Ownership and Control: City Football Group's Regulatory Challenge

Introduction

City Football Group (CFG), the parent company of Manchester City, faces a significant regulatory challenge regarding its ownership stake in Girona FC, a Spanish football which has secured qualification to next season's UEFA Champions League. CFG has held a 47% stake in Girona since 2017, a period during which the Spanish club has seen significant influence from Manchester City, including the loan and sale of key players like Brazilian star Sávio.

As Girona's top-four finish in La Liga secures them a spot in Europe's premier club competition, UEFA's multi-club ownership regulations demand CFG to reduce its stake to ensure both clubs can compete in the Champions League next season.

UEFA Rules.

UEFA's regulations are clear: no two clubs with the same ownership can participate in the same European competition to prevent conflicts of interest. This rule extends beyond mere ownership, encompassing situations where a single entity exerts "decisive influence" over multiple clubs.

According to UEFA, holding 30% or more of a club's shares or controlling significant voting or economic rights constitutes such influence. Consequently, CFG’s substantial stake in Girona and its complete ownership of Manchester City creates a regulatory conflict.

The UEFA Club Financial Control Body (CFCB) has offered CFG two options to resolve this issue. CFG can either sell enough shares in Girona to an independent third party to reduce its stake below 30%[1], or transfer its shares into a blind trust[2] overseen by a UEFA-appointed panel. This trust model was successfully applied in a compliance deal involving AC Milan, Toulouse, and their investor Red Bird Capital.

Failure to comply with these regulations by the June 3 deadline would likely result in Girona being demoted to the Europa League. UEFA's strict stance on multi-club ownership underscores the importance of maintaining the integrity of its competitions by ensuring no single entity can manipulate results or gain unfair advantages.

The Red Bull Case

A practical and well-documented example of multi-club ownership is the Red Bull case, which highlights the intricate relationship between RB Leipzig in Germany and RB Salzburg in Austria. Both clubs are financially backed by the renowned energy drink company and share a similar business model, yet they operate as entirely separate entities.

This relationship raises sensitive issues regarding control and influence, especially when both clubs participate in national and international competitions. FIFA and UEFA have consistently expressed concerns about the potential conflict of interest if both clubs were to compete in the same tournament and possibly play against each other.

After a thorough investigation, UEFA determined that RB Leipzig and RB Salzburg are legally distinct entities. Consequently, both clubs can compete simultaneously in domestic and international competitions without breaching UEFA rules, specifically Article 5 of the UEFA Competition Regulations, which addresses the integrity of competitions.

UEFA concluded that no single individual or entity exerted decisive influence over both clubs. Despite the ongoing debate about the ethics of a single entity controlling multiple clubs across different competitions, it was clarified that Red Bull owned 49% of RB Leipzig’s shares while serving only as the main sponsor for RB Salzburg.

However, this arrangement has sparked controversy and debate. Some appreciate the competitiveness and success that Red Bull’s financial support brings, while others argue that it undermines fairness and sporting integrity, threatening the core principles of sport.

During the investigation, UEFA mandated several structural changes for both clubs. For instance, RB Salzburg is now referred to simply as "Salzburg," and RB Leipzig as "Leipzig." RB Salzburg had to modify its emblem, replacing Red Bull’s logo with a bull and a football. Additionally, the stadiums were renamed, with RB Leipzig's venue becoming the "RB Arena" and RB Salzburg's stadium now called "Stadion Salzburg."

CFT & Girona FC.

CFG's influence over Girona has been substantial. Girona's squad includes players like right-back Yan Couto, on loan from Manchester City, and winger Sávio, on loan from CFG's French club Troyes. Sávio has been a revelation in La Liga, scoring ten goals and providing nine assists, making him one of the league’s top performers. His anticipated permanent move to Manchester City should remain unaffected by any UEFA decision. Additionally, Venezuela midfielder Yangel Herrera, after a loan spell at Girona, was sold to the club by Manchester City last July.

CFG, formed five years after Manchester City was acquired by Sheikh Mansour bin Zayed Al Nahyan in 2008, has expanded its global portfolio to include teams across multiple continents. This includes New York City FC, Melbourne City in Australia’s A-League, Yokohama F. Marinos in Japan, Sichuan Jiuniu FC in China, Club Atletico Torque in Uruguay, and Mumbai City in India. CFG’s acquisition of Girona came shortly after the club's promotion to Spain's top flight, with Pere Guardiola, the brother of Manchester City's manager, also holding a stake in the club.

Conclusion.

The CFG case illustrates the broader implications of ownership and control in football and business. Multi-club ownership presents challenges that go beyond sports, affecting regulatory compliance and competitive integrity in various industries. Regulatory bodies aim to ensure fair competition and prevent market manipulation, necessitating careful consideration of investment strategies and governance structures by multi-club entities.

CFG's need to adjust its ownership structure in Girona to comply with UEFA regulations highlights the delicate balance between ownership interests and regulatory compliance. This case not only impacts the football world but also serves as a cautionary tale for the broader business landscape about the importance of maintaining integrity and fairness in competitive environments.

[1] CFG would need to sell enough shares of Girona to reduce its ownership stake from 47% to less than 30%. This sale must be made to an independent third party not associated with CFG to ensure that CFG no longer holds a decisive influence over Girona.

[2] A blind trust is an arrangement where CFG would transfer its shares in Girona to a trust managed by an independent trustee. This trustee would have full control over the shares, ensuring CFG cannot exercise any influence over Girona. An independent trustee, approved by UEFA, would be appointed to manage the trust. This trustee would be responsible for making all decisions related to the shares held in the trust, without any input from CFG.