Trying to condense 28,000 documents, several months of pre-commission preparations and five days of complex legal argument into something that is (i) readable but (ii) an accurate representation of proceedings is quite a challenge. I’m going to deal with the introduction, the aggravating factors, the mitigating circumstances, the decision and then the sanction or penalty (depending on what side of the argument you sit).
In other, later articles I will go into the details, particularly those of the stadium financing which is quite fascinating in that it says so much about how the club was run during the peak Moshiri, Kenwright,Baxendale years.
In the meantime here’s the summary – it’s the views of the Commission, not mine!
The complainant (The Premier League) alleged that Everton were in breach of its Profitability and Sustainability rules (PSR). The Premier League’s case was that the proper calculation for season 2021/22 showed Everton’s losses to be £124.5 million. Rule E51 permits losses of £105 million. Therefore Everton’s losses exceeded the maximum permitted by £19.5 million.
By the conclusion of the hearings, Everton accepted that it was in breach, however arguing that the breach was £9.7 million albeit with significant mitigation.
The initial submissions following the Complaint (24 March 2023), the Answer (29 April 2023) and the Reply (26th May 2023) were significantly amended from 4th October 2023. The hearing took place on 16th-20th October 2023.
The aggravating Factors:
ThePremier League advanced four separate factors that it says aggravates Everton’s “default”
That Everton overspent despite repeated warnings.
An agreement reached on 13 August 2021 placed certain obligations on Everton, one of which was the requirement of Premier League permission for new signings. The Premier League approved each request but cautioned Everton that it was the club’s responsibility to make sure it complied with PSR
The Premier League asserts it was “reckless” to have continued signing players in the face of their warnings.
To a degree this is balanced by whilst acknowledging Everton took unwise risks in the belief it would achieve compliance, this was not a deliberate breach by Everton.
Extent of the breach of the PSR threshold
The Commission will take the extent of the breach of the PSR threshold (£105 million) as an important indicator of the level of culpability.
Misleading the Premier League about stadium interest
The Premier League complains that Everton deliberately misled about the source of funds for the stadium development. Everton had two sources of funds – Moshiri’s interest free shareholder loans (albeit not charge free) and commercial loans from Rights and Media Funding and Metro Bank. By applying the costs of the commercial loans to the stadium development company, the Premier League complained this was deliberately misleading. The commercial loans were for working capital purposes within the club.
Importantly the Premier League makes no allegation of dishonesty. However by providing materially inaccurate information there was a breach of utmost good faith as imposed by Premier League Rule B15.
Misleading the Premier League about the intent to sell Player Y
In its full year 2022 PSR submission Everton identified player Y as being one of the players it had targeted for sale, but had been unable to do so. The Premier League asserts this was false.
Player Y had originally appeared in Everton’s summer player trading strategy paper as a player to sell (paper dated 13 March 2020). However in a series of documents from April 2020 his name was no longer included.
Everton explained this was due to his potential sale being handled by Bill Kenwright and as a result was not on the list. However this did not mean the club were unwilling to sell him. Additionally the player was granted a new contract during the summer 2020 transfer window.
The Premier League argued this demonstrated that Everton’s submission was false. The Commission disagreed, finding that had Everton received an appropriate offer, Player Y would have been sold. As a result the commission agreed this was not an aggravating feature.
Everton advanced six mitigating factors.
Post planning permission interest
Everton relied on an argument that after planning permission had been obtained substantial amounts of interest could be capitalised (thus being removed from PSR calculations). Everton chose not to capitalise the post planning permission interest expenditure in order to assist their prospects of securing the senior debt package it was seeking.
As a result the Commission thought it inappropriate to raise in mitigation a position that not only did not take place but would not have taken place.
In the view of the Commission, this was not a mitigating factor.
Everton argued that its PSR calculation showed a downward trend for losses, pointing out that the EFL allows credit for such. The Premier League challenged this as mitigation, claiming you could not use this as no such rules existed in the Premier League. Additionally the downtrend was a result of averaging FY 2020 and 2021. Finally that trend reversed in 2023.
The Commission largely agreed with Everton and concluded that the improving trend goes some limited way to diminish Everton’s culpability.
