Everton’s points deduction and their legal path ahead – Yasin PatelFollowing Everton Football Club’s points deduction by the Premier League, Yasin Patel discusses their appeal, whether the punishment is just and fair, and how the Premier League might fare in this quandary.
IntroductionOn Friday 17 November 2023, the Premier League released a statement that “An independent Commission has imposed an immediate deduction of 10 points on Everton FC for a breach of the Premier League’s Profitability and Sustainability Rules (“PSRs”).”[1] Everton faced a momentous sporting sanction and were docked 10 points for breaching financial fair play rules. This has had a massive immediate effect on Everton, on their season and as a result they dropped from 14th to 19th place with only goal difference keeping them ahead of Burnley. It is seismic news for the Premier League and possibly one of the biggest moments in Premier League history.
The gravity of this sanction becomes even more pronounced when contextualized within the broader Premier League history where only three clubs have previously been docked points. Middlesbrough were deducted three for failing to fulfil a fixture against Blackburn in 1996/97, and Portsmouth were stripped of nine after entering administration in March 2010.[2] Everton’s 10-point deduction now joins this exclusive club, marking a distinct departure from the norm and thrusting the club into uncharted territory.
The crux of the Premier League’s case against Everton stems from alleged financial transgressions during the 2021/2022 season. The Premier League asserted losses of £124.5 million, exceeding the permitted limit by £19.5 million according to Rule E51. “The Premier League issued a complaint against the Club and referred the case to an independent Commission earlier this year.”[3]
“During the proceedings, the Club admitted it was in breach of the PSRs for the period ending Season 2021/22”. But, despite the club’s admission of breach, the “extent of the breach remained in dispute” and remained a point of contention throughout the proceedings, culminating in the Commission’s determination that the breach exceeded the £105 million threshold permitted under the PSRs. By the conclusion of the hearing it argued that properly calculated the breach was £9.7 million.
The Independent Commission, tasked with adjudicating the case, ultimately sided with the Premier League’s position, affirming the breach of PSRs and the resulting £124.5 million loss for Everton. “Following a five-day hearing last month, the Commission determined that Everton FC’s PSR Calculation for the relevant period resulted in a loss of £124.5million, as contended by the Premier League, which exceeded the threshold of £105million permitted under the PSRs.”[4]
This article, in the wake of these seismic events, endeavours to provide a comprehensive summary of the aggravating and mitigating factors meticulously considered by the Independent Commission.
Yasin Patel and Caitlin Haberlin-Chambers will undertake a thorough analysis of Everton’s grounds of appeal, delving into the intricate intersection of political and legal issues. Beyond the microcosm of Everton’s fate, the article will also explore the ripple effects this landmark decision may send across other football clubs, illuminating the broader implications for financial fair play and regulatory compliance within the Premier League.
Profitability and Sustainability RulesAimsThe PSRs aim to foster financial stability and sustainability in Premier League clubs by imposing limits on allowable losses. These rules share similar goals with UEFA’s Financial Sustainability Regulations and the English Football League’s Profitability & Sustainability Rules. The PSR framework prevents excessive spending and unlimited financial injections from owners, promoting responsible financial management. The objective is to safeguard the long-term financial health of both individual clubs and the league.
OperationThe PSR operates through an annual submission process. By 1 March each year, every club must provide the Premier League with its financial accounts for T-1 and T-2 (the previous two years) and an estimated profit and loss account for T (the current year). If the aggregate earnings before tax for T-1, T-2, and T-3 result in a loss, the club must also submit its PSR calculations by March 15th. These calculations outline the club’s adjusted earnings before tax for each of T, T-1, and T-2. Adjusted earnings exclude certain costs, such as depreciation of tangible fixed assets, Women’s Football expenditure, and Youth Development expenditure. Additionally, COVID-19 costs were permitted to be excluded for the years 2019/2020, 2020/2021, and 2021/2022 as an exception.
FlexibilityWhile the target for a club is to avoid a loss in adjusted earnings before tax, the Rules allow some flexibility. A loss of up to £15 million is generally forgiven, with the only consequence being the Premier League’s assessment of the club’s ability to meet its obligations in the following year (T+1) under Rule E15.9. If the loss exceeds £15 million but is less than £105 million, the club must submit forecasts to the end of T+2 and demonstrate its capability to provide evidence of Secure Funding to the Premier League.
Relevant LawAs per the Premier League Handbook 2023/24:
Rule E.51 “If the PSR Calculation results in losses of in excess of £105m:
Rule E.51.1. the Board may exercise its powers set out in Rule E.16; and
Rule E.51.2 “the Club shall be treated as being in breach of these Rules and accordingly the Board shall refer the breach to a Commission constituted pursuant to Section W (Disciplinary) of these Rules, which shall be determined in accordance with the Profitability and Sustainability Rules – Standard Directions set out at Appendix 1 to these Rules.”[5]
The Premier League has the power to deduct:
Rule E.21. If the Board is reasonably satisfied that a Club or Relegated Club (“the debtor Club”) has failed to make any payment due to any creditor of the description set out in Rule E.23, the Board shall be empowered to[6]:
Rule E.21.1. deduct the amount of any such payment from any distribution of UK Broadcast Revenue, International Broadcast Revenue, Commercial Contract Revenue or Radio Contract Revenue (“Central Funds”) payable to the debtor Club, paying the same to the creditor to which it is due; and [7]
Rule E.21.2. withhold any distribution of Central Funds otherwise due to the debtor Club to the extent of any liabilities falling due from the debtor Club to any creditor of the description set out in Rule E.23 within the period of 60 days after the due date of the distribution of the Central Funds to the debtor Club, and pay the same to the creditor on the date when it is due to that creditor should the debtor Club fail to do so[8].
