The ripple effects of Everton’s 10-point deduction
English Premier League club Everton has been docked 10 points by the league for breaching its financial rules. The penalty, the largest ever handed out by the Premier League, moves the Toffees from 15th place to 19th just a point ahead of bottom-place club Burnley. The team now sits two points from safety. Everton has accepted the verdict though immediately announced their intention to appeal against the severity of the sanctions.
The penalty has come about as a result of an investigation into Everton’s perilous finances falling into breach of the Premier League’s profit and sustainability rules (PSR), which prohibit teams from making a cumulative loss of more than £105 million over any period of three consecutive years.
Whilst Everton recorded losses over said period totaled around £371 million, there are mitigating circumstances that have been taken into account. Primary amongst them is the COVID pandemic forcing teams to play behind closed doors and the clear revenue shortfalls that come from that.
Everton are also in the final stages of completing a new stadium at Bramley Moore on the banks of the river Mersey, which would see them vacate their home of the past 131 years, Goodison Park. The club argued that many of their smaller loans, in the range of £10-20 million, are related to the new stadium though the investigating committee disagreed. Infrastructure costs, crucially, are not considered when assessing profit and sustainability.
Everton has also been substantially affected by the conflict in Ukraine. Alisher Usmanov, a close business partner of the club’s majority shareholder Farhad Moshiri, paid an annual £30 million sponsorship to the club and was contracted to a £200 naming rights deal for the new stadium. He’s also an oligarch with extremely close ties to Russian President Vladimir Putin and as such had his assets frozen at the outset of the war. Usmanov’s money alone would see Everton clear of any impropriety.
The club, apparently understating their situation, entered into a voluntary and informal arrangement with the league around two years ago whereby the Premier League would loosely oversee the transfer dealings made by the club in an effort to balance the books. To that end, Everton’s net spend since that arrangement was entered into has been £59 million in the positive.
In the end, the investigation deduced that Everton’s full financial loss, when factoring in the above considerations, was £124.5 million – just £19.5 million above the threshold. For this, Everton has received a penalty greater than would a club going into administration (9 points) or harsher than those handed out to those clubs that secretly planned a breakaway league not so long ago (fines of £2.5 million per club). Throw in the financial penalties that come with falling down the league table — £2.2 million per place or thereabouts – and it becomes draconian. In fact to say that the penalty handed down to Everton is, by comparison to other historical sanctions, heavy-handed is a severe understatement.
How this decision impacts two other much more high-profile investigations will prove fascinating and potentially seismic.
Manchester City is currently under a very long-running investigation by both UEFA and The Premier League for just the lazy 115 financial breaches over a nine-year period. As the sheer number of charges would suggest, City’s case is far more layered than Everton’s and as such no verdict is considered imminent. City, for their part, strenuously denies any accusations of wrongdoing.
Chelsea has also been under investigation for a series of serious financial breaches and, as recently uncovered by The Guardian, may have made a series of off-the-books payments to players and agents in order to circumvent Financial Fair Play rules. It should be said that whilst what has been reported is most damning, the investigation is in its infancy and no charges have yet been laid.
It must be asked, though: If the sanctions handed down to Everton, again with the prospect of a reduced sentence post appeal still on the cards, are now the accepted precedent, what could this mean for City and Chelsea?
It is expected that Everton’s improprieties will be at the lower end of the scale, especially when compared to the potential severity of breaches by City and Chelsea. If Everton’s £19.5 million breach is worth 10 points, what penalties could the other two clubs face? Fines are most certainly in play. Is relegation on the cards? Is that enough of a penalty? Could they be forced to drop down two leagues? Are transfer sanctions and/or bans a possibility?
A key factor here is intent.
As mentioned earlier, Everton made The Premier League aware of their financial issues and worked with the league to rectify matters with the investigation finding that the club “behaved openly and responsibly in its dealing with the Premier League.” It wasn’t enough to avoid a penalty.
Sections 107 and 108 of the published findings against Everton state that the “obligation to act in utmost good faith” is imperative. Everton argued that a part of their responsibility to the club was to make interpretations of the PSR in order to minimise their financial risk, in much the same way that your accountant might attempt to minimise your tax when preparing your tax return. The investigating body, though, stated that the ‘good faith’ obligation supersedes that and stresses that clubs need to be 100 percent clear with their financial reporting.
If Everton can behave “openly and responsibly,” commit a relatively minor financial offense and yet still receive the largest penalty ever handed down, then City and Chelsea must be most concerned.
The full list of charges against City includes phrases such as failing to “include full details” of staff remuneration and failing to provide “a true and fair view” of their financial state. The recent revelations regarding Chelsea include literal off-the-books payments. This is, to coin a phrase, the tip of the iceberg.
Given the form and quality of their list, Everton should be able to see themselves out of any relegation struggle, especially as manager Sean Dyche will surely look to foster an us-against-the-world-mentality whilst Goodison, in her final season, should become a bear pit.
If City and Chelsea are found guilty of even half of their alleged breaches and, importantly, the penalties are commensurate with those levied against Everton, both clubs will be very, very nervous.
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