Manchester City fined £49m for breaching Uefa's financial fair play rules - and will see their Champions League squad reduced

The Premier League side will also face a reduction in their Champions League squad for next season

Manchester City have accepted their Uefa Financial Fair Play punishment, including a £49m net cap on spending in this summer's transfer market, because they did not want to a drawn-out legal fight which would have caused jitters among sponsors and prospective new signings.

The Independent revealed last week that the club risked expulsion if they gambled on taking Uefa's decision into a legal fight at the Court for Arbitration in sport. But City ultimately decided that pragmatism was needed to prevent a legal fight which would have caused serious disruption to their business.

City were also dealt a Champions League wage cap in their punishment, when Uefa told them that the total wages of next season's City Champions League squad must not exceed last season's. There will also be a restriction of that squad from 25 to 21 players.

City are understood to have failed FFP because Uefa took issue with a number of the income figures they used to reach a break-even FFP. They were also suspicious of a number of several second tier Abu Dhabi sponsorship deals - worth an estimated £25m - that Uefa suspected may be a way of the Emiracy funding the club. City insisted that these were legitimate and the governing body allowed them to stand, if City undertook not to increase the money they earn from in the next financial year.

But though Uefa refused to let them discount wages of players they since before June 2010 - a figure of £80m on which FFP break-even figure was contingent - the punishment was actually far more modest than some had expected.

There had been predictions that club would be fined £50m, they have actually been told that a collective €20m (£16.2m) will be withheld from their Champions League earnings over the next three season, providing they pass the FFP test in future.

City, who are deeply unhappy to have been found in breach, feel that the cap on spending is comfortably achievable, though their average net spend in the last three years has been over £70m. The wage parity with last season is also considered achievable because bonuses - which now form a far bigger part of player rewards - are not taken into consideration.

Leading football law specialist Daniel Geey, of Field Fisher Waterhouse said it was significant that City have been told they may make a maximum loss of €20m (£16.2m) for the current financial year, £15m for the next financial year. That means Uefa have scrapped plans to use a three-year rolling figure in FFP considerations, which would have lumbered City with last season's losses

As The Independent reported four weeks ago, Uefa has not rejected the £35m Etihad sponsorship deal which some analysts felt would be deemed a 'related party transaction'. But Uefa did take a dim view of some aspects of the way City paid themselves nearly £50m from the sale of image rights and intellectual property to third parties.

The other clubs to have failed FFP are: Paris St Germain from France, Galatasaray, Trabzonspor and Bursaspor from Turkey, Russian sides Zenit St Petersburg, Anzhi Makhachkala and Rubin Kazan, plus Levski Sofia from Bulgaria.

City said in a statement said the net transfer cap “will have no material impact on the club's planned transfer activity.” Of the wage bill cap, it added: “It is important to note that additional bonuses for performances can be paid outside this number. Importantly, in reality, the existing MCFC business plan sees a natural decline in that wage bill. The nature of conditions that will result in the lifting of sanctions means that the club expects to be operating without sanction or restriction at the commencement of the 2015-16 season.”

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