Everton’s Double Trouble
On 15 January 2024 it was announced that Everton FC (“EFC”) had been charged with a breach of the Premier League’s (“PL”) Profitability and Sustainability Rules (“PSR”) (found in Section E of the PL Rules) for the period ending season 2022/23.
EFC admitted the charge of the PSR, accepting that it had breached the PSR upper loss threshold of £105 million by £16,630,016. Therefore the only matter to be determined by a PL Commission on this issue was the appropriate sanction.
On 8 April 2024, it was announced that EFC had been sanctioned with an immediate two-point deduction for its breach of the PSR.
This article considers the Commission’s approach to sanctioning EFC with an immediate two-point deduction and considers what further guidance the Commission’s decision provides on how to assess and determine a proportionate sanction for a breach of the PSR upper loss threshold.
EFC had previously been sanctioned with a six-point deduction following a breach of the PSR for the period ending 2021/22. Readers are invited to read this earlier Football Law article ‘Everton’s Appeal Provides Sanction Guidance’ for analysis of the Appeal Board’s decision in that matter. The Appeal Board’s decision dated 26 February 2024 is referred to in this article as “the Everton FY22 Appeal”.
Readers will also benefit from reading this earlier Football Law article ‘Seeing the Wood for the Trees’ for analysis of the four-point deduction imposed on Nottingham Forest FC (“NFFC”) following its breach of the PSR for the period ending 2022/23. The Commission’s decision dated 18 March 2024 in that case is referred to in this article as “the NFFC Commission Decision”.
Commission’s approach to sanction – principles
The Commission started its analysis of the approach to sanction by confirming that the ‘proper approach to sanction was set out extensively in the Everton FY22 Appeal’.[1]
The Commission accordingly recognised that any sanction imposed on EFC must be proportionate, which requires the sanction to achieve the legitimate aims pursued by the PSR but not to exceed that which is reasonably required to achieve those aims. The disciplinary aims are punishment, vindication of compliant clubs, deterrent, and integrity, albeit punishment is not the most important aim.[2]
The Commission also emphasised the position of the Appeal Board in the Everton FY22 Appeal that ‘every breach is serious, and – leaving aside mitigating factors – every breach warrants a points deduction and nothing less than a points deduction’.[3]
The Commission disagreed with any suggestion in the NFFC Commission decision that there could ever be a scenario where a points deduction is not warranted for a breach of the PSR upper loss threshold (at least before applying mitigation). The Commission relied upon the gradated scheme applied by the PSR – which includes consideration of specified obligations and liabilities where a club’s PSR Calculation shows a loss of up to £15 million, a club’s provision of Future Financial Information and Secure Funding if a club’s PSR Calculation shows a loss between £15 million and £105 million, and then the disciplinary powers exercisable by the PL Board and the mandatory referral to a Disciplinary Commission where a club’s PSR Calculation shows a loss over £105 million – and stated:
‘[…] the gradated structure set out by the [PL] Rules supports the view that a deduction of points is warranted, subject to mitigation, in all circumstances where a club’s PSR Calculation exceeds £105 million. Insofar as Nottingham Forest invited a different view, we disagree’.[4]
The Commission also disagreed with the suggestion in the NFFC Commission Decision that breaches of the PSR upper loss threshold should be banded as “minor”, “significant” and “major”. The Commission felt that such banding ‘fails to give due regard to the fact that any breach of the PSR [upper loss threshold] necessarily means that the club has spent over and above the £105m threshold of accumulated losses over an extended three-year period’.[5] This accords with this author’s analysis in Football Law’s article ‘Seeing the Wood for the Trees’ when commenting on the concern raised in the NFFC Commission Decision on Appeal Board’s ‘blanket approach’ in the Everton FY22 Appeal.
