Legal analysis of the Newcastle Takeover

Introduction:


7th October 2021. The day which transformed Newcastle United from a directionless club to the richest club in world football after the takeover by Saudi-led consortium, the Public Investment Fund (PIF), was rubber stamped by the Premier League (PL). The tumultuous tenure of Mike Ashley was over and a new genesis had kickstarted- the Geordies were ecstatic and the rest of the league were shaken. Inevitable links with star-studded footballers resurfaced and talks of a PL title arriving in the North East intensified. Just how soon these newfound riches will transform the club's on field success remains a point of contention. However, one only needs to look at Manchester City’s rise to prominence to conclude that one thing can be universally agreed upon-a sleeping giant of English football has been awoken.

In the end, the manner in which the takeover was announced took the footballing world by surprise. After a previously failed takeover attempt in early 2020, most believed it was either dead in the water or would only be ratified after a drawn out legal process. These expectations were reasonable when we consider that only 6 months ago, expert counsel to the PL were on record as stating “it would be virtually impossible to receive independent legal advice from within Saudi Arabia as to whether the PIF is separate to the State”.


What followed, however, was a deal that was tabled and passed within a matter of days. The PL remained quiet in respect of what exactly changed in this 18-month period for them to accept “legally binding assurances that the Saudi State will not control Newcastle United”. Moreover, serious questions have been raised by both legal experts and disgruntled PL clubs regarding the two central issues which marred the first takeover attempt- piracy and broadcasting issues, and human rights violations (as perceived by the Western world).


Ultimately, this article seeks to demonstrate that the appointment of the PIF is a symptom of the real problem- the PL’s failure to evolve, adapt and adequately enforce its regulatory system. It is clear that there is a pressing need to strengthen the regulation of English football, notably by reformulating the much-maligned Owners and Directors Test (ODT).


Additionally, in light of the clubs’ newfound wealth and lofty ambitions of rising to the top of the English footballing pyramid, it is of assistance to explain the concept of Financial Fair Play (FFP), how it works, and its implications on Newcastle’s ability to spend their newly acquired funds.


“The Owners and Directors Test” (ODT)


Inaugurated in 2004 as the successor to the “Fit and Proper Persons Test”, the ODT is an objective test which seeks to measure a prospective PL club owners’ suitability for the position. Many of the duties have been transposed directly from the fiduciary duties applicable to directors via UK Company Law statutes, and tailored to encompass the realities associated with owning a high-profile football club in England.


In the context of the Newcastle takeover and the widespread scepticism surrounding its legitimacy, we will turn our attention to the “Disqualifying Events” under Section F of the PL Handbook. Specifically, it is the regulations in respect of involvement in criminal matters which are relevant in respect of Mohammad Bin Salman and the PIF.


Regulation in this respect is governed by rules F.1.7 - F.1.8, and state as follows:


F.1.7. he/she has a Conviction (which is not a Spent Conviction) imposed by a court of the United Kingdom or a competent court of foreign jurisdiction:

F.1.7.1. in respect of which an unsuspended sentence of at least 12 months’ imprisonment was imposed;

F.1.7.2. in respect of any offence involving any act which could reasonably be considered to be dishonest (and, for the avoidance of doubt, irrespective of the actual sentence imposed);

F.1.7.3. in respect of an offence set out in Appendix 1 (Schedule of Offences) or a directly analogous offence in a foreign jurisdiction (and, for the avoidance of doubt, irrespective of the actual sentence imposed);

F.1.8. in the reasonable opinion of the Board, he/she has engaged in conduct outside the United Kingdom that would constitute an offence of the sort described in Rules F.1.7.2 or F.1.7.3, if such conduct had taken place in the United Kingdom, whether or not such conduct resulted in a Conviction;


Appendix One includes the following offences:

Dishonestly receiving a programme broadcast from within the UK with intent to avoid payment

Admitting spectators to watch a football match at unlicensed premises

Persons subject to a banning order

Ticket touting


Given the opaque nature of decisions made under the ODT, it is impossible to know the exact reasons why the recent bid was passed by the PL. However, when comparing the circumstances of the collapsed bid with those of the recently resurrected and ratified bid, only one major difference becomes apparent.


