Everton Football Club have become the first Premier League club to be immediately deducted 10 points after a breach of the Premier League’s Profit and Sustainability Rules (PSR) in Section E.47 of the Premier League Handbook.
In short, the Premier League’s case was that a proper PSR calculation for the season 2021/2022 demonstrated losses of £124.5 million. The making of a complaint is not ‘triggered’ until the loss exceeds £105 million. Consequently, the Premier League issued a complaint against Everton FC in March 2023 after inspecting the Club’s submitted accounts.
Everton FC admitted that there was a breach of the PSR, however, the extent of the breach remained in dispute. The Club argued that the breach was in the sum of £9.7 million. Nevertheless, after a 5-day hearing the Premier League Commission (Commission) ruled that the calculation for the relevant period amounted to £124.5 million; a £19.5 million increase in the permissible loss of £105m allowed by a Premier League club. Thereafter, it ordered an immediate sporting sanction by deducting 10 points from the Club.
This article will not seek to go through the Commission’s decision line by line. Rather, it will examine key issues identified in the decision and what this means for Premier League (and other) clubs going forward.
The Commission’s Decision
The Commission, by its own admission, stated that this case was extremely complex. Notwithstanding, it identified several key points that required further investigation and consideration, and these are set out below:
- Quantification of Everton FC’s breach,
- principles to be applied when determining the appropriate sanction and whether the structured formula advanced by the Premier League should be adopted,
- character and determination of aggravating factors. In other words, the Commission must determine which of the matters advanced by the Premier League as constituting aggravation in fact stand as aggravating matters,
- mitigation, and
- determination of the appropriate sanction.
Quantification of breach
The Commission identified several areas in which Everton sought to exclude from its PSR calculation. These areas included Youth Development Expenditure and Pre-Planning Stadium Interest.
Under the PSR, clubs are permitted to exclude from the PSR calculation certain costs incurred on matters which the Premier League recognises to be in the general interest of football. One of those permitted exclusions is for ‘Youth Development Expenditure’, which is defined as “expenditure by a Club directly attributable to activities to train, educate and develop Academy Players”.
Separately, Premier League clubs are required to pay (to the Premier League) a 4% levy on transfer fees. Everton sought to argue that this surplus should fall within the definition of ‘Youth Development Expenditure’ and could therefore be excluded from the PSR calculation. The Commission roundly rejected this argument.
On the second point - Pre-Planning Stadium Interest - Everton’s case was that any interest attributable to expenditure on the stadium should be excluded from its PSR calculation. The Premier League argued that the pre-planning stadium interest charges had not been incurred in respect of the Stadium because the stadium had not been funded by the commercial loans from Metro Bank PLC and Rights & Media Funding Ltd, but by the interest free loans made by Mr. Moshiri.
The Commission agreed with the Premier League’s argument in that it was clear (in the Commission’s view) that the commercial loans from Metro Bank PLC and Rights & Media Funding Ltd were advanced for the limited purposes of working capital. The Commission considered that the Premier League was correct to say that such funds do not fall into the category of general borrowings. As such, the pre-planning stadium interest on the commercial loans from Metro Bank PLC and Rights & Media Funding Ltd could not be excluded from the PSR calculation.
The consequence of these findings was that Everton’s PSR calculation for Financial Year 2022 was a loss of £124.5 million, which amounts to an excess above the £105 million threshold of £19.5 million.
The Commission rejected an argument put forward by the Premier League that a formulaic approach to sanction should be taken. The Premier League had argued that the appropriate penalty should always be a points deduction, with a fixed starting position of 6 points, and a further increase of one point for every £5m by which the club exceeded the £105m PSR threshold.
However, it’s also worth noting that the Commission left the door open for a new independent regulator to take such an approach. It also noted that the Premier League could amend its own rules (to impose a mandatory structured formula) if it wanted to.
