The decision regarding Everton’s appeal of the original Premier League Disciplinary Panel made on 17 December 2023 was published on 26th February 2024. Below is a summary of the 61 page decision for those not inclined to read the whole document!

The appeal focused entirely on the decision to impose a sanction of an immediate 10 point penalty. Everton accepted that it had breached the PSR for season 2021-22 by having calculated losses of £124.5 million which exceeded the permitted maximum of £105 million by £19.5 million.

The club relied upon nine grounds of appeal. Seven related mainly to how the Commission dealt with various mitigating and aggravating factors. Two related to legal errors made by the Commission – these two grounds were grounds 1 and 7 listed below:

Ground 1: The findings of (i) “less than frank” and (ii) a breach of rule B:15 (utmost good faith) as aggravating factors
*Ground 2: The proper approach to mitigation and aggravation in the context of a breach of PSR
*Ground 3: The failure to treat cooperation as mitigation
Ground 4: The failure to treat the costs of the new stadium project as mitigation
Ground 5: The error in approach to overspending
Ground 6: The error in approach to sporting advantage
Ground 7: The failure to impose a sanction consistent with existing and relevant benchmarks
Ground 8: The failure to treat the impact of the sanction on the club as mitigation
Ground 9: The failure to consider lesser alternative sanctions such as a transfer ban

In his submissions, Laurence Rabinowitz focused on grounds 1 and 7, being that (i) in finding the club “less than frank” and in breach of rule B.15 (utmost good faith) the Commission in using these as aggravating factors had erred in law and breached the Club’s right to a fair trial and (ii) in failing to take into account relevant benchmarks when considering and imposing sanctions, the Commission erred in law.

Grounds 1 and 7 were upheld – i.e. the appeal considered that the Commission had erred in law and as a result the sanction was reduced from 10 points to 6.
Indeed, it is only the legal errors made by the Commission that led to a reduction in the sanction – all of the mitigating circumstances put forward were discounted.

As a result, Grounds 2 to 6, and Grounds 8 and 9 were unsuccessful.

Areas of interest and new information
I have tried to highlight areas of interest and new information arising from the Appeal Decision:

Ground 2: The proper approach to mitigation and aggravation in the context of a breach of PSR

Para 83: Mr Rabinowitz submitted that the Commission’s binary approach to aggravating and mitigating factors was wrong – weight should have been given to certain factors, not outright refusal. Notably factors such as (i) the club’s cooperation with the Premier League (ii) the difficulties arising from the economic sanctions applied to Alisher Usmanov – in particular the sponsorship and prospective naming rights deal with USM Holdings Limited and (iii) the loss to the club when it decided not to sue Player X whose player contract was terminated following his arrest in relation to alleged sexual misconduct with a child.

(i) Cooperation – The Appeal did not consider that the Commission had erred in its decision regarding the club’s cooperation with the Premier League that the club’s culpability had decreased as a result of cooperating (Para 115).
(ii) Russian Sanctions – Farhad Moshiri said in evidence that he hoped Usmanov would invest heavily in an equity stake in the club. There was already, the option and naming rights agreement with Finch Farm and Bramley-Moore. Moshiri claimed that the stadium naming rights deal of £10 million per annum had reached an advanced stage and would be brought forward to FY 2022.

However there was no reduction in culpability because (i) there was no documentary evidence showing receipt of monies was probable and (ii) the loss of the proposed agreement was “no more than the type of event that businesses have to contend with as part of their daily life” (para 125). Board minutes for both the club and Everton SDL from January 2022 indicated that legal work had been done on the naming rights agreement (which was a prerequisite for a senior debt deal) but this was not sufficient to say that the receipt of monies was probable.

Ultimately the club was imprudent in not recognising the risk that the naming rights deal may not occur.

(iii) The loss to the club when it decided not to sue Player X whose contract was terminated following his arrest re alleged sexual misconduct with a child. The termination of the contract cost the club £9.1 million in writing down his book value to zero and losses of £0.9 million in wages up to 23 August 2021. The club originally contended that this sum not be included in the PSR calculation, however subsequently sought credit as a matter of mitigation for not pursuing the claim because of concern for his welfare. (para 107).

The appeal agreed with the commission that this was “the sort of events that occur in the management of football clubs” and therefore could not stand as mitigation.

Ground 4: The failure to give credit for interest costs of the new stadium as mitigation

The Club and Premier League agreed that the Club had incurred interest costs of £12.3 million on its third party loan facilities with R&MF and Metro Bank for season 2021/22. Mr. Rabinowitz referred to this as good spending . By the time of the Appeal Board the club accepted that these costs could not be deducted from the PSR calculation but that due to the circumstances they should have been taken into account as mitigation (para 117)

Essentially the Club had argued that had it not been for the building of the new stadium, then these interest costs would not have occurred (or at least been significantly reduced).