Everton claimed it deserved credit for not pursuing an economically viable claim against Player X (Everton had decided not to sue Player X for breach of contract on the grounds of his mental health)
Everton asserted it had suffered a loss as a consequence,
The Commission argued that this business decision could not stand as mitigation. Secondly there was no evidence of his psychological state at the time the decision was made and thirdly the £10 million claim made by Everton was speculative.
As a result the Commission refused to accept this as mitigation.
Everton claimed that the Russian invasion of Ukraine was a mitigating factor. Everton had the right to call down a naming rights agreement with USM worth £10 million a year. It was expected to come into force in the 2025/26 season. Everton claimed in mitigation that it was in negotiations to bring the agreement into force earlier, commencing in 2022. The sanction of Russian entities by the UK Government brought these negotiations to a halt. Everton felt it had no alternative but to withdraw from the negotiation.
The Commission agreed with the Premier League that this could not stand in mitigation. Firstly there was no certainty in reaching an agreement. There was no documentary evidence that the receipt of monies was probable. Secondly, this type of event was normal business experience. It could not diminish Everton’s culpability.
Additionally the argument that the invasion of UKraine caused stadium construction costs to increase and therefore harder to secure senior debt could not be considered as a mitigating factor.
Impact of Covid on the market for players
Everton planned to sell players in the 2020 summer transfer window. Marcel Brands placed values on eight players who were targeted for sale at a total value in excess of £80 million. In the event sales did not take place as projected, Everton arguing that the failure was caused by the depressed market as a result of Covid.
The Premier League argued that the difficulties Everton faced was largely due to there being no ready purchaser for those players at the prices Everton sought. Everton’s difficulties arose from market forces.
The Commission accepted the Premier League position and as a result disallowed this as a means of mitigation.
Transparency and cooperation with the Premier League
Everton asserted it had behaved openly and responsibly in its dealings with the Premier League. As a result that should be to its credit.
The Commission recognised that Everton engaged extensively in the problems relating to the inability to capitalise pre planning permission expenditure. However, Everton acknowledged that some of its claims were novel, and some were dropped shortly before the hearing. Additionally the Commission had found Everton’s conduct not to be in compliance with the obligation of utmost good faith.
The Commission found that Everton’s dealings with the Premier League were not of such an exceptional nature as to stand as mitigation of Everton’s culpability.
Sanction, the nature of the sanction
The Premier League submitted that the nature of the sanction could only be a sporting sanction in the form of a deduction of points.
The Premier League relied upon the decision in Sheffield Wednesday FC v The Football League Ltd, that a sporting advantage is to be inferred, therefore anything other than a points deduction would be inappropriate.
Everton disagreed, claiming a financial penalty would meet the justice of the case. If some form of sporting sanction is required, then a transfer ban should be considered.
Two points to consider – it is already established that Everton had no quantifiable sporting advantage, so why is Sheffield Wednesday FC v The Football League Ltd relevant?. Secondly and most importantly if the disqualification for a financial penalty is having “very wealthy owners” how does that fit with the financial punishments handed out to the breakaway six after the aborted attempt at a breakaway league?
The Commission agreed with the Premier League that the requirements of punishment, deterrence, vindication of compliant clubs and the protection of sporting integrity required a sporting sanction in the form of a points deduction.
The issue then is not the form of sanction but its extent.
The Commission justified its decision in the following way: There is no fixed formula to be applied. They could (and did) exercise their discretion as a specialist panel.
The Commission determined that Everton overspent, not because of the stadium development but due to the purchase of new players and the failure to sell players. Additionally the lower League places (16th as against a projected 6th) caused a loss of expected income of £21 million. Everton’s understandable desire to improve on-pitch performance led to taking chances with its PSR position. Those chances resulting in the £19.5 million overspend in exceeding the £105 million limit.
The conclusion drawn by the Commission is that Everton were responsible for their own position. It was of their own making and the consequence of their culpability was great. Furthermore Everton were (in the Commission’s eyes) less than frank over the stadium interest issue.
In the view of the Commission this was a serious breach that requires a significant penalty, a sporting sanction of ten points
I stress that the above is a summary of the findings and decision of the Commission – not my own views!
Everton, rightly are to appeal.