Kevin Keegan has won £2million in compensation over his constructive dismissal from Newcastle after it was revealed he was told to sign a player he had only seen on YouTube.
An independent arbitration panel found in Keegan's favour following his departure from the club in September last year.
Announcing its decision, the panel said in a statement: 'We declare that Kevin Keegan was constructively dismissed by Newcastle United Football Club Ltd, for which Newcastle United Football Club Ltd must pay to Kevin Keegan damages in the sum of £2m plus interest to be assessed if not agreed.'
Despite losing the case, the level of damages will come as a relief to owner Mike Ashley after it was confirmed that Keegan was claiming in excess of £25m.
Keegan resigned in protest at the club's transfer policy when Uruguayan midfielder Ignacio Gonzalez was brought to the club on the final day of the summer transfer window against his wishes.
He claimed £8.6m in salary and other benefits to which he would have been entitled had he seen out the remaining years of his contract, which was due to expire in June 2011, and a further £16.5m in 'stigma damages' in compensation for the effect of the saga on his future earning capacity.
There was no comment from the club but Keegan released a statement through the League Managers' Association, who have represented him throughout the case.
In it, he repeated his claim made during the hearing that he had been asked to approve the signing of Gonzalez, who he had been told to look up on YouTube, to foster a relationship with two South American agents.
Keegan said: 'I resigned because I was being asked to sanction the signing of a player in order to 'do a favour' for two South American agents. No-one at the club had seen this player play and I was asked to sign him on the basis of some clips on You Tube. This is something that I was not prepared to be associated with in any way.
'The club knew that I objected strongly to this transfer and were aware that by continuing with it, I was likely to feel that I had no option but to resign. notwithstanding this, they nevertheless went on to sign the player at very substantial cost to the club.'
Gonzalez ultimately played just 38 minutes of football in two appearances as a substitute for the club during his loan spell at St James' Park.
Newcastle insisted at the hearing that Keegan, who had replaced Sam Allardyce as manager in January to launch his second spell as manager, always knew the club intended to employ a 'continental model' with a director of football - Dennis Wise was later appointed executive director (football) - overseeing recruitment.
Ashley attempted to broker a reconciliation in the days immediately after the former England boss's departure, and the arbitration process continued for months before the panel was convened. however, Keegan insists he did not turn down a £4m offer from the club.
He said: 'I very much regret that this claim ever had to go to the hearing as it did. I want to state categorically that the allegation that has been made in the press that I turned down an offer of £4m to settle the claim is simply untrue.
'No such offer was made to me. I also want to confirm that a central purpose of my claim has always been to clear my name and restore my reputation.
'I consider it of vital importance that I was able to let people know about the full circumstances of my resignation and the way in which I had been treated by the club. I hope that this purpose has now been achieved.'