The Appeal Board found that the Commission was fully entitled to conclude that the club had not “satisfied it… that all or any part of the expenditure on 3rd party borrowings costs could have been avoided but for the stadium project” (para 125)

Ground 5: The error in approach to overspending

A very interesting section including reference to para 35 which included details of the August 2021 agreement between the Premier League and the Club. The club was obliged to seek Premier League approval for any player where the cost of registration exceeded £5 million and the overall limit of player service costs to £140 million in Season 2021/22 and £135 million in 2022/23.

Everton’s difficulties arose from overspending on players (ie the purchase of new players and inability to sell other players) and because it finished lower in the league than projected – 16th rather than 6th causing a loss of expected income of £21 million.

It also deals with the fact that the club had the lowest net spend in the Premier League in FY2022. That in itself is not the full picture as it does not take into account the costs incurred as a result of previous year’s expenditure.

The Commission did not take into account the cost of the new stadium on PSR (rightly holding that the “Club’s PSR difficulties are not attributable to the costs of the stadium development”) para 137 of the Commission, para 141 of the Appeal Board decision).

Ground 5: The error in approach to sporting advantage

The point advanced by the Club that a breach of PSR should not assume to have resulted in a sporting advantage (para 143), however Para 144 quotes Moshiri’s own argument for investing in players, and the obvious correlation between spending on players and improvement on the pitch.

Citing both the Dynamo Moscow and the Birmingham City cases and whilst recognising they did not concern the Premier League, both cases were a clear authority that a breach of Financial Fair Play (FFP) should infer a sporting advantage and therefore a sporting sanction is appropriate.

Interestingly (and as an aside) citing De Marco’s “Football and the Law” 2nd edition 2022 the aim of FFP is not “to make all clubs equal in size and wealth” but rather aimed at “financial fairness”

Ground 8: The failure to treat the impact of the sanction on the club as mitigation

The most interesting aspect of this Ground was paras 158 and 159 relating to the role of the Fan Advisory Board, the written evidence provided by Matthew Stanbury, KC. The Appeal Board stated that the Everton FAB had no standing in the Appeal, however they accepted the “sincerity, commitment and indeed passion” of their submission. However the necessity, appropriateness, and proportionality cannot be affected by “the strength of feeling of the Everton supporter base in circumstances which, through no fault of their own club suffer a points deduction and the consequences that may flow from that.”

Para 159 states the requirement (sensitivity) to the need for “full explanation of any sanction imposed in respect of a breach of rule E.51” Further, fans (who pay considerable sums directly or indirectly) should be able to understand how and why off-field decisions affect their club.

The two Grounds that were upheld – i.e. the Appeal Board agreed with the Club’s position

Ground 1: The findings of (i) “less than frank” and (ii) a breach of rule B.15 (utmost good faith) as aggravating factors
Para 163 – the heart of this Ground is that the Commission erred in law in basing its decision on sanction on two matters which should not be taken into account (i) “less than frank” and (ii) a breach of rule B.15 (utmost good faith)
Lots of interesting detail in this section. Firstly the Club established an intercompany charge of 7.5% per annum between Everton SDL and itself (Para 165)

Para 166 – Moshiri contributed substantially. Confirming the figures I have presented previously, rising to £750 million by November 2023 – these loans are interest free. Rights and Media Funding ,£150 million facility dated November 2021 at an annual interest rate of 4.25-5.5% above BOE base rate (facility now £225 million) and a Metro Bank facility of £30 million at 3.5% above base rate. Each loan had an arrangement fee – not specified. Each external loan was for working capital purposes and the Metro Bank loan expressly stated any funds borrowed would not be used “for the new stadium project or to buy players”.

In Para 167 it is noted that the intercompany loan at the end of FY22 was £259 million ( £180 million from the working capital facilities, the remainder from Moshiri). There follows a detailed explanation of the reasoning behind transferring the cost of the loans to Everton SDL.

In para 168 it states that the Commission’s conclusion that these costs could not be deducted from the FY22 PSR calculation was not challenged in the appeal.
Importantly, Para 169 states that the Commission found that the stadium was funded exclusively from Moshiri’s interest free loans, and with good reason “presenting a cleaner and more attractive picture” to prospective long term senior debt providers.
However the representation in the August 2022 PSR submission was that the stadium was part funded by the interest bearing loans provided by R&MF and Metro Bank.

This was clearly wrong and misleading. As a result the Commission was “clearly satisfied that the PSR calculation in relation to stadium interest was less than frank” – although there was no allegation of dishonesty the club “failed to discharge the duty of utmost good faith imposed by B.15”

However, the Appeal Board (Para 172) considered the Commission had erred in two material aspects.