Commission’s approach to sanction – starting point
In respect of an appropriate starting point for sanction, the commission accepted ‘the PL’s suggestion that the Appeal Board in the Everton FY22 Appeal started from an initial sanction of three points, which was increased by a further three points to reflect the £19.5 million [excess over the PSR upper loss threshold]’.[6]
In Football Law’s article ‘Seeing the Wood for the Trees’ this author addressed the issue of whether there was any purported three-point deduction starting point arising from the Appeal Board’s decision in the Everton FY22 Appeal:
‘[…] the rationale of applying a three-point deduction as the entry point for a significant breach of the PSR appears misguided. The Appeal Board in the Everton Appeal did not rely upon an entry point – or a starting point – of a three-point deduction for a significant breach of the PSR or generally.
The only reference by the Appeal Board to a three-point deduction in the Everton Appeal was in respect of the minimum three-point deduction (subject to any mitigating or aggravating factors) to be imposed where there has been a breach of the upper loss threshold in the EFL’s Championship Profitability and Sustainability Rules (“CPSR”) and applying the EFL’s Sanction Guidelines (“the EFL Sanction Guidelines”). The Appeal Board stated in the Everton Appeal that the EFL Sanction Guidelines ‘cannot be automatically translated across in a linear way’ to a breach of the PSR. Moreover, even on EFC’s own case that sought to apply the EFL Sanction Guidelines in a linear way, the entry point would have been a six-point deduction, not a three-point deduction.
Indeed, one of the notable features of the Everton Appeal is the absence of any breakdown of the six-point deduction imposed by the Appeal Board. The Appeal Board did not specify which of those six points accounted for the quantum of EFC’s breach of the PSR, the mitigating factor of an improved trend for its final year in the relevant three-year period, and the two aggravating factors of, firstly, the extent of EFC’s breach of the PSR and, secondly, EFC providing wrong information to the PL in respect of its relevant PSR Calculation’.
In this author’s opinion, the Commission failed to consider those above-stated points, and this is an issue that desperately needs clarification (be that to confirm and provide clear reasoning for the position rather than inferring a position that is not apparent in the Everton FY22 Appeal, or otherwise to confirm this author’s above-stated position). It is hoped that such clarification will come from NFFC’s appeal against the NFFC Commission Decision.
Working from that starting point of a three-point deduction, the Commission then considered the effect of the quantum of EFC’s breach of the PSR upper loss threshold by £16,630,015. The Commission firstly recognised that the determination of the appropriate points deduction is not a mathematical exercise and that there are no sanction guidelines available, but then stated:
‘The PL submitted the appropriate sanction is to be reached by reading into the Everton FY22 Appeal that the Appeal Board increased the initial three-point penalty by one point for every £6.5 million for which the Upper Loss Threshold was exceeded or, alternatively, in percentage terms, that a breach “in the order of 20%” was deserving of an additional three points […] or one point for every 6.67% over the Upper Loss Threshold.
Like the Commission in Nottingham Forest (at [14.12]), we worry that this sets down a rather too strict and formulaic methodology for calculating the additional points to be added to take account of the quantum of the breach, and we suspect that the Appeal Board had no intention to legislate in that way. We accept, however, that the approach does provide a good indication to all Commissions (and to the clubs and the PL) of what can be expected when one considers the matter in the round, and we adopt it on that basis’.[7]
In addition to the error in respect of the three-point deduction as a starting point, the Commission’s reasoning quoted above is internally inconsistent. A Commission cannot reason that the approach to determining the appropriate sanction for a breach of the PSR upper loss threshold is not a mathematical exercise and that the Everton FY22 Appeal ‘had no intention to legislate in that way’ but then adopt a mathematical approach that the Appeal Board in the Everton FY22 Appeal did not apply. Respectfully, the reasoning is irrational and goes against the Everton FY22 Appeal and the NFFC Commission Decision which rejected the PL’s proposed formulaic or mathematical approaches.[8] The approach also has the capacity to produce absurd results; if a club breaches the PSR upper loss threshold by, for example, £60 million, the club will face a 12-point deduction (3 + (60/6.5)) (before mitigating and/or aggravating factors), which does not sit comfortably with the Everton FY22 Appeal, the NFFC Commission Decision or the comparable nine-point deduction imposed for an Event of Insolvency under PL Rules, r. E. 37.