The Premier League is also able to issue a sport sanction:Rule E.35. Upon a Club or its Parent Undertaking suffering an Event of Insolvency the Board shall have the power to impose upon the Club a deduction of nine points scored or to be scored in the League competition. If the Board exercises this power it shall forthwith give written notice to the Club to that effect.[9]
FactsFarhad Moshiri, the Everton Chairman, first acquired a beneficial interest in Everton in March 2016. By September 2018 he had acquired a beneficial interest in the majority of Everton’s share capital. Since January 2022 he has been the beneficial owner of more than 90% of the share capital. Moshiri claimed that he needed to spend as much as possible to “transform the club into one of the top teams in the Premier League, regularly playing in Europe” and wished to provide the club “with a new, state of the art, stadium”.
New PlayersMoshiri intended to improve the squad by spending a substantial amount of money to invest in players. An enhanced squad would pave the way for Everton to be in the top quarter of the Premier League and playing in Europe, which would both produce increased revenue. Any future player acquisitions would be partly funded from the increased revenue and from making player sales.
New StadiumProvision of a new stadium was as much a priority as rebuilding the Goodison Park stadium. Everton embarked on an ambitious project of constructing a new stadium at Bramley-Moore Dock, establishing a subsidiary called Everton Stadium Development Ltd to oversee it. The estimated cost of the project is £760 million. The subsidiary had no income and relied entirely on funds from Everton. Initially, Moshiri had helped Everton clear its £55 million external debt. Everton’s plan involved Moshiri contributing to the stadium’s cost, but the majority was intended to be funded through third-party debt (referred to as senior debt) over the next 30 years.
Referral to an Independent CommissionIn March 2023, the Premier League referred Everton to an Independent Commission due to alleged breach of PSR. In its verdict, the Commission said the Club’s overspending was “the result of Everton irresponsibly taking a chance that things would turn out positively.” [10] As per the Commission, “The cause of Everton’s difficulties was the fact that it overspent (largely on its purchase of new players and its inability to sell other players), and because it finished lower in the league than it had projected … causing a loss of expected income of 21 million pounds ($26 million),”. [11] “The reality is that Everton failed to manage its finances so as to operate within the generous threshold” of $130 million.” [12]
OVERALL CULPABILITYThe Commission’s approach involved consideration of all relevant material in the assessment of the overall culpability of a club that is in breach of the PSR. This involved a reduction or increasing in the culpability according to the factors in any case. The burden of proving aggravating or mitigating factors rests on the party asserting them. The Premier League claims factors increasing Everton’s culpability, while Everton presents factors reducing it.
AGGRAVATING FACTORSOverspend Despite Repeated Warnings
Premier League’s Position
The agreement on 13 August 2021, placed obligations on Everton, including obtaining the Premier League’s approval for new player purchases. The Premier League granted approval for each request but cautioned Everton that it was the club’s responsibility to comply with PSR, as the Premier League did not manage Everton’s finances. The Premier League argued that Everton’s persistence in player purchases despite clear warnings is reckless and constitutes an aggravating factor.
Commission DecisionThe Commission considered it “unwise” for Everton not to have reduced player purchases, considering potential PSR challenges. Despite this, Everton proceeded, hoping player sales would enable PSR compliance but events proved this to be poor judgment. While this decision could be seen as increasing Everton’s culpability, the Commission avoided double counting. The Commission reasserted its approach to first assess the extent of the PSR breach, with reasons for the breach aggravating culpability only if they constitute exceptional conduct. In this case, Everton’s risks, driven by a mistaken belief in achieving PSR compliance, did not qualify as a deliberate breach.
Extent of the Breach of the PSR ThresholdCommission Decision
The Commission considered the extent of the PSR breach as a crucial indicator of culpability but including it as an aggravating factor would amount to double counting.
‘Misleading’ the Premier League about Stadium InterestPremier League’s Position
The Premier League accused Everton of deliberately misleading it regarding the funding source for the stadium development. In Everton’s FY 2022 PSR submission, it claimed that the loan to Everton Stadium Development Company Ltd incurred financing costs, which the Commission found to be untrue. The Premier League contended that Everton must have been aware of this inaccuracy, constituting an aggravating factor. Additionally, the Premier League alleges that Everton withheld information about discussions with Rights & Media Funding Ltd to secure a waiver for breaching the loan agreement terms, asserting that Everton consciously chose not to disclose this fact.