In the Commission’s view, the primary purpose is to “punish the transgressing club”. Furthermore, the Commission was not “swayed by sympathy” in circumstances where clubs already have the benefit of a “generous threshold” of £105m, and the breaching club (Everton) enjoyed a sporting advantage for each of the seasons on which the PSR calculations were based. Furthermore, the Commission concluded that Everton’s breach of the PSR was entirely “of its own making”. It had overspent on new players and “taken chances with its PSR position”. In the Commission’s view, “this was a serious breach which requires a significant penalty”.
The Premier League advanced four factors that it said increased Everton’s culpability, namely:
- The club continued to overspend (on players) despite repeated warnings from the Premier League.
- The extent of the breach of the PSR threshold.
- The Premier League contended that Everton deliberately misled it about the source of funds used for the stadium development; and
- Misleading the Premier League about its intention to sell Player Y.
Everton put forward several arguments in mitigation, these being:
- Player X - Everton pointed to the fact that one of its star players, ‘Player X’, had been arrested in July 2021 and subsequently suspended by the FA from all football activity. Everton dismissed the Player in August 2021 and received advice from its lawyers that it could bring a £10m claim against Player X for breach of his employment contract. The club ultimately decided not to pursue the claim out of concern for the player’s psychological wellbeing, but nevertheless argued that it should be entitled to credit for that decision not to sue.
- Ukraine - Everton argued that the Russian invasion of Ukraine was a mitigating factor as it had led to the club pulling out of a £10m per year stadium naming rights agreement with a Russian company (which was caught by the UK government sanctions).
- Impact of Covid - Everton also argued that it had planned to sell 8 players in the summer 2020 transfer window for a combined value in excess of £80m, and its failure to do so was a result of a depressed transfer market caused by Covid-19.
- Transparency & cooperation with the Premier League - Everton asserted that it had behaved openly and responsibly in its dealings with the Premier League in relation to its PSR challenges, and that that behaviour should stand to its credit.
- Positive trend - Everton argued that its PSR calculation showed a downward trend for losses.
The Commission rejected all the Club’s submissions in mitigation (save for its submissions on Positive trend). Further, the Commission thought that the club’s conduct was not compliant with its obligation of utmost good faith and moreover, that there was no feature in any of its (the Club’s) dealings with the Premier League that should stand as mitigation of its culpability.
The Commission was in no doubt that only a sporting sanction in the form of a points deduction would be appropriate. It added that, “A financial penalty for a club that enjoys the support of a wealthy owner is not a sufficient penalty.”
The Commission agreed with the Premier League that the requirements of punishment, deterrence, vindication of compliant clubs, and the protection of the integrity of the sport demand a sporting sanction in the form of a points deduction.
The Commission considered that this was a serious breach and, as such, that an immediate deduction of 10 points was sufficient.
This case sets a precedent (and warning) to other Premier League clubs. The Commission was damning in its view of Everton and its obligations of good faith and honesty in its reporting towards the Premier League.
The PSR must be taken extremely seriously, and it is now clear that there is a wide range of biting sanctions awaiting any transgressing club. We have seen that the Commission did not view a financial penalty as sufficient, a factor which will likely be relevant if either Chelsea or Manchester City are found to have breached the PSR.
Moreover, Premier League clubs charged with a breach of the PSR are unlikely to be able to rely on ‘lost’ revenue from speculative commercial agreements, loss of player services or, more importantly, potential transfer fees as a mitigating factor.
It is also worth noting that the Football League (EFL) also imposes a very similar ‘Profit and Sustainability’ framework. As such, many of the principles put forward in this article will be just as relevant to EFL clubs.
When planning for PSR compliance, all clubs would therefore be well-advised to take a risk-averse approach.
This article is provided by Burlingtons for general information only. It is not intended to be and cannot be relied upon as legal advice or otherwise. If you would like to discuss any of the matters covered in this article, please contact David Winnie or write to us using the contact form below.