Everton have been handed a 10-point deduction for breaching the Premier League’s profitability and sustainability rules (PSR).
The club were referred to an independent commission in March for alleged breaches relating to the 2021-22 season — only the second time such action has been taken after Manchester City were hit with more than 100 financial fair play (FFP) charges last season — and a hearing took place over five days last month.
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The Premier League has now confirmed the imposition of the heaviest points deduction in its history.
Everton will appeal but, for now, Sean Dyche’s side have dropped from 14th to 19th in the table after 12 of the season’s 38 games — above bottom-placed Burnley only on goal difference.
So what exactly have Everton, a club in the throes of a potential takeover by 777 Partners, been punished for, why is the sanction so steep, what happens next, and what are the implications for the Premier League?
The Athletic’s Patrick Boyland and Matt Slater explain. Comments are turned off for legal reasons.
What have Everton been punished for?
Premier League rules dictate that clubs can lose up to £105million ($130.5m) over a three-year cycle, although certain add-backs, including losses caused by the COVID-19 pandemic, expenditure on infrastructure, community projects or women’s and academy teams are permitted.
During last month’s hearing, the Premier League argued that Everton’s cumulative losses for the FFP cycle ending in 2022 were, at £124.5million, £19.5m over the limit. Despite initially denying any wrongdoing, Everton eventually accepted they were in breach by a smaller sum of £7.9m but claimed they were entitled to “substantial mitigation”.
According to the commission’s report, Everton cited several factors as mitigation, among them:
- Their costly stadium project and a difference of opinion over how loans to fund the scheme should be accounted for
- The impact of COVID-19, primarily on their ability to sell in the market
- The unexpected termination of a key player’s (“Player X”) contract due to unforeseen events
- Their “transparent” cooperation with the Premier League.
Everton also argued they had been almost uniquely affected financially by Russia’s invasion of Ukraine in February last year. At short notice, they were forced to suspend sponsorship agreements with companies linked to sanctioned oligarch Alisher Usmanov.
In their submission, they also detailed how they had scrapped a stadium naming-rights deal with one of those entities, USM Holdings, that was worth up to £200million over 20 years. Initially lined up to come into effect in 2025, the club said they had been in negotiations with USM — before Russia’s invasion of Ukraine — to bring the agreement into force early in 2022 instead.
One of the main bones of contention was Everton’s treatment of loans relating to their new stadium project.
In the absence of an external debt package, they had largely relied on loans from the club’s majority shareholder, Farhad Moshiri, to fund construction costs for the £760million development. Everton Stadium Development Ltd was set up as a wholly-owned subsidiary of the club, but remained entirely dependent on inter-company loans from Everton.
In Everton’s 2022 calculations, they said loans to Everton Stadium Development “bore financing costs by way of interest and arrangement fees”. Yet the commission decided the club had been “less than frank” in their submission and considered this to be an “aggravating factor in their culpability”.
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Ultimately, the commission and the Premier League took a different view on how the club came to breach the regulations.
“Everton’s understandable desire to improve its on-pitch performance led it to take chances with its PSR position,” the commission concluded. “Those chances resulted in it exceeding the £105million threshold by £19.5million.”
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It added: “The position that Everton finds itself in is of its own making. The excess over the threshold is significant. The consequence is that Everton’s culpability is great.
“Everton’s PSR trend over the relevant four years is positive, but we cannot ignore the fact that the failure to comply with the PSR regime was the result of Everton irresponsibly taking a chance that things would turn out positively.”
It was also argued that Everton’s failure to sell Richarlison for more than £60million, £20m under what they had initially forecast, was a key part of their non-compliance.
The commission ruled that all the numbers involved constituted a “serious” breach of the Premier League’s FFP rules and that any punishment should be significant as a result.
Patrick Boyland
GO DEEPER
Breaking down 41 pages of written arguments behind Everton's points deduction
Why is this such a serious matter?
Everton will not want to see it in these terms but they have effectively been found guilty of cheating. It is as simple as that.
In the same way that you cannot play 15-year-olds in an under-13s game or use unregistered ringers in your pub team’s cup final, the Premier League’s FFP rules are there for a reason, and all clubs are obliged to follow them. They are also expected to act in ‘good faith’ in all their dealings with the league.
Of course, there is a broad range of cheating and not every breach of the rulebook is treated in the same way. Everton say they didn’t set out to cheat the rules and they were just unlucky with how things panned out.