Commission DecisionThe Commission drew upon Rule 15 which imposes an obligation on clubs to act in utmost good faith. This is particularly crucial in the initial stages of evaluating a PSR submission. The Commission concluded that Everton provided materially inaccurate information. During cross-examination, Everton’s representative stated that his job involved interpreting PSR rules to benefit the club, like a tax accountant minimizing tax exposure for a client. The Commission acknowledges the Premier League’s already challenging task of monitoring PSR compliance and expresses concern that a widespread approach like Everton’s could further complicate the process. While the Commission acknowledges that Everton may not have consciously intended to circumvent the rules, the failure to discharge the duty of utmost good faith imposed by Rule B15 is deemed an aggravating factor, increasing Everton’s culpability.
‘Misleading’ the Premier League about the Intention to sell Player Y.
In its Financial Year (“FY”) 2022 PSR submission, Everton listed Player Y as a targeted player for sale but was unable to complete the sale.
Premier League’s PositionThe Premier League claimed this identification was false, citing Player Y’s previous inclusion in Everton’s 2020 Summer Player Trading Strategy and subsequent removal from the list in 2020 documents. Additionally, Player Y received a new contract during the summer 2020 transfer window, suggesting a contradiction.
Everton’s PositionEverton argued that Mr. Purdy’s evidence explained the removal, stating that if Mr. Kenwright received a suitable offer, Everton would have sold Player Y. Everton also emphasized that a new contract would enhance the player’s transfer value.
Commission DecisionThe Commission hesitated but ultimately found that the Premier League failed to prove its case. It concluded that Everton would have been willing to sell Player Y with a suitable offer, and therefore, the FY 2022 PSR submission was not intentionally misleading and does not constitute an aggravating factor.
MITIGATING FACTORSPost-Planning Permission InterestEverton’s PositionEverton argued that interest linked to stadium expenditure should be excluded from its PSR calculation as a mitigating factor. They argued that the Premier League could have treated post-planning interest charges of £9.3 million as capital expenditure, aligning with the Premier League’s encouragement of such investment. Although Everton did not capitalize this expenditure, they assert that the potential to do so, along with its positive nature, should be seen as a mitigating factor for the PSR breach. Despite being unable to make this exclusion now, Everton contends that it should be considered as a positive aspect in evaluating their culpability. They emphasized that, based on their interpretation of FRS 102, Mr. Moshiri would have used funds to repay commercial loans if the stadium had not been built, drawing on his historical pattern of repaying such debt.
Commission DecisionThe Commission contended that this argument was grounded in a false premise—specifically, the notion that post-planning permission interest could have been legitimately capitalized and thus excluded from the PSR calculation. The Commission has already ruled against Everton on this matter concerning pre-planning stadium interest. Consequently, the Commission asserts that post-planning permission interest could not have been capitalized either.
Positive TrendEverton’s PositionEverton contended that its PSR calculation reveals a downward trend in losses, citing the English Football League (“EFL”) P&S Rules that allow credit for such a trend.
Premier League’s PositionThe Premier League challenged Everton’s ability to demonstrate a trend for mitigation. Firstly, it disputed Everton’s reliance on the EFL P&S Rules, emphasizing that the Premier League has no such rules, and importing rules from another league is inappropriate. Secondly, the Premier League argued that Everton could only show a positive trend if the figures for FYs 2020 and 2021 were averaged. Lastly, the Premier League noted that any positive trend does not extend into FY 2023.
Commission’s PositionThe Commission found that the improving trend is a feature that goes some limited way to diminish Everton’s culpability. Having acknowledged the Premier League’s objection to importing isolated provisions from the EFL, the Commission held that a consistent improving trend can be credited as a matter of principle. It asserts that a specific provision is not necessary for a Commission to recognize a club’s attempt to improve and consider it as mitigation. The Commission finds it wholly appropriate for Everton to follow the Covid provisions and average the PSR figures for FYs 2020/2021. Given that averaging was introduced by the Premier League to address challenges arising from Covid, not doing so would be peculiar. Lastly, the Commission deems it appropriate to assess the trend over the years included in the PSR submission, leaving the position in subsequent years for those specific periods.
Player XEverton’s PositionEverton asserted that it is entitled to credit from refraining from pursuing an economically viable claim against Player X. Everton had dismissed Player X, leaving available to it a claim against that player for losses of £10 million. However, it decided not to pursue that claim on grounds associated with the player’s welfare. It sought to exclude the sum of £10 million from its PSR calculation.
Commission’s PositionThe Commission rejected this claim for several reasons. Firstly, it stated that Everton’s loss resulting from a business decision made by the club cannot be considered as mitigation. Secondly, while there was evidence of the player’s psychological state immediately after his arrest, there was no evidence of his state of mind when the decision not to pursue the claim was made. Lastly, the Commission deemed the £10 million value Everton placed on the foregone claim speculative, pointing out potential difficulties in the claim and the lack of evidence regarding the player’s ability to meet any judgment obtained.