Nevertheless, applying that mathematical approach the Commission added two points for the quantum of EFC’s breach of the PSR upper loss threshold (16.6/6.5), resulting in a five point-deduction.[9]
EFC’s mitigation – principles
The Commission adopted the same approach to mitigating factors as applied by the Appeal Board’s in the Everton FY22 Appeal. In summary, a party seeking to rely upon a mitigating factor bears the burden of proving that mitigating factor, and circumstances are only mitigating factors ‘when marked against the aims of the regime in which sanctions are being imposed’.[10]
EFC relied upon five points of mitigation, three of which were successful. This article focuses on EFC’s three successful points of mitigation, which shall be addressed in turn.
Double jeopardy
Firstly, EFC relied on the principle of double jeopardy (also known as the principle of ne bis in idem). In summary, the principle applies so that an individual is not prosecuted a second time on the same or substantially the same facts as have given rise to an earlier charge that has resulted in a sanction.[11] Where applicable, the principle can act to reduce the risk of unfairness so that there is ‘an offsetting mechanism designed to ensure that the overall amount of any penalties imposed is proportionate’.[12] It is noted that none of the authorities relied upon by EFC demonstrate the double jeopardy principle being applied in financial fair play cases.
EFC submitted that the principle applied as years T-1 and T-2 in its PSR Calculation relevant to this case were years T and T-1 respectively in its PSR Calculation relevant to the sanction ultimately imposed in the Everton FY22 Appeal.[13]
Tied in with this point, EFC also drew a comparison with the EFL Sanction Guidelines, ‘which provide that, where a club has been sanctioned for a P&S breach, in following years the relevant club’s losses are notionally “capped” at one third of the relevant three-year threshold’.[14] EFC’s losses over the relevant three-year period were:
T = £62,727,235
T-1 = £3,885,983
T-2 = £55,016,798
Total: £121,630,016
Accordingly, EFC submitted that if the approach in the EFL Sanction Guidelines was applied to this case, EFC’s losses for year T-2 would be capped at £35 million, reducing the overall losses to £101,613,218 and therefore below the £105 million PSR upper loss threshold.[15]
The PL disagreed that the double jeopardy principle applied because ‘the two offences with which [EFC] has been charged are two separate and distinct charges’.[16] but conceded that ‘the Commission should take into account, for the purpose of mitigation, that the PSR Calculation in these proceedings involves the assessment of years which overlap with the PSR Calculation’ that resulted in the sanction ultimately imposed in the Everton FY22 Appeal.[17]
The Commission appeared to agree with the PL, save that it also stated that it ‘need not decide’ whether its position on this head of mitigation (as explained below) is ‘by dint of the application of the ne bis in idem principle […] or whether it is simply engaged as an important element of proportionality’.[18]
The Commission also agreed with EFC’s reference to the EFL Sanction Guidelines, but as seen in the Everton FY22 Appeal, the Commission explained that the EFC Sanction Guidelines cannot simply be transferred across to apply to a breach of the PSR upper loss threshold.[10]
The Commission then explained its position as follows:
‘Where a club suffers losses in multiple calculation periods, such that it exceeds the Upper Loss Threshold in any given year, it is not possible to attribute the excess above the Upper Loss Threshold to any particular year.
As a result, we take the view that it is appropriate to attribute an equal weighting to each of the three calculation periods.
Where (a) the Upper Loss Threshold is exceeded and a sanction is imposed, and (b) the Upper Loss Threshold is exceeded again in (one or more of) the two years which follow, the club has already received a sanction for some of what took place in the past – i.e. the overlapping years.
In this case, Everton has already received a points deduction in the Everton FY22 Proceedings, which took into account losses in T-1 (2021/22) and T-2/T-3 (2020/21 and 2019/20). […]
Giving equal weighting to the three calculation periods, Everton has therefore already received a penalty for just under 50% of the loss which has now led to its excess above the Upper Loss Threshold.
