Related Party Transactions A Recent Example

Related Party Transactions A Recent Example

Whenever I value a business I always have to ask the owner about related party transactions, usually this will relate to their salary (either really high or zero) or perhaps the businesses trading premises is owned by the directors superannuation fund leading to the rent not being at a market rate.

Recently the issue of related party transactions came up in a different (and more interesting) context.

Earlier this month a consortium 80% backed by the Peoples Investment Fund of Saudi Arabia (PIF) completed the takeover of a struggling premier league football club[1], Newcastle United FC (Newcastle Utd).

Just days later the 20 premier league football teams called an emergency meeting where they passed a resolution temporarily banning club sponsorship from related parties[2]. This resolution passed by a vote of 18 to 1 (Newcastle voted against, and Manchester City who are owned by Sheikh Mansour of Abu Dhabi who also own the main club sponsor Etihad Airways, abstained).

Why did this vote happen? There are two reasons:

  • Firstly, the Premier League and UEFA (The European football governing body) have rules about financial fair play, meaning clubs are expected to not make losses every year; and
  •  Secondly, PIF has access to huge resources (it is estimated to hold assets of US$500 Billion) and there is a strong belief that PIF are far more concerned with achieving sporting success rather than making a profit from its investment in Newcastle Utd.

Because of this the other premier league clubs were concerned that Newcastle Utd will be able to receive inflated sponsorship deals through parties related to PIF which will circumvent the financial fair play rules and risk turning the team very quickly from a struggling team to one of the best teams in the league.

Therefore these premier league doing to Newcastle Utd exactly what I do when I value a business – making sure that the related party transactions are recorded at market value or removed for valuation purposes.

Incidentally, Manchester City appear to have had their own run ins with the football authorities over financial fair play rules thanks to their main sponsor being spectacularly unprofitable (even pre-covid) and being propped up by the Abu Dhabi government whilst also paying large sponsorship deals to the club.

[1] https://www.bbc.com/news/newsbeat-58842557
[2] https://www.theguardian.com/football/2021/oct/18/premier-league-clubs-vote-to-block-newcastle-sponsorship-deals-at-emergency-meeting

Mark Ellis

About the author

Mark Ellis

Associate Director

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Since joining Rodgers Reidy in 2010, Mark has worked on various insolvency and forensic files. As manager of the forensic accounting team, Mark has the charge of producing expert reports in relation to business valuations and loss & damage claims, as well as preparing solvency reports for other practitioners and reviewing solvency related and voidable transaction claims.

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