But it is important to approach this from that starting point: the Premier League charged Everton with breaches that are hard to consider as anything other than cheating and an independent panel has agreed.
The real debate, then, is how serious the extent of the rule-breaking was and whether any mitigating factors should be considered when deciding the sanction. Lots of arguments were made regarding these two points by both sides, and the panel’s 41-page ruling outlines them.
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The quick version is that the Premier League won almost all of those arguments.
In fact, the league argued there were three aggravating factors and the panel accepted one of these. It decided Everton had misled the league on the matter of how Moshiri was funding the stadium project: with his soft, interest-free loans, or with usual, interest-bearing loans.
Reading the ruling, it seems that Everton themselves changed their minds about this during their FFP-related negotiations with the league. So, according to the panel, Everton had not met the requirement to act in good faith.
And, on the flip side, Everton claimed there were six mitigating factors for the panel to weigh up when considering a penalty. These ranged from the claim they could have sued Player X only to choose not to — costing them £10million — to the impact of the war in Ukraine.
The panel dismissed all of these apart from one — that Everton are losing less money now than they used to.
But perhaps the best way to answer this question is to consider the four arguments the panel made to explain why clubs who break the rules must be punished. One, there should be consequences. Two, you do it to vindicate all those clubs who did not break the rules. Three, you do it to deter others. And four, it protects the integrity and reputation of the league.
Having weighed up everything it had heard over five days of point and counterpoint, the testimony from expert witnesses and the 40,000 pages of documents that were submitted, the panel said there was no doubt this merited a sporting punishment — and that should be a significant points penalty.
Matt Slater
Why is the sanction so steep?
The short answer is that £124.5million is a lot of money to lose. The ruling makes it clear that the panel agreed with the Premier League that the threshold of £105m is “generous” and clubs really should not be getting anywhere near that level of profligacy.
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So Everton were on the back foot from the off, particularly after they effectively changed their plea from “not guilty” to “guilty — but it wasn’t our fault” two weeks before the hearing. That was when they adjusted their own FFP calculation for the period from a big-but-legal loss of £87.1million to a threshold-busting one of £112.9m.
The Premier League, on the other hand, actually amended its calculation upwards — from a loss of £120.8million to £124.5m.
What is interesting is that the panel chose to ignore the two possible sanctions guidelines it could have used to determine the penalty. The first belongs to the EFL — the three-tier, 72-team competition below the Premier League on the English football ladder — and was first shared with its clubs in 2018. The EFL states that the starting position for a points deduction should be minus 12, but that can be reduced to reflect the “quantum”, or how far over the limit the club is, and any mitigation. These are, however, just guidelines and panels in EFL cases have ignored them.
The Premier League has no such published guidelines, but its chief executive Richard Masters told the panel, in his witness testimony, that the league came up with a sanctions policy at the start of this season that uses a starting position of minus six points, with an additional point docked for every £5million over the limit.
Now, we bet you are thinking that the panel based its decision on that formula, aren’t you? Well, it says it did not.
In fact, it says it “declined” to use either formula and instead looked at what the rulebook says. Which is: it is entirely up to the panel. So, the three men who heard the arguments came up with the 10 points. And you can see why it came in at the steep end of the spectrum in the final paragraphs of the ruling.
It is pretty damning.
Matt Slater
| POS | TEAM | PLAYED | W | D | L | GD | POINTS |
|---|---|---|---|---|---|---|---|
1 | 12 | 9 | 1 | 2 | 20 | 28 | |
2 | 12 | 8 | 3 | 1 | 17 | 27 | |
3 | 12 | 8 | 3 | 1 | 16 | 27 | |
4 | 12 | 8 | 2 | 2 | 9 | 26 | |
5 | 12 | 8 | 1 | 3 | 12 | 25 | |
6 | 12 | 7 | 0 | 5 | -3 | 21 | |
7 | 12 | 6 | 2 | 4 | 14 | 20 | |
8 | 12 | 5 | 4 | 3 | 4 | 19 | |
9 | 12 | 5 | 2 | 5 | -1 | 17 | |
10 | 12 | 4 | 4 | 4 | 5 | 16 | |
11 | 12 | 4 | 4 | 4 | 2 | 16 | |
12 | 12 | 4 | 3 | 5 | -4 | 15 | |
13 | 12 | 4 | 3 | 5 | -4 | 15 | |
14 | 12 | 3 | 4 | 5 | -4 | 13 | |
15 | 12 | 3 | 3 | 6 | -10 | 12 | |
16 | 12 | 2 | 3 | 7 | -16 | 9 | |
17 | 12 | 1 | 3 | 8 | -12 | 6 | |
18 | 12 | 1 | 2 | 9 | -21 | 5 | |
19 | 12 | 4 | 2 | 6 | -3 | 4* | |
20 | 12 | 1 | 1 | 10 | -21 | 4 |
How have Everton responded?
