As with the previous Commission hearing and subsequent Appeal, I have tried to break down the Commission hearing, decision and sanctions of the Commission held on 25-27th March 2024 between the Premier League (the Complainant) and Everton Football Club Company Limited (the Respondent).

A decision on the above was published on 8th Aril 2024.

Summary:

The Commission imposed an immediate two point penalty for the admitted breach (details below)

The reasoning behind the two point penalty is a follows:

• In line with the Everton FY22 Appeal any breach of the PSR is significant and requires a deduction of three points
• A further two points are added to reflect the size of Everton’s breach (£16.6 million – 15.8% above the upper loss threshold (£105 million)).
• Therefore the starting point before mitigation or aggravation is five points
• The Premier League made no allegation of aggravation
• Everton relied on several matters in mitigation
• The Commission accepted that Everton was entitled to credit for the following matters (a) the club had already been penalised in the FY22 proceedings for two of the three years at issue (b) the loss of sponsorship revenues from USM Services Limited and (c) Everton admitted the breach at the first opportunity

The Commission agreed that point (a) justifies a reduction of Everton’s penalty by two points and that (b) and (c) combined justified a further reduction of one point.

The Commission rejected the other grounds of mitigation advanced by Everton in that they reflected the normal risks associated with running a professional football club and/or the results of Everton’s own commercial decisions, and finally Everton’s co-operation was not exceptional.

The Commission took the view that the penalty was consistent with The Premier League v Nottingham Forest (subject to appeal). The penalty applied to Nottingham Forest before mitigation was six points. Everton’s sanction in the two cases FY22 and FY23 (after taking into account the effect of double counting) but before mitigation was nine points – justified by Everton exceeding the upper loss threshold in two consecutive years.

Overview of the case

The Premier League commenced disciplinary proceedings on 15th January 2024. The Complaint alleged that:

1. Everton’s PSR calculation resulted in losses of £128.2 million – exceeding the upper loss threshold by £23.2 million (figures rounded for ease)
2. In its PSR Calculations and its Annual Accounts, Everton capitalised interest of £19.0 million in FY23 on the basis that such interest occurred in relation to the financing of the new stadium.

In its Complaint the Premier League initially reserved its rights in relation to that figure, and particularly that £19.0 million had not been properly capitalised, which if correct would result in Everton further exceeding the upper loss threshold by the same amount.

On 29 January 2024, Everton submitted an answer to the Complaint.

The Answer admitted that there had been an breach of the PSR by £16.6 million (the admitted breach). However the Answer objected to the £23.2 million breach figure alleged by the Premier League on the basis that the difference, £6.56 million, related to the figure quoted in the FY23 accounts, interest capitalised retrospectively in FY21 and FY22.

Additionally, Everton objected to the Premier League’s reservation of rights generally re the capitalisation of interest in FY23.

On 26th February 2024, the Premier League applied to amend the Complaint. The details are contained within the decision but in a hearing that took place on 8th March 2024 the application to amend was refused by the Commission. The Premier League then subsequently renewed its permission to amend, which was granted by the Commission with Everton’s consent.

At this point the Commission decided to separate (bifurcate) the two disciplinary hearings.

Firstly, the Commission decides the appropriate sanction for the admitted breach ( the £16.6 million) referred to above, i.e. what sanction and the timing of the sanction and secondly:

At a later time the Commission will determine if there had been a further breach in respect of the retrospective FY21 and FY22 capitalisation of interest and secondly, the capitalisation of interest relating to FY23 (as an aside, the capitalisation of this interest will appear in the Everton Stadium Development Company Limited accounts, not published at the time of writing, and late in respect of the statutory deadline of 31st March).

As a result of the above it is still not possible to fully and finally determine any additional breaches of the upper loss threshold for FY21, FY22 and FY23

The Commission accepts that this defers the resolution of this part of the dispute, and acknowledges (to a degree) the impact on the Premier League, Everton, Everton fans, other Premier League clubs and the public.