The second bid was launched in the aftermath of the resolution of the piracy issues between Saudi Arabia and Qatar, and the agreement to terminate illegal streaming. Central to this dispute was the imposition of a ban on the broadcast of BEIN Sports (in particular, broadcast of the PL) in the Saudi region on the grounds that their breakaway piracy service “BeOutQ” essentially amounted to the theft of PL commercial rights, and in turn, PL clubs’s commercial revenue.

Accordingly, it seems that the underlying piracy dispute was in fact a far bigger stumbling block than many legal experts perceived- and was perhaps the sole element of the ODT test which the PIF would have fallen foul to, had a decision on the first takeover bid been finalised. (ie. Disqualification for breach of Rule F.1.8 read in conjunction with Appendix 1)


Whilst this somewhat clarifies the necessary requirements for a prospective owner to comply with the ODT, it is a stirring development when considered in a broader context. The consequences of this do not become totally apparent until one considers the multiple human rights atrocities associated with both the PIF as an entity, and Mohammad Bin Salman as an individual. Put simply, it seems that Rule F.1.7 is not strictly interpreted in this regard, and is not engaged unless a clear conviction exists against the owner.


It is argued there are multiple issues with this structure. The most obvious being the problems which arise when the rules are read in conjunction with the Rehabilitation of Offenders Act 1974, which legally allows prospective owners to withhold any spent convictions they have. As this applies to anyone given prison sentences of less than 4 years, it essentially allows potential directors to legally lie in their application to the PL and evade the consequences of the above-mentioned rules. Moreover, it permits those with known involvement in human rights atrocities (but no actual conviction) to bypass a so-called ‘robust’ test.


Given the PL’s declaration earlier this year that it would be ‘virtually impossible’ to receive legally sound and independent advice from the Saudi State as to whether the Kingdom of Saudi Arabia is a separate entity to the PIF, it is only rational for one to assume that the entities are in fact the same. The necessary corollary of this must be that the widespread condemnation of Saudi Arabia’s human rights record by Amnesty and multiple other NGOs, is too a condemnation of the PIF.


Additionally, the lenient test in respect of criminal matters has potentially allowed Mohammad Bin Salman- in an individual capacity- to take control of one of Newcastle United with blood on his hands. Substance was added to the widespread allegations that Bin Salman ordered the murder of journalist Jamal Khassoggi in 2018, when a long running private investigation led the CIA to conclude that he in fact masterminded the assassination.


Nonetheless, these facts existed when the initial takeover bid was withdrawn in mid 2020. Accordingly, we are led to conclude that the PL have endorsed a test which, in essence, seems to turn a blind eye to human rights abuse by prioritising potential murderers as owners over those who have engaged in piracy.


Ultimately, the authorisation of the takeover has shed light on the difficulties associated with the ODT, notably the lack of transparency as to what constitutes a ‘Disqualifying Event’, and the undue attention that seems to be afforded to certain- when viewed in the broader context- more trivial offences. It is peculiar that the test has been interpreted in a way which permits the disqualification of a prospective PL owner for a breach of broadcasting arrangements in the Middle East, but not for involvement in persistent human rights violations.


Ultimately, it is argued that this interpretation of the ODT is reflective of a system introduced to tackle the financial mismanagement of clubs which threatened to derail English football before the turn of the century. Whilst this remains a fundamental concern in assessing the suitability of a prospective owner, it is simply only one of multiple variables that must be analysed. Commercial, moral and political concerns are arguably as- if not more- crucial when assessing one’s fitness to run a football club. The evolution and growth of both society and the beautiful game has been exponential in recent years. It is only right that regulation is strengthened and reformulated to reflect how far we have come.


Financial Fair Play:

UEFA FFP:

Introduced in the 2011/12 season in an attempt to stamp out what has been dubbed “financial doping” by Michel Platini, UEFA established rules which encourage sustainability and prevent clubs spending beyond their means.


Central to this concept is “The Breakeven Requirement”. This requires that, over a 3 year period, a club is only permitted to make a loss of 5 million euros. This debt can reach 30 million euros so long as the balance is paid by the owner or the investment party. The scope of such rules exclude investment in stadiums, training facilities, youth development and women football.

The consequences for breach of UEFA FFP vary depending on the severity of the breach and the clubs previous levels of compliance. Some of the more minor punishments include warnings and fines. Stricter punishments include points deductions, a UEFA Competition prohibition on the registration of new players, and disqualification from UEFA Competition- as seen with AC Milan in the 2019/20 UEFA Europa League campaign.