UkraineEverton’s PositionThe Russian War in Ukraine significantly impacted Everton’s investment and sponsorship income, particularly due to sanctions affecting companies like USM Service Limited (“USM”). Everton had an option agreement with USM for a Naming Rights Agreement, promising an annual fee of £10 million expected to commence from the 2025/2026 season. To mitigate the impact, Everton claimed negotiations were underway to bring the agreement into force early, resulting in an accelerated annual receipt starting in FY 2022. However, the imposition of sanctions on Russian entities by the UK government, following the invasion of Ukraine, led to the cessation of these negotiations. Everton, owned by Farad Moshiri, who has business ties with Alicia Usmanov, faced the loss of deals, including a curative first refusal on stadium naming rights for the new Bramley Moore Dock ground, like the existing arrangement for Everton’s Finch Farm training ground, creating a financial gap for the club.
Commission DecisionThe Commission sided with the Premier League, rejecting the notion that the failure to secure the proposed agreement with USM could serve as a mitigating factor. It reasoned that the uncertainty of reaching an agreement and the loss of a potential deal are typical business occurrences and cannot be considered factors diminishing Everton’s culpability. Similarly, the Commission dismissed the idea that heightened stadium construction costs could be seen as a mitigating factor, stating that such cost increases are “no more than the type of event that businesses have to contend with as part of their daily life”.[13]
Impact of Covid on the Market for Players
Everton’s PositionConscious of the PSR challenges, Everton had planned to sell several players in the summer 2020 transfer window, valuing eight of them at over £80 million. However, these sales did not materialize as expected. Conscious of the PSR challenges that it faced, Everton had planned to sell several players in the summer 2020 transfer window, valuing eight of them at over £80 million. However, these sales did not materialize as expected. Everton attributed this failure to the impact of Covid, which depressed the market and hindered the club from achieving the projected sale prices.
Premier League’s PositionTwo experts who gave evidence at the Hearing, Mr Brown, and Dr Parnell, agreed that the Premier League, based on Everton’s experience, was the least affected market for player purchases amid the Covid impact, and it was Everton’s most significant market for selling players. Mr. Brown concluded that Covid had a minimal impact on Everton’s ability to sell players. The Premier League argued that the difficulty in selling targeted players in 2020 was due to the absence of willing buyers at Everton’s desired prices, attributing it to market forces rather than Covid. The Commission accepts this argument and notes that Everton has already benefited from £70.2 million in Covid exclusions, including deductions for players in the Summer 2020 Player Trading Strategy.
Commission DecisionThe Commission rejected Everton’s additional mitigation claim, stating that the values assigned by them were target prices, not true market values, and the failure to achieve them was likely due to market factors rather than Covid. It emphasised the inherent uncertainty in player sales and asserts that clubs should plan for unforeseen events, with the PSR threshold of £105 million providing a generous ceiling for prudent planning and protection against unexpected circumstances.
Transparency and Cooperation with the Premier League
Everton’s PositionEverton asserted that it has behaved openly and responsibly in its dealings with the Premier League in relation to its PSR challenges, and that behaviour should stand to its credit.
Commission DecisionThe Commission acknowledged Everton’s extensive engagement with the Premier League regarding challenges in capitalizing pre-planning permission expenditure but regarded this engagement as being primarily in Everton’s self-interest. Additionally, the information provided by Everton about the source of stadium development funds and the subsequent claim to exclude interest was not entirely straightforward. Everton admitted during the hearing that their PSR calculation included novel claims, some of which were abandoned shortly before the hearing. The Commission already determined that Everton’s conduct does not comply with the utmost good faith obligation imposed by Rule B15. In evaluating Everton’s dealings with the Premier League, the Commission finds no exceptional feature that warrants mitigation of Everton’s culpability.
AppealsAs per the Premier League Handbook 2023/24
Rule W.62.1.2 renders that “a Club…that wishes to challenge the decision of a Commission or an Interim Commission before which such Club or Person appeared as Respondent, including the relief, order, measure or sanction imposed”.[14]
Rule W.64: “An appeal shall lie to an Appeal Board which shall be appointed by the Chair of the Judicial Panel and, subject to Rule W.84, shall comprise three members of the Appeals Panel of whom one, who shall have held judicial office, shall sit as chair of the Appeal Board.” [15]
On Friday 17 November 2023, Everton released a press statement which reads as follows:
“Everton Football Club is both shocked and disappointed by the ruling of the Premier League’s Commission. The Club believes that the Commission has imposed a wholly disproportionate and unjust sporting sanction. The Club has already communicated its intention to appeal the decision to the Premier League. The appeal process will now commence and the Club’s case will be heard by an Appeal Board appointed pursuant to the Premier League’s rules in due course.”[16]
Whilst Everton have appealed, it is worth noting that the case cannot be taken to the Court of Arbitration for Sport (“CAS”). A new panel has been appointed and, similarly, made up of new members.
Everton will need to convince the appeal board to take an even dimmer view of the lack of a detailed sanction policy if they are to succeed in securing a more lenient punishment.