Firstly it was not open to the Commission to find that the Club had been “less than frank”. The fact that the club was wrong in its stated figures for the PSR calculation did not make it “less than frank”. Nor had that case been put to appropriate witnesses or otherwise developed during proceedings. Making the finding was procedurally unfair on the club.
The second error was regarding a breach of rule B.15. The Commission appeared to consider that this breach arose from its findings that the club had been “less than frank”. “Less than frank” is dealt with above. In addition the club did not initially face a breach of rule B.15. Therefore, the conditions required by rule W.24 had not been met.

Mr Rabonowitz’s submission that the Commission appeared to give the breach of rule B.15 “its own discrete aggravating weight”. The procedural unfairness was therefore material.

For the reasons above the appeal on Ground 1 was permitted.

Ground 7: The failure to impose a sanction without taking into account existing and relevant benchmarks
The Club submitted that the Commission made an error of law in not taking into account relevant comparators, notably the approach under the English Football League (EFL) P&S rules.

The EFL has issued EFL guidelines in respect of sanctions for a breach of their P&S rules which seems to have gained general acceptance. A Premier League Commission has no such assistance from the Premier League.

On 10th August 2023 the Premier League Board adopted a sanctions policy to be appropriate to breaches of the PSR. However it made clear it was not seeking to impose a binding formula, just advancing its view. As a result its status was no more than a submission.

The guidelines were similar but different to the EFL. As with the EFL it starts with a presumption that the appropriate penalty will be a sporting sanction in the form of a deduction of points. The guidelines adopt a fixed starting point of a deduction of 6 points. This would then increase by one point for every £5 million by which the club exceeds the £105 million PSR threshold.

Whilst attractive to have a structured formula the Commission was concerned that it would be inconsistent with rules W.50 & W.51 – a wide discretion as conferred by the rules. As a result the Commission declined to adopt the structured formula. (Para 184)

The club had no particular complaint as to how the Commission dealt with the PL’s structured sanctions submission. It did however, claim that the Commission failed to give regard to benchmarks (i.e. relevant reference points). They included not only the EFL guidelines but the UEFA FFP scheme, the automatic point deductions for insolvency, the sanction on the six Super League clubs and the proposed PL squad cost rule.

The Appeal Board found that the Commission should “have appreciated that it was not exercising its wide discretion in a complete vacuum”.

The different benchmarks had different degrees of relevance, something that was considered in the assessment of appropriate sanctions (paras 210-219)

Due to the above (and further details not mentioned in this article) the appeal on Ground 7 was allowed.

The appropriate sanction
Due to finding in favour of the club in respect of Grounds 1 and 7, the Appeal Board set aside the decision of the Commission and determined the appropriate sanction themselves.

Proportionality was considered (para 194) and in doing so what are the aims of a sanction for a breach of PSR?; is a point deduction reasonably required to achieve those aims?; and what is the minimum points deduction reasonably required to achieve those aims in the context of this case, and can a deduction be suspended?

The aims of a sanction of a breach of PSR is covered extensively in Paras 17-25. In the case of Derby County, the EFL Disciplinary Commission said the sanction should have four purposes, namely (i) punishment (ii) to vindicate other clubs who have not breached the rules (iii) to deter future breaches and (iv) to restore/preserve public confidence in the fairness of the competition. Sanctions should not necessarily be punitive, their primary purpose is to protect the integrity of the relevant competition by restricting the level of financial risk a club might take. (para 199)

Para 201 restates the view that a breach of E.51 warrants a points deduction because it is “most immediately” a sporting advantage. Para 202 talks of an unfair sporting advantage and a correspondent revenue advantage thus a points penalty with immediate effect has the appropriate power of disincentive for clubs. A fine is not considered appropriate (para 203), nor indeed a player registration ban or any incoming transfer ban (para 205)

Paras 207 to 215 discusses the factors in determining the relevant point deduction but concludes that the structured approach of EFL guidelines cannot automatically be transferred “in a linear way”

Para 217 takes into account that in insolvency a club suffers an immediate nine point deduction, and Mr Rabinowitz submitted that insolvency was much more serious, thus a nine or more point penalty for PSR breach would be too high. The counter argument is that this is automatic and may be accompanied by additional disciplinary sanctions.

Additionally, the fact that a ten point penalty is nearly 10% of all available points was taken into account (para 218) as was the median and mean number of points gained in a season – ten points represent 20% approximately.

Mitigating factors need to be taken into account including trends – the only factor that the club received credit for – albeit “in a limited way”.

Finally aggravating factors of which there are two – the extent by which a club exceeds the £105 million threshold and secondly the admission by the Club that it had provided information to the Premier League which was wrong (in the words of the Club – objectively misleading). The purpose of the August 2022 PRS (mis)representation in respect of stadium debt interest was to persuade the Premier League that there was no breach. Even absent any accompanying dishonesty or accompanying mental element it was a factor that aggravates the breach of rule E.51.

Conclusion:
Para 230 – we allow the appeal, we set aside the Decision of the Commission, and in place of the penalty it imposed, we (the Appeals Board) impose a sanction of an immediate points deduction of six points.

Full Appeal Decision