Whilst the Premier League have their own FFP Rules, they are ultimately derived from UEFA FFP rules and are fundamentally similar. Thus, an understanding of the latter is crucial. Moreover, given the new owners well-documented ambitions to propel the club to the Champions League in the near future, an ideal world for the PIF would soon see them too susceptible to UEFA FFP.


Premier League FFP:

Also known as the PL “Profit and Sustainability Rules”, these rules are ultimately a less stringent endorsement of the UEFA equivalent. The key distinction lies in the amount of money a club is permitted to lose. Rather than only allow for a loss of 5 million euros, the PL authorises this figure to reach 15 million pounds. Moreover, while UEFA FFP allows leeway for this figure to reach 30 million euros if the owner or investment party injects equity or secures funding, the PL permits losses in this regard to reach 105 million pounds over a 3 year period. However, in order to avail of this exception, owners must guarantee a loss between 15 million and 105 million pounds. The same exceptions discussed above with regard to investment, apply to PL clubs.


Nonetheless, the absence of an independent regulator to oversee the governance of football means that rules continue to be manipulated. Concerns have been raised that Newcastle will be able to manoeuvre their way around the ‘breakeven requirement’ through commercial revenue by inflating their State-sponsorship in a similar fashion to which Manchester City have done- through their sponsorship with Abu-Dhabi government-owned Etihad Airways.


Such concerns have ultimately led to the recent majority verdict decision by which 18 Premier League Clubs (Manchester City abstaining) voted in favour of a ban on commercial arrangements which involve pre-existing business relationships. The ban remains a temporary one and, on the face of it, likely infringes a number of UK Competition Regulations. Accordingly, it is highly likely that it has been deployed as a delay tactic in order to give the PL time to initiate more vigorous legislation, attain legal advice and explore the idea of luxury taxes replacing the breakeven threshold within FFP Regulations.


Newcastle's situation in light of the above:

After years of growing disconnection between the city of Newcastle and owner Mike Ashley, the day may finally have arrived for fans to thank the former owner for his frugal approach to transfers in recent years. Applying the PL FFP rules to Newcastle’s situation since 2018 leads us to find that the club have made an estimated profit of 85 million pounds in the current FFP cycle. In essence, this technically permits Newcastle to spend as much as 190 million pounds in the January transfer window without breaching FFP rules.


Conclusions:

Put simply, the deal’s ratification leaves the PIF free to take the reins and pursue the success they have promised to deliver to the Geordie faithful. However, obstacles remain and the entire debacle has left a bad taste with the rest of PL clubs. As stated, issues such as temporary sponsorship bans remain in place to prevent an influx of Saudi-State sponsorship and will have to be carefully navigated by the club in the coming weeks.


Whilst Newcastle are clearly the beneficiary of the lenient interpretation, there is no suggestion that there was any malpractice deployed by the owners to try to hoodwink the PL into a deal. On the contrary, the facts were clear from the outset. This begs the question as to whether the mess created is really Newcastle’s to clean up. The appointment of the PIF certainly acted as the catalyst for public outcry. However, it is the PL itself who are the subject of much of this widespread discontent. It is they who decided against a strict interpretation of the ODT and its Disqualifying Events.


Ultimately, the overall dissatisfaction has led to calls for the strengthening of regulation and accountability for those who allowed the deal to pass what is meant to be a rigorous test with such ease. Two pivotal events are expected to address this discontent in the immediacy. Firstly, the impending departure of PL Chairman Gary Hoffmann is expected to be announced in the coming days. Furthermore, former Sports Minister, Tracey Crouch, is set to publish a wide-ranging review on the governance of English football- with recommendations expected to include the establishment of an Independent Regulator to manage and monitor the ownership and governance of professional clubs.


Whilst many believe the arrival of the Saudi’s signals a dark day for English football, it was perhaps an event of this magnitude that was required to stir debate and ultimately demonstrate just how fundamentally flawed the ODT process is in practice.

Perhaps this can open the floodgates and provoke wholesale changes regarding not just the fragility of the ODT, but also the regulation of English football as a whole. A seismic shift in the strength of regulation is required to maintain the integrity of the game. Further review must be conducted into the fitness of the “Breakeven Requirement” of FFP, and other problems that are systemic to the PL. This time, however, they must be addressed before it is too late.


* We would like to thank Owen Petticrew (Law Graduate) who recently completed his internship with Sensato Sports Law, for his invaluable contribution.