018. The commission also found that the Abu Dhabi sponsorships were related-party transactions that the accounts failed to disclose, which is certainly something an auditor should be looking out for. Pressure is growing for an investigation by the Financial Reporting Council (FRC), which has been critical of BDO’s audit quality for five years running and in May fined it £1.33m over its audit of NMCN, a construction group that collapsed in 2021.
Liam Byrne, the Labour MP for Birmingham Hodge Hill and Solihull North, has sent a letter to the independent financial regulator requesting a new investigation into City’s “alleged misstatements”.
Byrne, chair of the Commons business, innovation, science and trade committee, asks the FRC to examine the case and outline what action it can take now.
“The findings raise a fundamental question: how could the established system of audit and regulatory scrutiny fail to uncover alleged misstatements of such a scale over nine years?” he adds in the letter.
“We are particularly concerned that these issues came to light through media reporting rather than the established audit and accounting process,” Byrne continues. “If the findings are upheld, I believe it is essential that the FRC must establish where scrutiny broke down, whether auditors exercised sufficient professional scepticism, and what must change to prevent a repetition.”
Mancini reportedly insists that if the double contract is a problem, it is City’s, not his. On that much, the taxman may well agree.