Accordingly, in our view, it is appropriate to reduce Everton’s penalty by just under 50%.
Applying that approach, and dealing only in whole numbers, Everton’s penalty is reduced from five points by two points, down to three points before further mitigation’.[20]
When the Commission refers to ‘equal weighting’ it is referring to the value of year T, T-1, and T-2 as a percentage of EFC’s total loss in its PSR Calculation of £121,630,016. Taking the figures stated above, T = 51.6%, T-1 = 3.2% and T-2 = 45.2%. Accordingly, where the Commission states that EFC has ‘already received a penalty for just under 50% of the loss which has now led to its excess above the Upper Loss Threshold’, it is refereeing to T-1 and T-2, which account for 48.4% of EFC’s total losses in its PSR Calculation.
The major difficulty with the Commission’s above-stated approach is that it focuses on a club’s losses over the relevant three-year period generally, rather than with the losses in excess of the PSR upper loss threshold, which is what a breach of the PSR upper loss threshold relates to, and which should be the focus of any sanction to be imposed.
In this author’s opinion, by acknowledging that ‘it is not possible to attribute the excess above the Upper Loss Threshold to any particular year’ and recognising the legitimate and disciplinary aims of the PSR, the Commission was bound to reach an opinion that corresponded with the PL’s preliminary position that double jeopardy does not apply because ‘the two offences with which [EFC] has been charged are two separate and distinct charges’. The task for the Commission was simply to arrive at a proportionate sanction for this breach of the PSR. In the absence of any sanction guidelines to the contrary, it is not right that EFC can benefit from the double jeopardy principle or otherwise in relation to T-2 but also benefit from the comparatively minimal losses in T-1 (which it relied upon as mitigation in the Everton FY22 Appeal (then year T) and which it will rely upon in its next PSR Calculation (when it will be year T-2)). It smacks of having one’s cake and eating it, particularly in circumstances where EFC is a shareholder of the PL and approved the PSR. Moreover, it undermines the element of sanction that is imposed for the sporting advantage obtained – or at the least to be inferred – by a club continuing with a squad and business it cannot afford.
EFC’s loss of sponsorship and EFC’s Admission
Secondly, EFC relied upon the loss of a sponsorship agreement between EFC and USM Services Limited (“USM Services”) which included, amongst other things, the naming rights of EFC’s training ground, Finch Farm (“the Finch Farm Agreement”). Under the Finch Farm Agreement, USM services was to pay EFC £20 million in instalments in EFC’s financial year ending 2023, with the first instalment due on 30 June 2022.[21]
USM Services is part of the USM Group of companies founded by Alisher Usmanov (“AU”).[22]
Following Russia’s invasion of Ukraine in February 2022, AU was added to the European Union’s and the United Kingdom’s sanctions list on 28 February 2022 and 3 March 2022 respectively.[23]
Consequently, the Finch Farm Agreement was suspended on 24 March 2022 and EFC did not receive the £20 million as envisaged.[24]
EFC submitted that this loss of revenue amounted to a mitigating factor, and the Commission agreed.[25] The Commission noted that the circumstances that caused the loss of the Finch Farm Agreement (Russia’s invasion of Ukraine and the global political and legal consequences arising from the same) do not arise ‘in the ordinary course of business’.[26] The Commission was therefore able to distinguish EFC’s loss of the Finch Farm Agreement from the ordinary business circumstances that NFFC relied upon in the NFFC Commission Decision and EFC relied upon in the EFC FY22 Appeal (e.g., business decisions, player transfer strategies, and a club’s forecasted performance).