These issues cannot be dealt with within the timetable set out in the Standard Directions, so will be resolved after the conclusion of the 2023/24 season

Evidence and Submissions by the Parties

Everton relied upon 3 witnesses, Kevin Thelwell (Director of Football) , Richard Kenyon (Chief Commercial & Communications Officer) and James Maryniak (Chief Financial Officer)

Kevin Thelwell produced oral evidence relating to the changes in Everton’s player trading strategy before and after he joined the club in February 2022. It recognised that the initial strategy deployed by Farhad Moshiri was not sustainable in the long term. In his own words “it’s a big old ship to turn around”. The initial strategy comprised of high spending seeking players to meet the goal of competing in European football. The initial spending would be offset against future increases in income (prize money and sponsorship deals) and by trading successful players profitably.

Kevin Thelwell was employed to implement a “new recruitment strategy” placing greater emphasis on younger players with a view to future sales. This would generate cost savings and ultimately (if successful) generate player trading profits.

Kevin Thelwell was cross examined by the Premier League, the Premier League suggesting further players could have, should have been sold and that despite being inadequately budgeted, Everton recklessly purchased players. The Premier League particularly referenced the effect of player registrations in Summer 2022 that resulted in losses of £37 million.

Thelwell whilst accepting the requirement to comply with PSR said his ole was to strike a balance between regulations and the need for a competitive team. He highlighted that between summer 2022 and summer 2023, 26 players were transferred out whereas only 13 were signed.

Additionally the Premier League suggested that one of Everton’s players, Player B (Branthwaite?) could have been sold in FY23. Thelwell accepted that but argued that he was still building value, allowing him to develop for further future sale.

Richard Kenyon – Chief Commercial and Communication Officer, focused primarily on the “Finch Farm Agreement” an agreement concluded in 2016 between Everton and USM Services Limited relating to various sponsorship agreements including the naming of USM Finch farm,

The contract was worth £20 million a year. Following Russia’s invasion of Ukraine in February 2022, Alisher Usmanov was placed on the EU sanctions list, and subsequently placed on the UK sanctions list on 3 March 2022.

On 24 March 2022 Everton formally suspended the Finch Farm Agreement, losing £20 million in sponsorship annually and incurring costs of £300,000 in rebranding. Interestingly under cross examination Kenyon stated that he did not know whether the agreement had been terminated or suspended (as was the case).He went on to further state it would only be terminated in the event of a new sponsor being found.

The Premier League also cross-examined Kenyon on the issue of had Everton taken an undue commercial risk in having all its sponsorship eggs in one basket. This was denied by Kenyon.

James Maryniak provided evidence that the building of the new stadium had a significant impact on Everton’s PSR position, including expenditure of £3.5 million through Everton Stadium Development Company. This sum comprised of £1.1 million in insurance costs, £0.5 million in wage costs of the sales team, £0.45 million in consultancy fees, £0.2 million lease for sales suite for prospective hospitality clients, £0.174 million in loan arrangement fees and £111k in professional tax and accounting advisors.

Secondly, Everton had experienced higher statutory losses not through extravagant spending but by a significant drop in player trading profits, lost commercial revenues (Finch Farm), higher amortisation costs and past player impairments. Additionally, legal fees, cost relating to departing staff members and interest costs were contributory factors.

Maryniak also addressed the double punishment (particularly referencing the EFL approach).

Furthermore he addressed the Premier League’s suggestions that Everton had not co-operated due to the late filing of Everton’s FY23 accounts and the supposed alteration of Everton’s PSR calculation between the 30 December 2023 submission and Everton’s Answer to the proceedings.

The Submissions:

The Premier League submitted that the determination of the appropriate sanction should proceed in three stages (i) the purpose and approach to sanction (ii) the effect of any aggravating or mitigating factors and (iii) the Commission should draw together the threads to arrive at an appropriate sanction.

Included in this rather technical legal debate is the difference in treatment of the Nottingham Forest decision as against Everton’s FY 2022 Appeal. Paragraphs 93 to 98 including calculations as to the scale of the points sanction based upon the level of breach or admitted breach.

Everton argued (as put by Mark Sagan KC) that all roads lead to no further sanction due to the principle of ne bis in idem (otherwise known as double jeopardy), various heads of mitigation, the Nottingham Forest sanction of four points despite a significantly higher breach, and the exceptional position Everton found itself in after the FY22 proceedings.

Mitigating Factors:

The burden lay upon Everton to establish mitigation. Nevertheless the Premier League set out ten propositions which placed heavy reliance on the Everton FY22 Appeal and Nottingham Forest.

