After an eight-month investigation into the financial conduct of Everton Football Club ("Everton") and a five-day hearing, the independent commission (the "Commission") deducted 10 points for breaches of the Profit and Sustainability Rules ("PSRs"), pushing Everton into the relegation zone. Whilst this had an impact on Everton's standing in the Premier League, it could have more potential legal consequences for Everton as well as a wider impact on other clubs facing investigations. The point deduction once again inspires support for the creation of an independent regulator.
This blog will discuss the Premier League's PSRs, this decisions' wider impact, and the new independent football regulator.
Profit and Sustainability Rules
The English Premier League's PSRs were introduced in 2013 to maintain financial stability and fairness among member clubs. This is a similar financial sustainability regime as UEFA's Financial Fair Play rules, which are more commonly heard of, but apply only to clubs playing in UEFA competitions, like the Champions League.
The regulations aim to restrict clubs from overspending beyond their revenue capabilities by requiring teams to operate within defined financial parameters and to prevent excessive losses. Clubs who fail to comply with the rules can face penalties such as fines, transfer bans and, as in the case of Everton, point deductions.
Premier League clubs are assessed for their compliance each year and are assessed by reference to the adjusted earnings before tax figure which takes account of profit or loss after depreciation and interest but before tax. There are also a series of "add backs" which are costs which are recognised to be in the general interest of the club and football, like investment in woman's football and youth development and, in the past few years, COVID costs.
According to the rules, clubs can sustain losses of up to £105 million over a three-year period or potentially face penalties. During the 2021/2022 season, investigators found that Everton's reported losses for the period however was £124.5 million, an excess of £19.5 million.
Everton had submitted that a financial penalty would be appropriate, but the Commission disagreed and that only a points deduction sanction would be appropriate. The Commission also found that none of the mitigating factors Everton submitted applied, except that there was an 'improving trend' in that the PSR calculation shows a downward trend for losses.
The Premier League announced on Friday 1 December 2023 that Everton have appealed their decision, having lodged the appeal with the Chair of the Judicial Panel who will now appoint an Appeal Board.
Wider Impact
Everton are also in the midst of a possible change of ownership. Reportedly, an American investment firm is expected to purchase the controlling stake in the club from the current owner, Farhad Moshiri. However, the purchase would require regulatory approval examining their suitability, including the owners' and directors' test, source and sufficiency of funding and future financial information.
Notwithstanding that Everton is appealing the decision, other clubs who were relegated from the Premier League instead of Everton have also reportedly been considering bringing legal action. Leeds United, Leicester City, Southampton, Burnley and Nottingham Forest all have potential claims for compensation against Everton according to the chair of the commission, David Phillips KC.
Manchester City are also facing potential penalties relating to 115 alleged breaches of financial regulations after the Premier League opened its investigation in 2018. However, the outcome will not be known until after the hearing reportedly set for Autumn 2024. Similarly, investigations into Chelsea's finances are also ongoing.
Football Regulator
In 2021, the Government launched a Fan-Led Review of Football, which expressed concerns with the financial sustainability of football and governance of the game. The review recommended a new independent regulator.
In February 2023, the Government announced that it would establish a new independent regulator for the men's elite game to oversee the financial sustainability of football, requiring clubs to demonstrate "sound financial business models and good corporate governance".
It will aim to give fans more say in the running of their clubs and protect clubs' heritage, stopping owners changing names, badges and home shirt colours without fan consultations. There will also be a new owners' and directors' test to ensure "stronger due diligence on sources of wealth and a requirement for robust financial planning".
The regulator will also be able to prevent English clubs from joining new competitions, like, for example, participating in breakaway competitions such as the European Super League. The European Super League plans were met with mass outrage from fans in 2021 when plans were announced.
In September, the Government reaffirmed its commitment to an independent regulator, and that it would be set up as a standalone body to make sure its operationally independent from the game, but that all options remain under review. The football regulator was also mentioned in the Kings Speech in November and a bill is expected this year. MP's and football campaigners have called for the bill to be introduced quickly following the European Court of Justice ruling that UEFA's rules requiring the preapproval of football competitions such as the European Super League were contrary to EU competition law. The football regulator is likely to be granted powers which can stop any similar attempts to create a super league in the future.
Football has constantly evolving laws and has seen this year the introduction of the new National Football Agent Regulations. If you would like to find out more about these new regulations, you can find out more in our blog on the legal highlights in elite football in 2023.
As football continues its seemingly never-ending increases in revenue, and potential losses as a consequence as clubs try and compete with clubs with more financial resources, and with the introduction of more regulatory scrutiny, we are likely to see similar cases in the future.
If would like to discuss anything raised in this blog, please contact Andy Nolan, Clare O'Toole, Calum Lavery, or Catriona Salton.
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