Everton’s points deduction – breaking down 41 pages of written arguments behind record penalty — The Athletic 17/11/23
By Philip Buckingham
It is a 41-page bundle that has turned Everton’s world
upside down.
The findings of a Premier League commission hearing were
published on Friday lunchtime. At the end of it all was confirmation that
Everton’s breach of the Premier League’s profitability and sustainability rules
(PSR) would bring an immediate 10-point penalty.
Everton will fight against a deduction that has dragged them
to joint bottom of the table with 12 games of the 38 played but a damning
conclusion has seen them accused of poor judgement, financial irresponsibility
and deliberately misleading the Premier League.
The written reasons behind the judgement are long and
detailed. The Athletic takes you through the decision that sees Everton left
with the most severe punishment in Premier League history.
Setting the scene
What is justifiably described as a “complicated case”
demanded a lengthy back story for a three-man independent panel — David
Phillips, Alan Greenwood and Nick Igoe — to take as their starting point. The
case was heard between October 16 and 20.
From the outset, it was made clear that Everton were in the
dock owing to a breach of PSR and that the Premier League’s calculation
demonstrated losses of £124.5million — £19.5m north of the permitted £105m
threshold. Everton initially argued against that but by the time the case was
heard, they had given up fighting whether there was an indiscretion. They
instead said that the breach “when calculated properly” was £9.7m.
There is time spent outlining the purpose of PSR in the
written reasons and the impact felt across football during the Covid-19
pandemic before there is an introduction to Iranian-British businessman Farhad
Moshiri and his strategies since becoming Everton’s majority shareholder in
September 2018.
Ambitions to become “one of the top teams in the Premier
League” ran alongside the construction of a new stadium at Bramley-Moore Dock
in Liverpool. James Maryniak, Everton’s interim chief financial officer, is
said to have called that “a challenging plan.”
Moshiri believed he could spend substantial sums in the
first “three or four years” as owner before Everton would then have “little or
no need” to rely on his financial support.
It soon becomes clear that the construction of a stadium is
central to Everton’s defence against the charges.
As far back as early 2019, they raised what they saw as an
anomaly in how money spent on the stadium should be treated in PSR
calculations. Accounting rules stated that no expenditure on the project could
be capitalised until planning permission had been agreed, something that did
not come for the Bramley-Moore Dock site until February 2021.
Everton did not think that fair but after talks with the
Premier League in October 2019 it was initially found that stadium costs could
not be excluded from the club’s PSR calculation.
On and on went the discourse, with Everton’s then chief
executive Denise Barrett-Baxendale giving a presentation to the Premier League
board. This outlined that “c.£54million” spent on the stadium before planning
permission had been granted could be capitalised.
A middle ground was eventually found in August 2021. Everton
would be able to exclude non-capitalised stadium expenditure from its PSR
calculations but they were reminded that the £105million threshold, one they
had forecast to be breached for the 2020-21 season, remained in place. The
agreement reached would see Everton need to seek approval from the Premier
League for all players recruited.
Everton’s problems, though, were deep-rooted.
“By early 2022 it was clear to Everton that even allowing
for the concessions made in the 13 August 2021 agreement meeting its PSR
calculation target would be a challenge,” outline the written reasons.
It was said Tottenham Hotspur were among those to capitalise
on Everton’s worsening plight. The sale of Brazilian forward Richarlison to
Spurs in June 2022 was agreed at £60million, rather than the £80m Everton had
expected. Everton had also budgeted to finish sixth under manager Rafa Benitez
in the 2021-22 season but would only finish 16th, with Benitez sacked in the
January.
Player X, granted anonymity in the hearing, had been another
problem for Everton. He was arrested in July 2021 and dismissed in August of
that year. Everton had sought advice on suing the player for breach of
contract. It was argued that they might have clawed back £10million if
successful.
Audited accounts for the 2020-21 season were submitted to
the Premier League in March 2022 and by the August they had submitted a slide
deck titled “FY22 PSR Submission” to project their figures in a different
light.
They sought to exclude £94million from their PSR
calculations, mostly owing to losses on player trading attributable to Covid-19
and new interest charges being passed to Everton Stadium Development Ltd, the
company overseeing the build of the Bramley-Moore project. The Premier League’s
director of governance Jamie Herbert, however, informed Everton that
provisionally the league saw it otherwise.
And so to March this year, when Everton submitted their
all-important accounting for the 2021-22 season. Everton argued their adjusted
losses stood at £87.1million for the PSR period in question, well under the
£105m limit. The Premier League’s initial calculations had the figure pegged at
£120.8m and was then compelled to begin the proceedings when referring Everton
to an independent commission in March.
The Premier League had asked for an expedited hearing to
conclude the hearing before the end of last season only for that to be deemed
“unrealistic” by the commission.
The arguments back and forth
It was at this point that the legal teams got busy,
producing a total of over 40,000 documents for the commission to consider.
A pre-trial hearing in October saw Everton accept they had
exceeded the PSR threshold for the first time but that the breach was, in their
mind, £7.9million. The Premier League countered that by arguing the losses were
£124.5m and not the £120.8m it had first calculated.
Everton had four areas where they initially attempted to
justify the figures submitted.
The first took things back to the new stadium, where Everton
argued that £14.5million could be excluded, primarily “in respect of interest
incurred on inter-company loans used to fund” the overhaul of the Bramley-Moore
Dock site.
They also focused on the four per cent transfer levy paid by
all English clubs, money collected to fund a footballers’ pension scheme — with
any surplus going to the Professional Game Youth Fund.
Everton tried unsuccessfully to argue £7.6million should
fall into youth development expenditure and could be excluded from their PSR
calculation. The Premier League said that was both “unprecedented and wrong in
principle”.