Everton’s case is as follows:A convenient scapegoat
Unjust sporting sanctions
Unfair treatment
Unfair proceedings
A Convenient Scapegoat: Politically motivated Decision
Everton’s discontent with the imposed sanctions arises from their perception of being unfairly singled out as an example or scapegoat, potentially orchestrated by the Premier League as a pre-emptive move against an impending independent regulator entering English football. The suspicion of a politically motivated decision intensifies the frustration within the club.[17]
The catalyst for this suspicion can be traced back to the Government’s unveiling of the White Paper titled ‘A Sustainable Future – Reforming Club Governance’ on 23 February 2023. The comprehensive plan outlines the government’s intention to introduce an independent regulator for professional clubs in the English football pyramid.[18] The regulator would “have powers to monitor and enforce compliance with requirements in financial regulation; corporate governance; club ownership (owners’ and directors’ tests); fan engagement and club heritage protection; and approved competitions.”[19] The driving force of the white paper is to “help prevent a repeat of financial failings seen at Derby County, Bury and Macclesfield Town”, but it will also strengthen the Premier League’s owners’ and directors’ test – which came under scrutiny during the Saudi Arabian led buyout of Newcastle United – while giving fans a greater say in the running of their clubs, particularly regarding heritage such as team names, club crests and stadiums.[20] The King’s Speech of 7 November 2023 guaranteed the arrival of this football governance bill. King Charles III stated that “Legislation will be brought forward to safeguard the future of football clubs for the benefit of communities and fans.”
Unsurprisingly, the Premier League reacted negatively to this development. The League, staunchly opposed to external regulation, prefers to handle such decisions internally. The imposition of severe sporting sanctions on Everton can be seen as the League’s attempt to assert its autonomy and competence without the intervention of an independent regulator. Paradoxically, these actions have spurred calls for government intervention and an independent regulator. A vehement supporter of this is the Football Supporters’ Association (“FSA”) which, in response to Everton’s sanction, released a statement on 17 November 2023 stating:
“The FSA has always argued that football needs an independent regulator with real time powers to intervene before clubs get themselves into positions where a points deduction is handed out. Today’s news once again shows the urgent need for the Government to deliver an independent regulator for football as soon as possible. This shouldn’t be happening. We’ve seen far too many clubs across the game find themselves in financial trouble and our sympathy is always with the supporters – they didn’t create the problems but they are punished alongside their club.”[21]
Unjust Sporting SanctionsThe Premier League advocated for a sporting sanction in the form of a points deduction, proposing a twelve-point penalty, while Everton contended that a financial penalty or a transfer ban would be more just.[22] The Commission, aligned with the Premier League, agreed 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.[23] According to the Commission, “The size of the points deduction is to be determined by Everton’s culpability. There is no fixed formula to be applied: we are required to determine the extent of the culpability, and from that to determine the points deduction. That requires the exercise of our discretion as a specialist panel, and a determination to be made based on all the facts of the case.”[24]
Rule W.49 of the Premier League Handbook 2023/24 holds that “… the Commission shall give its reasons for its decision (a copy of which shall be provided to the Chair of the Judicial Panel).”[25]
In determining Everton’s capability, the Commission found it to be great given the significant excess over the threshold. It was a “serious breach that requires a significant penalty”. The Commission considered Everton’s positive PSR trend over the relevant four years but could not ignore the fact that the failure to comply with “PSR regime was the result of Everton irresponsibly taking a chance that things would turn out positively”.[26]
Despite Everton’s admission of the PSR breach, the Commission failed to provide explicit reasons for the ten-point deduction of which Everton dubbed to be a “wholly disproportionate punishment”.[27] With no established guidelines for such penalties, the Commission grappled with determining an appropriate sanction. There have only been two prior instances of points deductions in the Premier League since its inaugural season in 1992. Middlesbrough faced a three-point penalty for pulling out of a match against Blackburn in the 1996-97 season and Portsmouth was deducted nine points in 2010 after going into administration — a form of bankruptcy protection.[28] The scarcity of precedent complicated the assessment, leaving Everton to question the fairness and reasonableness of the imposed ten-point deduction.
The club’s argument centres on the contention that the sanction lacks objective reasoning due to the absence of established guidelines. Everton “does not recognize the finding that it failed to act with the utmost good faith. … Both the harshness and severity of the sanction imposed by the commission are neither a fair nor a reasonable reflection of the evidence submitted.”[29]
Unfair treatment: Disparities in PunishmentThe perceived lack of objective reasoning behind Everton’s strict sporting sanctions is closely tied to concerns about disparities in punishments across football clubs. Everton is facing a substantial penalty for a singular PSR breach, raising questions about the relative leniency toward other clubs, such as Portsmouth, which is encountering a nine-point deduction for administration, and the apparent ambiguity surrounding the breaches committed by Manchester City and Chelsea.
