Manchester City’s New (York) Formation in the MLS

Published 29 July 2013 By: Liam Smith

Sheik Mansour

Beaten to the Premier League title in rather convincing fashion by their neighbours Manchester United and never wanting to be outdone, Manchester City recently laid claim to a new franchise across the Atlantic. In partnership with one of sport’s most renowned institutions, the New York Yankees, a deal was brokered to create the newest franchise in America’s Major League Soccer (‘MLS’ or ‘the League’); New York City Football Club.

While there was speculation that City’s owner Sheikh Mansour was the individual acquiring part of the new franchise, the official announcement from the two sporting establishments made it clear that it was in fact Manchester City who’d have ownership, not Sheikh Mansour himself personally.

The deal, worth £66million ($100million), sees Manchester City become the majority owners of the new club and they have already installed former City midfielder Claudio Reyna as its technical director. While the exact stakes in the new club haven’t been officially made public, the Yankees’ lawyer Irwin Kishner did state that the Yankees own between 15%-25%1 and the remainder was controlled by Manchester City.

The process in becoming a MLS franchise isn’t necessarily a simple one. A set of criteria must be reached before the MLS will award a franchise2. These criteria have proved a problem for some other cities who have looked to have their own franchise. San Diego is a prime example. The city has long held a desire to host an MLS franchise. As early as 1999 the MLS deemed the city a prime candidate3 but by 2000 Don Garber admitted that the city was no longer the market it once was, perhaps stemming from the growing popularity of California state neighbours LA Galaxy and later, Los Angeles’ other franchise, Chivas USA. The case for San Diego was once again raised in April 2007 when the MLS were in discussions with two potential investors. This was short lived as the MLS admitted in November 2007 that San Diego was no longer being considered on the list of expansion cities4. The significant regulatory hurdles cities and their investors have to overcome means that joining the MLS isn’t simply a case of paying the expansion fee - the proposed franchise has to demonstrate that there is a real need for their club in both the MLS and the city.

The first condition states that Manchester City and the Yankees must have the necessary financial backing to ensure a committed relationship with the League and the new franchise. This effectively ensures the League’s interests are protected and a franchise isn’t simply being set up only to fold after a few years causing financial and reputational damage to the MLS. For Manchester City and the Yankees, this almost certainly would not have caused an issue but it does show the long-term ethos the League has in ensuring no franchises fall foul to financial problems and subsequently have to drop out of the League. A further requirement is that a suitable market and fan base must exist in the city. The MLS commissioner, Don Garber, has expressed a desire for a franchise to be based in New York City5 which comes as no surprise since the city has consistently attracted pre-season tours of Premier League clubs. While Manchester City visited the area this summer, Chelsea have been a regular feature to New York’s sport scene. Football is in demand in the city that never sleeps and it is not uncommon to see New Yorkers donning the strips of clubs like Liverpool, Tottenham Hotspur, Chelsea and Manchester United. Furthermore, it is clear a loyal fan-base could potentially exist. Many fans in New York City find themselves following New York Red Bulls but since that franchise is based in Harrison, New Jersey, getting to the stadium can be a problem for a number of New Yorkers. A new franchise in the city therefore seems like the perfect way to tap into this market and fan base of an established soccer community.

Finally, the MLS ask that a stadium exists or at least plans for a stadium. Typically the stadium must be soccer specific but this is not always the case. The Portland Timbers, who were awarded the 18th franchise in the MLS, play their games at the Jeld-Wen Field which they share with the Portland State University football team6. A deal with the Yankees means, if stadium proposals do not materialise at the desired rate, there is the strong possibility of playing games at the Yankee Stadium7. Chelsea, AC Milan, Spain and Real Madrid have all played at the stadium since it was built so there is evidence that it has the capacity to handle soccer games. For Manchester City though this would be the worst case scenario, hence their strong desire and visible campaign to ensure they have a stadium to play in come 2015.

