Manchester City £830m sponsorship ruling: lessons for receivables finance

When £830m of sponsorship revenue is not what it seems: the lesson for receivables finance

Manchester City’s financial-rule case appears at first to belong to football regulation. For receivables financiers, however, the independent commission’s findings raise a much broader question: when a contract says a company owes money, how much confidence should a financier place in the apparent receivable before establishing who is really obliged to pay and where the cash will actually come from?

The commission found that Manchester City’s income was overstated by more than £830m between the 2009/10 and 2017/18 seasons through arrangements in which sums recorded as commercial income should instead have been treated as equity contributions from the club’s then owner, Abu Dhabi United Group Investment & Development, or ADUG.

Its findings are being challenged. Manchester City says it is innocent of the accusations, argues that the commission’s decision contains material errors of law, principle and fact, and intends to pursue the appeal avenues available to it.

The case therefore remains subject to appeal. But the commission’s published reasoning already provides an unusually detailed case study in the distinction between the legal appearance of a payment obligation and its underlying economic substance.

That distinction sits at the heart of receivables finance.

A contract is not the same thing as a financeable receivable

The commission examined a series of sponsorship agreements under which commercial partners appeared contractually to owe substantial fees to Manchester City.

It found that, under what it called the Disguised Funding Scheme, the sponsors were in reality liable for only part of the recorded sponsorship fees. The commission described this portion as the Base Sum.

The balance, described as the Tagged Sum, was instead funded by ADUG.

According to the commission, the sponsorship agreements therefore did not reflect the actual economic arrangement. It concluded that the contracts were shams or, alternatively, that their economic substance differed materially from their legal form.

That finding creates an immediate parallel with receivables underwriting.

A financier considering an invoice, contractual instalment or future payment does not simply need evidence that a document exists. It needs confidence that the named debtor has a genuine, enforceable and unconditional obligation to make the payment represented by that document.

If another party is actually expected to provide the cash, the financier may be analysing the wrong credit risk.

This is particularly important in structures involving large corporates, related parties or long-term commercial contracts. On paper, a portfolio may appear to contain obligations from several high-quality counterparties. If the payments ultimately depend on one shareholder, guarantor or connected entity, the real concentration risk may be far greater than the documentation suggests.

Follow the cash, not just the contract

The Manchester City findings illustrate why verification needs to extend beyond confirmation that a contract has been signed.

The commission found that the sponsors concerned paid only the Base Sums, while ADUG paid the remaining Tagged Sums. Yet the full recorded sponsorship fees were treated as commercial revenue.

Translated into receivables-finance terms, that difference is fundamental.

A lender assessing a £10m contractual payment from Company A needs to know whether Company A is genuinely liable for £10m, whether it expects to pay £10m from its own resources and whether the payment obligation can be enforced against it.

If Company A is commercially responsible for only £3m and another connected party is expected to supply the remaining £7m, the apparent £10m debtor exposure does not accurately describe the economics of the asset.

This is why debtor verification, contractual review and payment-history analysis matter even where apparently strong documentation exists.

The lesson is not simply to confirm invoices more aggressively. It is to understand the complete chain through which the cash is expected to reach the seller.

That can include examining side agreements, reimbursement arrangements, shareholder relationships, guarantees, payment instructions and historical cash movements.

The more unusual the commercial arrangement, the less satisfactory it is to stop at the face of the contract.

Related parties can destroy apparent diversification

The commission also found that the sponsorship agreements should have been disclosed as related-party transactions.

That finding has another direct read-across to receivables financing.

A lender may believe that it is financing diversified receivables because several different company names appear in the debtor ledger. But legal entities do not necessarily represent independent economic risks.

Where debtors, suppliers, shareholders or guarantors are under common control or depend on the same source of liquidity, a borrowing base can contain hidden correlation.

A financier therefore needs to ask not only whether the debtor exists and whether the invoice is valid, but also whether the debtor is sufficiently independent from the seller.

Related-party receivables are not inherently unfinanceable. They do, however, normally require different underwriting because the transaction no longer provides the same separation between seller risk and debtor risk that conventional third-party receivables can offer.

That distinction becomes particularly important in non-recourse finance, where the financier is supposed to be relying primarily on the debtor’s payment obligation rather than the financial strength of the seller.

Fordham raises the economic-substance question again

The commission’s findings concerning the Fordham image-rights arrangement provide a second example.

Fordham was an entity involved in acquiring players’ image rights from Manchester City. The commission concluded that the agreements underlying the arrangement were a sham or, alternatively, that their economic substance differed from their legal form.

It found that £24.5m recorded as operating income should instead have been treated as an equity contribution from ADUG. It also concluded that £49.414m of operating expenses connected with image-rights payments had been excluded from the club’s reported expenses.

The Fordham structure was not a factoring transaction, and there is no public evidence that Manchester City financed the disputed sponsorship receivables through factoring, securitisation or another receivables facility.

That point is essential. The relevance to receivables finance is analytical, not an allegation that such financing occurred.

But the Fordham findings raise a question familiar to structured-finance lawyers: what happens when the legal form says an asset has been sold or monetised, but the economic risk and funding remain somewhere else?

Receivables purchasers encounter the same issue when assessing whether a transaction constitutes a genuine sale of assets, whether risk has actually transferred and whether another agreement effectively reverses or alters the apparent transaction.

The strongest documentation in the world cannot compensate for misunderstanding the economics.

Genuine football revenues can still be financeable

None of this means football revenues are unsuitable for receivables finance.

Professional clubs can generate substantial contractual cash flows from broadcasting rights, sponsorship agreements, hospitality, ticketing, merchandising and other commercial arrangements.

Where those revenues are already contracted, clearly enforceable and payable by creditworthy counterparties, they may potentially support conventional receivables finance, secured borrowing or more structured future-flow transactions.

The financing question is the same as it would be for a manufacturer, telecoms company or media business.

Has the payment obligation crystallised? Is it conditional on future performance? Can it be assigned? Can the debtor set off other claims? Is the payer independent? Who controls the collection account? What happens if the underlying contract is terminated? And is the party named in the contract genuinely the party carrying the economic obligation?

Manchester City’s current commercial business should also be separated from the historical period examined by the commission.

The findings concern the seasons from 2009/10 to 2017/18. Manchester City’s latest published accounts show £694.1m of total revenue for 2024/25, including £340.4m of commercial revenue. The commission’s decision does not establish that the club’s present commercial revenues are affected by the historic arrangements it examined.

Verification must establish economic reality

The most important lesson from the case is therefore broader than football.

Receivables finance often begins with apparently simple evidence: a contract, invoice and debtor obligation.

But the quality of a receivable ultimately depends upon economic reality.

A financier needs to establish who owes the money, why they owe it, whether they are genuinely responsible for paying it and whether another arrangement changes the apparent obligation.

That becomes particularly important when large receivables involve connected parties, unusual commercial relationships or payment structures that appear substantially more valuable than comparable transactions.

The Manchester City commission spent years examining documents, witness evidence, accounting treatment and the actual movement of funds before concluding that the economic substance of the arrangements differed from their stated form.

A receivables financier obviously cannot conduct an investigation on that scale for every asset.

But the underlying principle is the same.

Do not finance the document.

Finance the payment obligation that survives when the document is tested against the cash.