In particular, Everton argued that any starting point had to be consistent with the FY22 Appeal and Nottingham Forest. Everton were in competition with Nottingham Forest who had received a 4 point penalty for a lower percentage breach and Everton had already received a 6 point penalty. A penalty in such circumstances would be unfair.

In response, to all of Everton’s mitigations, the Premier League did not accept that the ne bis in idem principle arose in the circumstances. The Premier League submitted that these proceedings involve a different assessment of different years, given that “T” is different in each year.

The Premier League did not accept that it was extraordinary that no guidelines had been adopted in the rules because the Premier League is a joint venture owned and controlled by the 20 clubs within the Premier League and they could effectively control whether the Premier League adopted any guidelines.

Ultimately the Premier League accepted that Everton should receive some credit for the overlapping years but that credit should be limited to two points.

Everton’s second mitigation was the prompt admission of liability, admitting exceeding the PSR by £16.6 million at the earliest opportunity. Everton argued that its prompt admission should reduce a points deduction by at least one point. In response the Premier League submitted that no credit should be given for an admission of guilt.

The Premier League further submitted that Everton had conducted itself in the “polar opposite” manner to Nottingham Forest.

The finalised Annual Accounts for FY23 were not submitted to the Premier League until 14 January 2024 – one day before the Premier League’s deadline to submit its Complaint.

The third mitigating factor was the loss of sponsorship revenues from USM Services Limited – this point partially relied upon an exchange between counsel for the Premier League and Everton in the Everton FY22 Appeal. Everton submitted that the sanctions were an extraordinary and unforeseeable circumstance.

The Premier League submitted that the suspension of the Finch Farm Agreement was fundamentally ordinary. The loss of a sponsor was a risk in the ordinary course of a club’s trading and that Everton’s position was a result of imprudent financial planning. Additionally no other club with a Russian sponsor had encountered upper loss threshold difficulties. It also questioned why the agreement was not terminated, thereby allowing Everton to seek new sponsors.

Everton’s fourth mitigation was termed “broader financial circumstances” .It included:

The construction of a new £800 million stadium – an unavoidable but necessary substantial project given Everton’s £180 million annual turnover.

The efforts in which Everton engaged in player trading and the difficulties it experienced in such.

In relation to the former, the £3.5 million additional expenditure irrefutably incurred due to the new stadium placed Everton in exceptional circumstances when expenses occurred that could not normally be capitalised and additionally were duplicative of Everton’s Goodison’s expenses. In this regard Everton relied upon an agreement between the Premier League and Everton in 2021 re the treatment of uncapitalised pre-planning permission expenditure on the new stadium, so-called “good” expenditure. Additionally Everton had not sought sporting advantage from such expenditure.

Everton submitted that over a fifth of the Admitted Breach comprised of non-capitalisable stadium expenditure.

Everton presented the improving or positive trend argument as part of the broader circumstances.

In response the Premier League submitted the following arguments:

The £3.5 million ESDL expenditure was not out of the ordinary, could not be capitalised and therefore could not amount to mitigation. Also that the lack of sporting advantage argument was irrelevant.

The Premier League essentially dismissed the attempts to re-state the previous years accounts. It contested that the 2021 agreement was made under very different circumstances and it was based on the recognition that Everton had spent an inordinate amount of time in the pre-planning permission stage.

Furthermore, the Premier League argued that Everton’s assertions under the New Recruitment Strategy was misguided because Everton knew it was in breach of PSR yet spent over £100 million on 8 new players. The Premier League also rejected the positive trend, arguing if anything it was a cause for aggravation as the trend worsened,

The fifth and final mitigation was cooperation with the Premier League.

Everton referred to the Nottingham Forest decision in which there was a 2 point reduction in the penalty for exceptional cooperation and an early plea. The Premier League submitted that Everton’s cooperation could not be described as exceptional. Everton had done no more than the minimum expected of all clubs and that in certain respects had fallen short of that standard.

Page 35 of the Decision provides interesting detail of “voluntarily attending a fact-finding meeting” and the back and forth between Everton and the Premier League. It has to be said that neither the Premier League nor Everton come out of this particular exchange in a good light.

Drawing the threads together

The Premier League submitted that a sanction of anything less than three points would undermine the integrity of the Premier League and the aims of the PSR. The Premier League argued that the sanction must be imposed immediately. If the sanction was deferred Everton would gain an immediate advantage over other relegation threatened clubs.