The obvious sticking point at the moment for Manchester City and the Yankees, both legally and financially, is infrastructure. New York City FC currently have no permanent stadium. There are a number of potential sites being considered for a new stadium; New York is famed for its number of green spaces and parks. One such area that has been earmarked is Flushing Meadows in the borough of Queens which is already home to the Yankees fierce rivals the New York Mets and the National Tennis Centre which hosts the US Open grand slam tournament8. The proposal has been met with a mixed reaction from residents and fans. Campaigners aren’t inclined to give up their green space to a towering 25,000 seat stadium, particularly since Flushing Meadows already houses two other sporting arenas. Many critics have cited that much parkland in the city has already been sold on for commercial purposes and so anything that can be preserved is precious. Individuals like New York’s mayor Michael Bloomberg are keen on the idea of Flushing Meadows since it would create a number of jobs while also increasing the footfall and popularity of the area9. As mentioned above, Don Garber is also keen for an MLS franchise to be based in the city (the New York Red Bulls are actually based in Harrison, New Jersey), particularly in Queens due to the high Latin and African-American population both of whose favourite sports include football.

Ultimately, the battle for Flushing Meadows may well be a thorn in Manchester City’s side but it perhaps explains, partly at least, why they brokered a deal with the New York Yankees. The Yankees themselves are hardened veterans when it comes to fighting for land; they famously tussled with officials from the Mayor’s office and campaigners who were against their proposed new stadium in the Bronx borough of New York10. They faced 20 different hearings in the build-up to construction of their stadium. The Yankees are a force to be reckoned with in the city and this perhaps gives the new franchise some bargaining power when it comes to negotiating issues with the city, the state and the federal government. On top of that, approvals from the City Council and the City Planning Commission would be required, all of which are potential headaches for Manchester City. Having the Yankees on board gives them some valuable experience in tackling such problems and opens avenues to political connections.

As the Yankees discovered in the build-up to construction of their stadium in the Bronx, federal laws in the United States means that it is now much harder for teams and investors to use public funds to construct venues, particularly the use of tax-exempt bonds11. There are a few limited cases in which tax-exempt bonds are allowed for financing so long as the authorities subsidise construction using generally applicable taxes. This enabled the Yankees to claim over $1billion in tax-exempt bonds for the financing of their new stadium by paying 4% of gate receipts in return. As mentioned above, the process is far from simple. The Yankees faced fierce protests from organisations such as Save Our Parks, who took the decision of the City Planning Department to allow the destruction of nearly 400 trees in order to accommodate the new Yankee Stadium to the New York Supreme Court12. Save Our Parks maintained that the City Planning Department failed to consider the irreversible harm that would be caused should the trees be removed. It was ruled that the trees themselves had no legal protection and the tree replacement programme was sufficient enough. The presiding judge specifically noted that the Yankees would suffer greater harm if a delay in construction did occur as the bond sale, which would help finance the stadium, would be at risk.

If the new Yankee Stadium is anything to go by, if Manchester City and the Yankees could overcome the protests, then all that is required is an application for a tax-exempt bond. In March 2007 however, the Congress Subcommittee on Government Reform found that the Yankees financing of the stadium was an improper use of federal funds13. Manchester City may have a tough time fighting the legal red-tape in order to finance a new stadium. They may want to pick their battles carefully and ultimately the new stadium may come down to being financed purely by private investment.

With the Yankees only having a minority stake, they won’t be expected to input any more financial investment. Arguably, the Yankees have gotten a lot of ‘bang for their buck’ (so to speak). Evidently Manchester City need the Yankees far more than the Yankees need Manchester City. It isn’t all a one way street though. The Yankees get valuable exposure in Europe through their partner, their sports TV channel will show football and of course the potential profit should they ever decide to sell on their stake in the franchise.

New York City is a great sporting city steeped in history with iconic sporting venues. The Knicks (basketball), the Yankees (baseball) and the Giants and Jets (American football) dominate its sporting skyline with their impeccable branding and slick influence on the city. Manchester City have acted shrewdly in tapping into the Yankees influence to help raise the profile of the new franchise and ultimately, soccer in the United States.

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Author

Liam Smith

Liam Smith

A current undergraduate law student at the University of Sheffield, Liam's interest in Sports Law took off after reading the Jean-Marc Bosman case in relation to the free movement of workers within the EU.