Sky Sports pundit and ex-Liverpool and England defender, Jamie Carragher has expressed the view that Everton’s punishment appears severe, especially when compared to the lack of sanctions against the six clubs involved in attempting to form the European Super League. On his social media account, he wrote: “Would it have been better to be evasive & try & drag it out like other clubs? No doubt relegated clubs will have put big pressure on the PL to deal with Everton, but when you consider 6 clubs tried to leave the PL & there was no sanction at all it doesn’t feel right.”[30]
Everton’s sanctions have triggered discussions about the potential consequences for Manchester City. On 6 February 2023, following a four-year investigation into City’s financial dealings over a nine-year period, the Premier League confirmed its allegations against the club.[31] The accusations involved 115 breaches of rules related to providing accurate financial information, including details about revenue, sponsorship revenue, and operating costs. These alleged rule violations occurred between 2009 and 2018, a period during which Manchester City won the Premier League three times. Additionally, the Premier League accused the club of insufficient cooperation during the investigation initiated in December 2018.
The sanctions imposed on Everton is a momentous moment in football news, given the unprecedented scale of the penalty. This case establishes a noteworthy precedent for other clubs potentially facing breaches of PSR. While it is important to note that Everton’s situation may not be directly comparable to that of Manchester City, the outcomes of these cases will inevitably draw comparisons. If the sanctions imposed on Manchester City are perceived as less strict than those for Everton, it could raise concerns about fairness and equitable treatment among clubs. Everton, in such a scenario, may rightfully feel that they have been subjected to unfair or inconsistent treatment, further highlighting the need for transparency and consistency in the application of sanctions across football clubs. Everton will “monitor with great interest the decisions made in any other cases concerning the Premier League’s Profit and Sustainability Rules.” [32]
Unfair TrialArticle 6 of the European Convention of Human Rights (“ECHR”) guarantees the right to a fair trial.
(1) “In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.”[33]
This may not be a criminal charge but ultimately it is about the fairness of proceedings. The Commission’s decision-making process in Everton’s case raises significant questions about the club’s right to a fair trial, potentially conflicting with Article 6 ECHR. Article 6 (1) guarantees the right to a fair hearing by an “independent and impartial tribunal.” Judicial independence is intricately linked to the integrity of the judicial appointment process and the autonomy of the national body responsible for safeguarding judicial independence (Grzęda v. Poland [GC], 2022).[34] The concepts of “independence” and “impartiality” are closely linked and, depending on the circumstances, may require joint examination (Ramos Nunes de Carvalho e Sá v. Portugal [GC], (2018)).[35]
The Court has acknowledged that where commercial or sports arbitration has been accepted freely, lawfully, and unequivocally, the concepts of independence and impartiality may be interpreted flexibly, seeing that the very essence of the arbitration system lies in the appointment of the decision-making bodies, or at least part of them, by the parties to the dispute (Mutu and Pechstein v. Switzerland (2018)).[36]
As per Rule W.18 of the Premier League Handbook, “The Judicial Panel shall include:
W.18.1. authorised insolvency practitioners eligible under Rule E.38 to sit as a member of an appeal tribunal appointed thereunder;
W.18.2. legally qualified persons eligible: W.18.2.1. under Rule E.38 or Rule F.17 to sit as chair of appeal tribunals appointed thereunder; W.18.2.2. under Rule Y.7 to sit as chair of Managers’ Arbitration Tribunals; and/or W.18.2.3. under Rule W.19 to sit as chair of Commissions;
W.18.3. Persons who have held judicial office eligible under Rule W.63 to sit as chairs of Appeals Boards; and
W.18.4. Persons who hold nationally recognised qualifications as accountants or auditors, who shall be eligible to be members of Commissions appointed to determine suspected or alleged breaches of Rules E.47 to E.51.”[37]
The Independent Commission, tasked with evaluating Everton’s alleged breaches of financial regulations, faces scrutiny when assessed through both the subjective and objective tests concerning bias and impartiality. The subjective test considers whether the personal views and conduct of the decision-maker in a particular case demonstrated bias and partiality. The objective test considers whether the court offered guarantees sufficient to exclude legitimate doubt about partiality in an external observer, e.g. through the composition of the court or its freedom from influence (Mutu and Pechstein v Switzerland).[38]
The Independent Commission was made up of three individuals: David Phillips KC, who advises and litigates in a broad range of commercial matters including professional liability, regulatory, sports related matters and EU transport regulation, as well as mainstream commercial litigation; His Honour Alan Greenwood, an experienced Circuit Court Judge; and Nick Igoe, a qualified chartered accountant who works as a financial consultant and was West Ham United’s finance director between August 1997-December 2012.[39]
Under the subjective test, examining personal views and conduct, doubts emerge regarding the panel’s impartiality. The Panel was led by David Phillips KC, who is not only a member of the FA judicial panel but also the FA Premier League Panel. On that basis, one might wonder how he could be regarded as independent in this matter. [40] Further, Nick Igoe was West Ham United’s finance director. His previous ties to West Ham, raise questions about independence. The Independent Commission was not organised in a way to ensure its independence from the Panel’s previous dealings and there were no safeguards in place to protect the Panel members from outside pressure. A procedural rule is that individual panellist must disclose circumstances affecting their independence and impartiality and a specific procedure for the parties to challenge a panel’s appointment can assist with demonstrating the independence and objective impartiality of a particular panel. There is no such mechanism in place. Further, on 10 August 2023, the PL adopted a sanction policy for breaches of PSR. Utilising this framework, the anticipated penalty for breaches was decided to be between 10 to 12 points. However, the Commission, in a subsequent decision, opted not to adopt the sanctions policy, instead asserting their authority to exercise discretion in determining the application of the appropriate penalty. It was only on 4 October that Everton admitted their guilt to the Commission that they were in breach of PSR rules albeit their calculation was £7.9 million.[41] Whilst the Commission holds that it exercised its own discretion in administering the appropriate penalty, the lack of an explanation for the heavy sanction alongside it being so close to what the PL’s August 2023 sanction policy put forward is a glaring example of prejudicial behaviour that, in conventional legal settings, might warrant a mistrial.[42] Despite these red flags, the Commission did not address or rectify potential bias issues throughout the proceedings.[YP2]
The Club has experienced a unique set of financial circumstances in recent years, including committing significant amounts of expenditure to a complex new stadium project and dealing with the continuing and widespread impact of the COVID-19 pandemic, all whilst being in the initial stages of an investment lifecycle thanks to the support of its majority shareholder.[43] Applying the objective test, the Independent Commission discounted mitigating factors by arguing that businesses like Everton should anticipate events such as Covid-19 and geopolitical issues like the conflict in Ukraine.