The third point came back to Player X, who Everton said they
had decided not to pursue for what they believed would be a £10million
employment claim.
Lastly, Everton tried to claim £43.9million should be
excluded from calculations due to the impact of Covid-19 in the summer window
of 2020. They said Player Y, another individual given anonymity, could not be
sold for big money as they had planned.
The Premier League countered. It said Everton’s PSR breaches
were down to overspending on players and that “misleading information” on
stadium financing costs had been submitted. It also argued Everton had taken
the decision not to sell Player Y.
And so back to Everton. Their fresh focus was then trained
on just two aspects; the transfer levy and pre-planning stadium interest costs
of £4.1million. Including those, they argued, would mean PSR losses of £112.9m.
The Premier League maintained its position on its
interpretation of the transfer levy. “It points to the fact that historically
neither Everton nor any other club has sought to make a deduction from the PSR
calculation in this way,” detail the written reasons. And, importantly, the
commission sided with the Premier League.
The pre-planning stadium interest figures were less
straightforward.
Everton argued that “any interest attributable to
expenditure on the stadium should be excluded from its PSR calculation”, taking
us back to the Premier League’s agreement made in August 2021 mentioned above.
The Premier League instead stressed that pre-planning
interest charges had not been incurred “in respect of the stadium” but from
“interest-free loans made by Mr Moshiri”. Although Everton argued otherwise,
saying all the money had effectively gone into one large pot, the Premier
League added that commercial loans taken from Metro Bank PLC and Rights &
Media Funding Ltd had been for working capital and not the stadium build.
“We recognise that there is material evidence that supports
both parties’ submissions,” said the commission. But, in another blow to
Everton, it found that “the pre-planning stadium interest on the commercial
loans… cannot be excluded from the PSR calculation”.
Aggravating and mitigating factors
With Everton no longer contesting a breach of PSR rules, the
factors put forward by both sides would be telling in shaping the extent of
their penalty.
The Premier League pulled no punches, saying Everton had
failed to curtail spending despite repeated warnings. It defended the agreement
from 2021 that had seen Everton forced to seek approval from the league to buy
new players but said that the obligation to meet PSR obligations had still
belonged to the club.
“It was aware of potential PSR difficulties but pressed
ahead in the hope that it would make sales of players that would enable it to
achieve PSR compliance,” it said. “Events have proved that to be a poor
judgment.”
The Premier League added that Everton had “deliberately
misled it about the source of funds used for the stadium development” and that
the information supplied was “materially inaccurate”. It was also put forward
that the assertion Everton had been left out of pocket when failing to sell
Player Y was also misleading. It was pointed out that the player had been given
a new contract in the same window Everton had claimed to be looking to sell.
Everton’s mitigation was lengthier.
They returned to the issue of post-planning permission
interest charges (to no avail with the commission) and argued that PSR losses
illustrated a downward trend. That, the club felt, ought to be seen as cause to
believe financial problems were being addressed.
Player X, who Everton chose not to chase for compensation
due to concerns over his mental well-being, was again cited — as was the loss
of revenue resulting from Russia’s February 2022 invasion of Ukraine.
Everton said a naming-rights agreement from USM Services
Limited, owned by the sanctioned oligarch and Moshiri ally Alisher Usmanov, had
cost them an annual fee of £10million from the 2025-26 season. Everton added
there had been discussions to bring that funding forward but no supporting
evidence of that was found.
A dim view was also taken of Everton’s attempts to use the
impact of Covid-19 on the transfer market as a mitigating factor.
Marcel Brands, the club’s then director of football, had
aimed to bring in £80million through player sales in the summer of 2020. “The
values put on the players by Mr Brands are no more than target prices,” found
the commission.
How the penalty was decided
Everything ultimately led to the document’s final three
pages, where the commission digested all it had heard and reached a conclusion
on the penalty handed to Everton.
The Premier League maintained at this stage that the “only
proper sanction” was a points deduction and anything else “would be simply
inappropriate”. Everton, meanwhile, contested that a “financial penalty would
meet the justice of the case” and if a sporting sanction was deemed necessary
then it ought to be a transfer ban.
The commission, though, did not accept Everton’s
interpretation. “We have no doubt that the circumstances of this case are such
that only a sporting sanction in the form of a points deduction would be
appropriate,” it said.
The only question from that point was the size of Everton’s points deduction, something that would be shaped by the club’s culpability.
The commission had already heard of the approved guidelines
in the EFL — the competition consisting of English football’s three divisions
below the Premier League — for breaches of its own accounting rules from
September 2018. The starting point for any club found guilty would be 12 points
and reduced on mitigation but, importantly, the Premier League had no such
rules.
Chief executive Richard Masters had given evidence that the
Premier League adopted a similar sanction policy in August of this year,
starting at six points and increasing by one point for every £5million in
excess of the £105m limit.
Not that the commission adopted those guidelines, saying the
structured formula being promoted was not in keeping with its unrestricted
powers.
The punishment, nevertheless, was heavy.
“The position that Everton finds itself in is of its own
making,” it said. Everton, the commission found, had taken chances with their
PSR position owing to what Moshiri cuttingly called a “non-existent midfield”
in his evidence, and that the eventual breach across the assessment period had
eventually been significant.
Everton’s behaviour was also described as irresponsible and
dealings with the Premier League had been “less than frank”.
And then came the 23 words to throw Everton’s season
off-course.
“This was a serious breach that requires a significant
penalty. The commission considers that it should order an immediate deduction
of 10 points.”
A hearing like no other — and one that promises to have
far-reaching ramifications.