However, while EFC was entitled to some credit for this mitigating factor, it was ‘seriously limited’ by EFC’s failure to sell players during financial year ending 30 June 2023 ‘which would have significantly reduced if not eliminated the Admitted Breach’.[27] In particular, evidence from EFC’s director of football identified:
‘Player B had been obtained pursuant to the New Recruitment Strategy, and his value had increased substantially. Ultimately, during cross-examination, [EFC’s director of football] accepted that Player B could have been sold, but that during that time he was still building value and developing his skill. [EFC’s] intention, therefore, was not to sell him during FY23, but to wait, to allow him to develop, and to sell him thereafter’.[28]
Thirdly, the Commission also recognised that EFC admitted its breach of the PSR upper loss threshold by £16,630,016 at the earliest opportunity.[29] The Commission noted that by doing so EFC ‘avoided all time, energy, and money in relation to the Admitted Breach, which is deserving of credit’.[30]
For these two points of mitigation, the Commission considered them ‘[in] the round’ and decided that the same should ‘result in a further reduction of one point’.[31]
Conclusion
Accordingly, working with a starting point of a five-point deduction, and then applying a three-point reduction for the mitigation identified above, the Commission arrived at a two-point deduction for EFC’s admitted breach of the PSR upper loss threshold. The Commission also considered the two-point deduction to be fair when benchmarked against the Everton FY22 Appeal and the NFFC Commission Decision.[32]
The Commission also rejected EFC’s request for the points deduction to be deferred until next season. The Commission relied upon, inter alia, the Everton FY22 Appeal which highlighted the ‘immediate and overt effect’ of a points deduction, and the PL’s Standard Directions which also highlighted the ‘desirability (so as to protect the interests of other Clubs) of any such points deduction taking effect in the Season in which the relevant Club’s Annual Accounts are submitted’.[33]
It was notable that the PL made no submission that this being EFC’s second breach of the PSR upper loss threshold was an aggravating factor (although it is appreciated that to do so may have been inconsistent with the PL’s position it took on the issue of double jeopardy / proportionality of sanction).[34] For the reasons identified above when considering the issue of double jeopardy, this author is surprised that this position was taken.
In this earlier Football Law article ‘Seeing the Wood for the Trees’, this author put forward a stepped process of how to assess and determine a proportionate sanction for a breach of the PSR upper loss threshold. Following the Commission’s decision in this case, in this author’s opinion the process has been updated as follows:
A Commission or Appeal Board (as the case may be) will have in mind the purposes and disciplinary aims of the PSR. The purpose of PSR is to provide a disciplined framework within which football clubs work within to avoid unsustainable spending and jeopardising the club and the integrity of the PL. The disciplinary aims are punishment, vindication of compliant clubs, deterrent, and integrity, albeit punishment is not the most important aim.
Firstly, A breach of the PSR is very likely to result in a points deduction, with the starting point being a three-point deduction.
Secondly, a Commission or Appeal Board will then consider the quantum of the breach beyond the PSR upper loss threshold, and there is to be a further one point added to the starting point for every £6.5 million above the PSR upper loss threshold.
When considering steps one and two, a Commission or Appeal Board should bear in mind available benchmarks, including (i) the comparable sanction of an immediate nine-point deduction for an Event of Insolvency under PL Rules, r. E. 37; (ii) the EFL Sanction Guidelines; and (iii) comparable cases, albeit each case turns on its own facts.
Thirdly, a Commission or Appeal Board will consider any mitigating or aggravating factors, which may deduct or add to the starting point. Circumstances are only mitigating or aggravating factors when marked against the aims of the PSR. Business decisions, the consequences of a points deduction, previous compliance with financial fair play rules, and a positive trend beyond the relevant three-year reference period will not amount to mitigating factors.
Where a club has previously been sanctioned for a PSR Calculation that resulted in a breach of the PSR upper loss threshold, financial years included in that PSR Calculation that appear in a subsequent PSR Calculation that results in a further breach of the PSR upper loss threshold will be discounted on a proportionate basis from the points deduction that would otherwise be imposed.
A sporting advantage is to be presumed where there has been a breach of the PSR upper loss threshold. However, while difficult in practice, this presumption is rebuttable and if rebutted may act as a mitigating factor.
Whilst a near miss with a deadline that affects a club’s PSR Calculation can amount to a mitigating factor, clubs should ensure compliance with deadlines.