Everton argued that given the double jeopardy issue, any further sanction would actually undermine public confidence in the Premier League. Therefore, no further sanction was appropriate.

In the alternative, Everton referred to EFL v Sheffield Wednesday and argued that only one point should be deducted but deferred to the following season. Everton further cited the FY22 Appeal in terms of the exceptional circumstances of a second points deduction in the same season placing Everton in a uniquely disadvantaged position.

Approach to sanction

This section goes into considerable detail with regards to the aims of the PSR acknowledging the approach to sanction that was set out in the Everton FY22 Appeal. It cites a number of previous cases but ultimately draws the conclusion of the necessity to impose a deduction of points. It states “the sanction must achieve the aims of PSR but not exceed that which is reasonably required to achieve those aims”.

Finally in the Commission’s own words “the principle of equal treatment is equally applicable to the PSR. A breach of (FFP) regulations is unfair to other compliant clubs“.

The appropriate starting point: Following the Everton FY22 and Nottingham Forest the Commission concludes that three points is the starting point, then the quantum of the breach has to be considered.

The Commission rejected Everton’s submission that the breach was at the lower end of the significant band. Indeed the Commission rejects the use of bands preferring to assess “in the round”.

The Commission explains its reasoning behind rejecting a mathematical or formulaic method of calculating the additional points loss. However it then accepts that Everton’s excess is less than 20% so therefore does not warrant three points but warrants more than one. As a result the Admitted Breach results in an additional two point penalty.

Mitigating factors:

The approach to mitigating factors was set out in the Everton FY22 Appeal. The various heads of mitigation were dealt with as follows:

Double jeopardy – this was the most pressing of the mitigating factors. It was not disputed that the overlapping years should be taken into account regarding proportionality. Everton submitted it should receive no penalty whereas the Premier League submitted it should be reduced by two points.

Everton suggested using the EFL guidelines as a benchmark. The Premier League took the view that whilst appropriate as a guideline it would not be appropriate to simply transpose the EFL guidelines into the rules. As a result the Commission decided to determine their own approach.

Whilst acknowledging their own desire not to take an overly mathematical approach, however they calculated that an equal weighting of losses over the years resulted in Everton had already received a penalty for just under 50% of the loss leading to the excess. Therefore just under a 50% penalty was the appropriate reduction. Using whole numbers, Everton’s penalty is reduced from five points to three prior to further mitigation.

The loss of the Finch Farm Agreement – The Commission accepted that Everton is entitled to mitigation in respect to the loss of revenue arguing strongly against the Premier League’s view that this was a circumstance that arose out of the ordinary course of business. The Commission also rejected the Premier League’s view that Everton had placed “all their eggs in one basket“. They did challenge however whether Everton had taken sufficient steps to remedy their situation and mitigate their loss before ultimately accepting Everton had taken reasonable steps to replace the Finch Farm Agreement.

However, the Commission had greater difficulty in that whilst Everton changed their budget to reflect the loss of income from July 2022, Everton subsequently failed to meet that budget.

The Commission held the view that there were analogies to be drawn with the Everton FY22 proceedings and with Nottingham Forest both of which concluded that clubs could not rely in mitigation upon the results of their own commercial decisions.

Furthermore, they drew analogies between Nottingham Forest’s decision to sell Player A two months after the end of FY23 and Everton who similarly admitted it could have sold Player B before the end of FY23.

If Nottingham Forest were not entitled to to reply in mitigation, why should Everton?

Ultimately, given the exceptional and unforeseeable circumstances the Commission concluded Everton were entitled to some credit for the loss of USM, but that credit was severely limited by the business decisions taken by Everton on FY23, which plainly contributed to its breach of PSR.

Everton’s broader financial circumstances

In summary, the Commission did not accept that Everton is entitled by way of mitigation to rely upon its broader financial circumstances.

The £3.5 million expensed through the profit and loss account of ESDL could not be capitalised, nor ultimately enjoy the distinction between the PSR benefits of good and bad spending. References were made to the arguments presented in the Everton FY22 appeal board. The argument that a lack of sporting advantage should question the appropriateness of a sporting sanction was raised both in the Everton FY22 Appeal and in Nottingham Forest.