In a statement on Friday, the club said they were “shocked and disappointed” and described the 10-point deduction as a “wholly disproportionate and unjust sporting sanction”.
Everton maintain they have acted in good faith, regularly liaising with the league over their PSR position.
As previously reported, the league placed Everton under several financial restrictions from the summer of 2021, including what was effectively an informal salary cap. All deals, including transfers and contracts, had to be approved by league officials before they were finalised. The club believe they complied with these measures and that those efforts have not been properly taken into account.
— Everton (@Everton) November 17, 2023
Everton have also noted the commission did not determine this to be a deliberate breach and pointed to the three-man panel admitting that “there was no sporting imperative in the circumstances (not least when other clubs had, in effect, been able to capitalise similar capital-related expenditure)”. As such, the club’s position is that a sporting sanction, such as a points deduction, is not an appropriate punishment.
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There is a feeling, based on the independent commission’s use of the word “deterrent”, that they have been unfairly used as a scapegoat while other clubs go unpunished. Everton have indicated they will appeal, with an outcome expected before the end of the season in May.
“Everton maintains it has been open and transparent in the information it has provided to the Premier League and it has always respected the integrity of the process,” reads their statement.
“The club does not recognise the finding that it failed to act with the utmost good faith. The harshness and severity of the sanction imposed by the commission are neither a fair nor a reasonable reflection of the evidence submitted.
“The club will also monitor with great interest the decisions made in any other cases concerning the Premier League’s profit and sustainability rules.”
Club Statement. https://t.co/RpHdLJRurc pic.twitter.com/hyFfl9vWxO
— Everton (@Everton) November 17, 2023
The mood from supporters, meanwhile, has largely been one of defiance.
A fundraising page has been set up by fan group The 1878s with a view towards making the “Goodison Park atmosphere as hostile and electric as it can be at a pivotal time for Everton”.
The group called the verdict “disgraceful and nonsensical”.
“We won’t take this lying down. F*** the Premier League,” they added.
The page has already received more than £10,000 in donations.
Patrick Boyland
What are the chances of Everton’s appeal succeeding?
Well, it depends on what you mean by “succeeding”.
If you mean “overturning”, or “throwing out”, or “complete exoneration and a public apology from all involved”, we would advise you to manage your expectations downwards a tad.
But if you mean reducing the penalty, then sure, there is a chance. There is always a chance.
If we look at precedents in the EFL, clubs have often managed to get a more favourable hearing second time around. Sheffield Wednesday, for example, managed to halve a 12-point penalty for an FFP breach related to the sale of their Hillsborough stadium when they appealed the initial ruling in 2020.
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But appeals can be tricky. There is a chance, albeit a remote one, the Premier League will say: “Bring it on. We want 12 points.” There is also a bigger chance that clubs affected by Everton’s rule-breaking will want to make submissions to the appeal panel. Any such submissions are unlikely to be requests for clemency.
What Everton will get, though, is another chance to make their arguments, and a new panel to impress. They will also have the benefit of knowing which arguments hit the back of the net in the first hearing and which ones flew out of the stadium.
The Premier League, of course, will know this, too.
Matt Slater
What does it mean for Everton’s chances of staying in the Premier League?
With things looking up on the pitch, Everton initially seemed well-placed to avoid a third consecutive relegation battle. Before the announcement, they were in 14th and eight points clear of third-bottom Luton Town, having won six of their last nine games across all competitions.
In the aftermath of Saturday’s 3-2 away success against Crystal Palace, Opta gave Dyche’s team a 3.5 per cent chance of relegation. Now, following the independent commission’s findings, that number has soared to just over 34 per cent.
However, unlike previous season, when a 10-point deduction would have proved fatal, Everton still stand a decent chance of top-flight survival — even if their appeal is unsuccessful.
With 26 league games to play, they are only two points off the safety of 17th place and boast a much healthier goal difference than any of the sides around them.