If a club admits its breach of the PSR upper loss threshold at the earliest opportunity, the club will be entitled to a reduction of up to one third from the starting point. The value of any reduction will decrease the more time that passes from the earliest opportunity to provide an admission.
If a club provides exceptional cooperation in line with the conduct seen by NFFC and recorded in the NFFC Commission Decision, then this will amount to mitigation.
If a club can demonstrate that losses in years T and/or T-1 are lower than T-1 and/or T-2 (as the case may be), then this would be a positive trend and amount to mitigation.
Previous breaches of the PSR and the extent of the PSR breach can amount to an aggravating factor.
After applying mitigating and/or aggravating factors, the Commission or Appeal Board will again consider the proposed sanction against available benchmarks.
It is unlikely that any points deduction, or any part of a points deduction, will be suspended.
It should also be noted that the Commission’s decision identifies that there is an outstanding issue against EFC in relation to EFC’s capitalisation of interest in financial years ending 30 June 2021, 2022, and 2023. The Commission identified:
‘[…] at a later time, the Commission will determine whether there has been any further breach of the PSR […] Accordingly, a further hearing will follow. It therefore remains to be determined whether [EFC] has exceeded the Upper Loss Threshold by any further amount regarding the interest capitalised in FY21, FY22 and FY23. We accept that this defers the resolution of part of this dispute’.[35]
Accordingly, the losses in EFC’s PSR Calculation summarised above may be subject to change, EFC’s breach of the PSR upper loss threshold may be greater than what it admitted, and EFC may face further sanction.[36]
Additionally, in EFC’s statement in respect of the Commission’s decision, EFC stated that ‘the Club and its legal representatives have begun the preparations to appeal the Commission’s decision’. On 15 April 2024 the PL confirmed that EFC had appealed against the Commission’s decision.
Considering NFFC’s appeal against the NFFC Commission Decision, EFC’s appeal against this decision, and the awaited decision on the outstanding issue of EFC’s capitalisation of interest, the above-stated stepped process may be subject to further change.
Footnotes
[1] The Football Association Premier League Limited (t/a The Premier League) v Everton Football Club Company Limited, Premier League Commission (Ch. James Drake KC), 8 April 2024, [165].
[2] Ibid, [168].
[3] Ibid, [169].
[4] [170]-[172], [174] and [176]; see also the Premier League Rules (“PL Rules”), r. E.50-E.53.
[5] (n1), [175]; see also [182].
[6] Ibid, [179]-[180], see also [188].
[7] Ibid, [184]-[186].
[8] The Premier League v Nottingham Forest Football Club Limited, Premier League Commission (Ch. Mark Hovell), 18 March 2024, [14.11]-[14.12]; Everton Football Club Company Limited v The Football Association Premier League Limited (t/a The Premier League), Premier League Appeal Board (Ch. The Rt. Hon. Sir Gary Hickinbottom), 26.2.2024, [184]-[186] and [218(iv)].
[9] (n1), [187].
[10] Ibid, [190]; Everton Football Club Company Limited v The Football Association Premier League Limited, 26.2.2024, [82]-[88].
[11] (n1), [106].
[12] Ibid, [106.6].
[13] Ibid, [107].
[14] Ibid, [108].
[15] Ibid, [112] and [203.1].
[16] Ibid, [193].
[17] Ibid.
[18] Ibid, [195].
[19] Ibid, [196]-[198]; cf. Everton Football Club Company Limited v The Football Association Premier League Limited, 26.2.2024, [209]-[213].
[20] (n1), [203].
[21] Ibid, [55]-[56].
[22] Ibid, [57].
[23] Ibid, [58].
[24] Ibid, [61] and [65].
[25] Ibid, [207].
[26] Ibid, [208].
[27] Ibid, [218] and [220]-[221].
[28] Ibid, [53].
[29] Ibid, [244].
[30] Ibid, [247].
[31] Ibid, [260].
[32] Ibid, [261]-[266].
[33] Ibid, [271]-[276].
[34] Cf. Ibid, [115].
[35] Ibid, [20].
[36] Ibid, [205].
16 April 2024