New Stadium ProjectIn 2021, Liverpool lost its UNESCO World Heritage status due to waterfront developments, including Everton’s new stadium at Bramley Moore Dock. On 23 March 2017, it was announced that a deal had been agreed between Liverpool City Council, Everton F.C., and Peel Holdings to acquire the dock for a new football stadium.
By early 2019, Everton identified what it regarded as an anomaly in the treatment of the expenditure on the stadium. The nature of Everton’s stadium development project (given its location on Bramley Moore Docks, a UNESCO World Heritage site), meant that significant investment was made before planning permission, which was received by Liverpool City Council on 23 February 2021, and confirmed by the Secretary of State on 26 March 2021. This significant investment began in January 2020, when USM, which already sponsors Everton’s Finch Farm training complex, paid £30m to be first in the queue for the naming rights to the new stadium at Bramley-Moore Dock.[44] That money will already have contributed, at least in part, to the preparatory work already in progress at the site of the new ground.[45]
It is now common ground that the effect of the grant of planning permission is that stadium expenditure incurred in and after FY 2021 (i.e. from 1 July 2020) could be capitalised. Financial Reporting Standard 102 makes clear that expenditure could not be capitalised unless it was probable that the future economic benefit associated with the expenditure would flow to Everton. In practical terms that meant that the expenditure on the stadium could not be capitalised until planning permission had been granted – because without planning permission the benefit could not be said to be probable. The consequence of that was that instead of the expenditure being capitalised it had to be recorded in Everton’s profit and loss account: thereby representing a cost for the purposes of its adjusted earnings before tax in the relevant years and, ultimately, its PSR calculation. The perceived anomaly arose because other clubs had been able to capitalise expenditure on improving/redeveloping an existing stadium, so that that expenditure had never featured in their PSR calculations.[46]
Covid-19On 6 August 2020, the Premier League shareholders approved amendments to the Rules to implement changes to the PSR regime to reflect the impact of Covid. These changes applied to the entirety of the seasons 2019/20, 2020/21, and 2021/22. Firstly, costs incurred because of Covid were added to the list of permitted costs that would be excluded when calculating the adjusting earnings before tax. Secondly, the figures for FY 2020 and FY 2021 were no longer to be calculated individually but were to be averaged. The effect of that meant that calculation of the adjusted earnings before tax PSR calculation for FY 2022 was the total of the adjusted earnings before tax figures for FY 2019, the average for FYs 2020 and 2021, and for FY 2022.[47]
In common with all other clubs, Everton received the benefit of the Covid concessions. The Premier League stated that there is no basis for this to amount to a mitigating factor.
However, it is necessary to provide a background into the financial impact of Covid-19 on Everton. Losses of at least £170m have been attributed to the impact on the club of the COVID-19 pandemic, with £103m of that figure coming in the 2020/21 financial year. Continued investment in the playing squad, coupled with the impact of the pandemic, has resulted in the club posting a loss of £120.9m for the year ending 30 June 2021.[48]
UkraineUnlike other clubs, Everton suffered adverse consequences due to its association with Usmanov’s company, USM.