Before this international break, there was a genuine sense they were on the right track under Dyche on the pitch. This points deduction is undoubtedly a blow for a club who have been in the top division of English football since 1954 but, if they continue along the path they’ve been on in recent weeks, they should still be fine come May.
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This news just means the comfortable mid-table finish they yearn for is off the cards, with another campaign of worry likely.
Patrick Boyland
What does it mean for the takeover?
The club’s prospective new owner, 777 Partners, has not commented publicly since Friday’s announcement, or indicated any change in its position.
As previously reported, the U.S.-based group planned for a range of outcomes as part of its due diligence, whether that meant an acquittal, a points deduction or a transfer embargo.
Litigation from other clubs in the aftermath of this ruling would, however, take both Everton and their potential new owner into uncharted territory. So far, there has been no indication as to how 777 would respond to such a threat — or, indeed, whether it would change anything.
Moshiri would also be in line to receive a lower sum from the takeover if Everton ended up relegated this season.
Patrick Boyland
What are the wider implications of this ruling?
Unleash the lawyers! Billable hours all round!
There is a temptation when something surprising happens to overstate its significance, claim the world has changed forever and hide under the bed. And there is definitely a risk of that here.
However, this ruling — unless it collapses on appeal — does now make it look very much like Everton cheated, and there will be clubs who were affected in recent seasons with something to say about that. Justice delayed is very much justice denied for teams such as Leicester City and Burnley, who would have avoided relegation these past two seasons if Everton’s punishment had been more timely.
We shall have to see if they are willing to try their luck through the courts — something the Premier League will be desperate to avoid.
The league has already acknowledged the “justice delayed” point and has said that, if this were to happen again, the hearing would be expedited and any punishment would be applied in the season the charge was made. Will that placate everyone? Maybe.
Another possible consequence is that there is a move to a Spanish-style, forward-looking form of financial regulation, where the league effectively gives each club a bespoke budget based on their current financial positions. Previous Premier League bosses have absolutely hated that idea and the current owners feel much the same. But it is a logical step if the clubs all decide they cannot stomach these much-delayed sanctions.
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One implication the league would be keener to get behind is the idea that it does not need anyone looking over its shoulder when it comes to applying the rulebook. Might the league’s robust prosecution of Everton convince the UK government to go with a more diluted version of independent regulation? Maybe.
But the implication you are all thinking about is what this means for Manchester City and Chelsea, isn’t it?
Understandably so.
City are already facing 115 charges for a far more serious, intentional and long-running alleged breach of the rules. They expressed surprise at the charges and insisted they “welcome the review of this matter by an independent commission, to impartially consider the comprehensive body of irrefutable evidence that exists in support of its position”. Chelsea, meanwhile, might be heading the same way. And both of those clubs have been a bit more successful in recent years than Everton.
Unfortunately, it would be very unwise to draw too many conclusions from this case in terms of those two situations.
While the arguments were complicated, the fundamentals of Everton’s case were pretty straightforward and the political fallout is minimal. That is not the case with Manchester City, in particular. The Premier League thinks City lied but proving that is never easy, which is why that case has a long way to go before it sees the inside of an arbitration room.
What we can say, though, is that this case has shown the Premier League is willing to apply its rules, fund a strong prosecution and call for the strongest sanctions available. As implications go, that sounds pretty significant.
Matt Slater
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Which other Premier League clubs are under investigation for FFP breaches — and what does this mean for them?
Apart from the previously mentioned (alleged) bad boys, several clubs are known to have got a lot closer to that £105million threshold than the Premier League rule-makers perhaps intended.
You do not need to be a forensic accountant to know that some clubs were running a little too hot going into the COVID-19 pandemic in early 2020, and were therefore not in the best of states to get through what was an enormous shock to the entire football ecosystem. It is also fairly easy to spot the clubs who have massively reined in their spending in recent windows or have sold a few of their best players.
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But they will be well aware of their own situations and whatever they are doing now, in terms of player trading, will be with FFP front and centre in their brains. In that regard, Everton have done everyone a solid. There but for the grace of God go we, and all that.
Everton will get no satisfaction from being the industry’s latest cautionary tale, though. On the contrary, they are furious they are being punished under an FFP regime that is about to be overhauled, with the new set of rules very likely to be even more generous to overspenders than the current system.
Timing is everything.
Matt Slater
(Top photos: Getty Images. design: Eamonn Dalton)