Whilst accepting that Everton derived no sporting advantage from that expenditure, ultimately the statement in Nottingham Forest carried more weight, namely “PSR does not limit the expenditure a club can incur but rather limit the extent to which losses can be incurred. The profit or loss is largely a reflection of an accumulation of commercial decisions ”

Given the scale of the Admitted Breach ( £16.6 million) the Commission failed to see how the £3.5 million could impact the appropriate sanction even if there was no sporting advantage arising from that expenditure.

The new recruitment strategy

From the Commission’s view the New Recruitment Strategy was replied upon for (i) to demonstrate the club was trying “to turn the ship around” (ii) to demonstrate that a Premier League club cannot simply sell more players or cease to buy players and (iii) to demonstrate no sporting advantage had been obtained.

All three points were rejected by the Commission. Player trading (in their view) fell within the normal contingencies of business as a professional football club.

The Commission also referred to the Appeal Board’s observation that player net spending is only part of the picture. Equally it referenced Everton’s knowledge of previous losses, the loss of USM as a sponsor and the requirement to limit losses to less than £40 million so as not to breach rule E.49.

Ultimately Everton failed to achieve that target.

Additionally, Everton relied upon two other aspects (i) the effect of the sanctions imposed in Everton FY22 Proceedings and (ii) its (previous) positive trend – the reversal of which should not be inferred to have provided a sporting advantage.

The Commission accepted the Premier League’s position on both points. Thus Everton could not use its broader financial circumstances in mitigation.

Everton’s prompt admission of liability

Did Everton plead guilty at the first opportunity and secondly, are the present circumstances to be distinguished from Nottingham Forest’s early guilty plea?

The Commission concluded that Everton did deserve credit for its early guilty plea rejecting the Premier League’s contrary view.

Everton’s co-operation with the Premier League

Because the Premier League is a joint venture, the cost of enforcement against one club falls on all other clubs. The Appeal Board in Everton FY22 Appeal stated that “only when cooperation is exceptional (i.e. above the level reasonably expected) would it be a mitigating circumstance.

Cooperation was discussed in Nottingham Forest. There the Commission set out nine factors which were to be regarded as exceptional. The Commission rejected the Premier League’s position that all nine factors had to be present. It had to be on the basis of a fact-sensitive assessment of the circumstances.

After taking into account the parties’ submissions, the Commission determined that many, if not most of the criticisms levelled at the club by the Premier League are unwarranted, overstated or both. The Commission took the view that the club had cooperated with the Premier League, albeit in a manner (quite properly) that protected the interests of the club.

However, on balance the Commission was unable to characterise Everton’s cooperation as exceptional. It was however reasonably high.

Drawing the threads together

The Commission concluded that the appropriate starting point is a penalty of five points, to be reduced to take into account the mitigating factors.

The penalty should be reduced by two points due to the overlapping years of assessment.

Everton’s mitigation in relation to the loss of revenue from the Finch Farm Agreement and Everton’s early guilty plea should also be accepted and resulted in a further reduction (in the penalty) of one point.

Finally the Commission looked at the fairness of the sanction when benchmarked against the Nottingham Forest Decision and the Everton FY22 Appeal, in which

• Nottingham Forest received a 4 point penalty where it had breached the threshold by £34.5 million or 55.6%. This was arrived at by a starting position of 6 points, reduced by two points in consideration of Nottingham Forest’s early guilty plea and exceptional cooperation with the Premier League
• Everton received a 6 point penalty in the Everton FY22 Appeal for a breach of £19.5 million
• Everton’s starting point was 5 points. Everton submitted this was disproportionate to the penalty imposed on Nottingham Forest which was larger ( £34.5 million versus £16.6 million. Everton also stressed that Nottingham Forest’s loss was over one period whereas Everton’s £36.1 million was across two reporting periods.

The Commission however considered their starting point to be appropriate and justifiable, broadly given that Everton exceeded the upper loss threshold in two financial years but Nottingham Forest exceeded the threshold in only one.

As a result of all of the above, from a starting point of five points, with a reduction of three points for mitigating factors, the sanction applied by the Commission in respect of the Admitted Breach for FY23 is two points.

The penalty, despite Everton’s invitation to defer, to be served immediately.

Chair: Mr James Drake KC

Members: Mr Kwadjo Adjepong and Mr Michael Kaltz FCA

Link to attached Premier-League-v-Everton-Decision-FY23 decision document