Everton’s majority owner, British-Iranian billionaire Farhad Moshiri, is a business partner of Russian metals tycoon, Alisher Usmanov. In March 2022, Everton announced that it had halted its major sponsorship with companies belonging to Usmanov after he was sanctioned by the European Union (“EU”) in the wake of Russia’s invasion of Ukraine.[49] Everton stated: “The club can confirm that it has suspended with immediate effect all commercial sponsorship arrangements with the Russian companies USM, Megafon and Yota,” [50]
The USM sponsorship package of Finch farm, Everton’s training ground, is worth around £6 million per year. Megafon, another company connected with USM, also sponsors Everton Women’s team as does YOTA, a Russian-based internet company also linked to USM. Together with further commercial agreements such as LED pitch advertising, branding and match day initiatives, their support added up to a sizeable chunk of revenue for the club.[51]
The exclusion of this mitigating factor was not based on any objective reasons. Further, Everton complied with the Premier League, were transparent, they agreed to an expedited process and even sold players like Richarlison and Anthony Gordon to help them balance the books. Everton rightly feels that, “Both the harshness and severity of the sanction imposed by the Commission are neither a fair nor a reasonable reflection of the evidence submitted.”[52]
Impact on Other ClubsEnsuring procedural fairness is imperative, especially considering the impact of Everton’s offence on other Premier League teams. Clubs like Leicester City, Leeds United, and Burnley, relegated in recent seasons, are reportedly exploring legal actions against Everton for damages amounting to millions of pounds. The sum being mentioned is for £300million; £100m in lost revenue for each of the three. Southampton are also planning to join the lawsuit brigade.[53] The question of whether these teams would have remained in the Premier League if Everton’s offence had occurred earlier raises issues of recourse and potential financial penalties or compensation.
Manchester CityEverton’s recent sporting sanction may establish a precedent for the upcoming hearings regarding Manchester City’s violation of 115 rules. The subjective nature of the sanctions opens the possibility of Manchester City facing even more severe consequences than Everton, leading to potential discontent if the sanctions are not perceived as proportionate.
Everton’s recent sporting sanction may establish a precedent for the upcoming hearings regarding Manchester City’s violation of 115 rules. The subjective nature of the sanctions opens the possibility of Manchester City facing even more severe consequences than Everton, leading to potential discontent if the sanctions are not perceived as proportionate.
However, it is crucial to note that the charges against Manchester City and Chelsea differ from Everton’s single charge of breaching allowed financial limits in the Premier League. Everton’s compliance with the Premier League expedited the resolution, prompting discussions about whether a less cooperative approach might have yielded a different outcome for the club.
Manchester City, on the other hand, is not approaching the situation with the same level of cooperation and has expressed reservations about the composition of the Independent Commission, contributing to a lack of transparency. The charges against Manchester City involve repeated occurrences, adding complexity to their case. The club vehemently asserts its innocence, claiming to have operated within the rules, albeit “sailing close to the wind.”
While the unique circumstances of each case prevent a direct comparison between Everton and Manchester City, the outcomes will have far-reaching repercussions for procedural fairness within the Premier League: 2024 could be pivotal in establishing the league as a reliable and fair governing body.
The ongoing cases involving Everton, Manchester City, and Chelsea will significantly influence the perception of fairness and transparency within the Premier League, with potential implications for the league’s integrity and governance.
ConclusionEverton’s recent experience with the Premier League’s sanctions raises substantial concerns about the club’s right to a fair trial, potentially infringing upon Article 6 ECHR. The decision-making process of the Independent Commission tasked with evaluating Everton’s alleged breaches of financial regulations came under scrutiny when assessed through both subjective and objective tests concerning bias and impartiality.
The subjective test, which considers personal views and conduct, reveals doubts regarding the panel’s impartiality. Affiliations of panel members raise questions about the independence of the Independent Commission, and the absence of mechanisms to ensure independence and address potential bias further compounds these concerns.
Under the objective test, examining the guarantees offered to exclude doubts about partiality, the Commission’s dismissal of Everton’s mitigating factors lacks objective reasoning. The unique financial circumstances faced by Everton, including significant investments in a new stadium project, the impact of the COVID-19 pandemic, and repercussions from geopolitical issues like the conflict in Ukraine, were not adequately considered. The exclusion of these mitigating factors, despite Everton’s compliance, transparency, and cooperation with the Premier League, suggests a failure of the Commission to objectively assess the evidence.
The New Stadium Project, COVID-19, and the Ukraine conflict all presented challenges beyond Everton’s control, impacting the club’s financial stability. The Commission’s decision to discount these factors when applying the objective test demonstrates a lack of consideration for the unique circumstances Everton faced. The consequences of these events were significant, with losses attributed to the impact of the COVID-19 pandemic and adverse effects due to Everton’s association with Usmanov’s company USM.
The lack of reasoning or explanations as to why exactly 10 points have been deducted from Everton’s points tally in the league season 2023-2024 raises questions as to the basis of this points deduction. If this is the barometer for Everton’s wrongdoing, Manchester City and Chelsea may find themselves being punished with relegation, being stripped of titles and cup wins, transfer bans and financial penalties. In fact, with no real authorities to base the punishment upon or no guidelines, it is almost guaranteed that any punishment would be appealed unless it was too lenient.
The Commission’s decision failed both the subjective and objective tests concerning Article 6 ECHR. Everton was seemingly denied a fair trial, raising questions about the fairness, transparency, and integrity of the Premier League’s regulatory processes. This case underscores the importance of ensuring procedural fairness and adherence to human rights principles in the context of sports governance and the events of 2024 may prove pivotal in determining the league’s commitment to upholding integrity and ensuring equitable treatment for all member clubs.
Source:
Church Court Chambers