Why the Newcastle United sleeve deal is a test case for Premier League sponsorship rules – new rules are labelled “too broad and lack detail”

Regulations on club sponsorship deals with associated parties will become "fertile ground" for disputes between the Premier League and its clubs.

The rules, brought in late last year to govern related-party transactions, mean deals worth more than £1 million a year must be submitted to the Premier League. If the league suspects the deal is an "associated party" transaction, it has powers to investigate to ensure the agreement was made at "Fair Market Value (FMV)".

The Premier League updated the rules to address concerns that relationships between a club and a related third party could see artificially inflated sponsorship deals above the market rate.

Clubs can enter into associated party transactions provided they represent FMV and that the club seeks prior approval from the Premier League.

Legal and commercial experts tell Off The Pitch the regulations, which were opposed by Manchester City and Newcastle United, offer a broad description of "associated party".

Newcastle deal with Noon.com

Back in June Newcastle United announced Noon.com, a Middle East e-commerce platform, as their new sleeve sponsor. The Saudi Arabia Public Investment Fund (PIF), which led the takeover of Newcastle in October, reportedly owns 50 per cent of Noon.com. 

"It is likely to be a test case for 'associated party' transaction regulations, but considering the ink is already dry on the deal, it cannot really be classed as such – even if PIF own 50 per cent of Noon," Ben Peppi, head of sport services at JMW Solicitors, tells Off The Pitch.

"If it was an 'associated party' transaction, Newcastle United would have already proved it was an FMV deal having sought prior approval from the Premier League.

"The general feeling around clubs is that Premier League proposals introduced at the end of last year are too broad and lack detail, and that the term 'associated party' does not have a clear definition, leading to a case-by-case discretion for the powers that be with multiple factors at play."

Off The Pitch understands the Noon.com deal was subject to a FMV assessment and that Newcastle, having cooperated with the Premier League, believe the deal is above board. The club declined to comment.

The Premier League did not respond to a request for comment.

Alistair McHenry, partner and head of sport at Tyr Law, says the definition of "associated party" is "quite technical but also broad".

"The rules state that the League will focus on the substance of the relationship and not merely the legal form," he says.

Ollie Millichap, an associate from Mishcon de Reya, says the broad definition is intended "to capture a range of circumstances where there is a nexus between the club and third party – with the degree of shareholding, control and influence important in establishing whether a third party is deemed an 'associated party' under the rules."

Premier League powers to investigate

If the Premier League suspects a deal is an associated party transaction, clubs must submit all details of the agreement for a Fair Market Value assessment. The club is obliged to provide "any relevant information" about the value of the transaction.

"There is a general catch-all provision which allows the Premier League to request further information or documents from the club, player, manager or senior official at any time during the assessment process where the league considers it necessary in order to reach a decision," Millichap says.

The assessment also includes a review of the value by an independent expert. According to Peppi, this will measure factors including the value of the club's IP, its fan base, social media and joint activation plans for the sponsorship.

How do you prove FMV?

Noon is reportedly paying £7.5 million per year for the sleeve sponsorship. Peppi says clubs outside the Premier League 'big six' typically command sleeve deals "worth between £500,000 and £2 million annually." He says Manchester City's sleeve deal with South Korean tire manufacturer Nexen Tire is worth £10 million a year.

"In terms of market value, Noon have overpaid, but it hasn’t been regarded by the Premier League as inflated to a point where there were grounds to reject the deal," Peppi says.

"Newcastle will certainly have tested the Premier League’s new rules around 'associated party transactions' with this deal; but importantly, they have been successful."

Clubs can prove a deal is FMV by submitting evidence and the Premier League has also established an anonymised "databank" with details of previous commercial transactions for all clubs. This allows the league to compare values before deciding whether a deal is FMV.

"Whilst the databank of historical commercial transactions will assist in assessing the value of a specific deal, it is certainly not a 'silver bullet' to solve this particular puzzle," Millichap says.

"Even though certain deals may be generally comparable, not two sponsorship deals are or will be the same – there will be different rights and obligations that are specific to that particular deal making it extremely tricky to directly compare the value of deals."

Potential challenges

If a club suspects a Premier League rival is not complying with the rules, they can appeal to the Premier League and, if necessary, take legal action.

"There are appeal provisions open generally to clubs under the rules. But it would be difficult for other clubs to have sight of the details and FMV assessment exercise undertaken for any other club," McHenry says.

"Whilst other clubs will no doubt be keen to know what the Premier League’s position is on certain deals, if the matter has been adjudicated on by an independent expert in an arbitration, then that would likely be an end to the matter. On the basis it didn’t get that far, then there may be some legal challenges ahead."