Every Everton fan and indeed all football fans will have a view on the 10-point penalty imposed on Everton, a founding member of the Football League and Premier League. I posted a lengthy comment (#10) on the ToffeeWeb thread that presented the Statement from Director of Football, Kevin Thelwell back on 23 November.
Having posted this, I decided it was time for more detailed thought and then to set out how I hope this is going to unfold. There are many fans taking active steps and this is crucial as is the weight of public opinion. The intervention of various Members of Parliament, Steve Rotherham, and Andy Burnham is to be applauded. Everton have submitted our appeal. It is an emotional time for us all; there is, I think, a need to try and be dispassionate and to review again the facts and the way our club and the Premier League has dealt with this matter.
Background
Each club owns one share in the Premier League. Relegation means you lose your share. The Owners have a Charter and there are 10 points in it. Point 10 states:
“We believe that all shareholders in the Premier League should have an equal voice. We will conduct our club’s dealings with good faith, honesty and the highest possible standards of professional behaviour and sporting integrity.”
The Premier League Rules run to some 438 pages. Each club in its dealings with the Premier League have to act in utmost good faith. E.35 is the rule that says insolvency means a sanction by way of a 9-point penalty. It must be the case that breaching a rule that has such a defined sanction is very serious indeed.
The rules we are dealing with are in Section W. There is no specific sanction. A Commission has complete discretion as to any penalty it may impose. An Appeal Board may allow an appeal, dismiss it, vary any penalty imposed, and vary or discharge any order for compensation. To say the rules are detailed and complex would be an understatement!
Chronology of Key Events
2013: The Premier League introduce their Profitability and Sustainability Rules (PSR) with effect from 2015.
March 2016: Mr Moshiri acquires beneficial interest in Everton FC.
June 2019: Everton borrow £26.25m from Metro Bank for working capital.
23 February 2021: Everton given planning permission for the new stadium which initially is to be funded by Mr Moshiri via Everton with interest-free loans going from Everton to the Stadium Development Company.
29 April 2021: Everton borrow £150m from Rights & Media Funding for working capital which goes into the same bank account as the Moshiri interest-free loans.
31 August 2021: An agreement is entered into between Everton and the Premier League, giving Everton an extra allowance of £39.3m under PSR in respect of new stadium costs incurred prior to the financial years in which planning permission was granted, subject to conditions which included the PL giving permission for player purchases by Everton. The PL say each time they subsequently gave permission, they cautioned Everton, saying they were not managing their finances and told Everton they were responsible for complying with PSR.
January 2022: Mr Moshiri now owns more than 90% of Everton FC.
February 2022: Everton levy all the interest on Metro Bank and Rights & Media Funding loans to the Everton Stadium Company.
18 March 2022: Everton submit audited accounts for the period July 2020 to June 2021.
31 March 2022: Everton submit PSR calculation for the previous 3 years including setting off £17.4m of interest on Metro Bank and R&MF loans.
28 May 2022: Everton finish 16th in Premier League, Leeds finished 17th, and Burnley 18th.
30 June 2022: Everton sell Richarlison to Tottenham Hotspur for £60m.
9 December 2022: The Premier League phone Everton Head of Legal Services to say they do not accept some of the setting off exclusions in the PSR figures submitted for 2020-21. It seems it was stated this would be dealt with once the 2021-22 accounts were filed in March 2023.
1 March 2023: Everton file audited accounts for July 2021 to June 2022.
2 March 2023: Everton file their 3-year PSR calculation on the same basis as the previous year, including the loan interest set off.
24 March 2023: The Premier League charge Everton with a breach of PSR and the independent Commission is then set up.
31 March 2023: The Commission decides it is unrealistic to deal with proceedings and any appeal in the current season.
24 April 2023: Everton respond denying that they were in breach of the PSR limit of £105m over the 3-year period ending with 2021-22.
28 May 2023: Leicester City, Leeds Utd and Southampton are relegated from the Premier League; Everton finish 17th, 2 points ahead of Leicester, 5 points ahead of Leeds and 11 points ahead of Southampton.
12 June 23: Barrett-Baxendale (CEO) and Ingles (CFO) leave Everton’s Board and their employment. They both subsequently refused to give evidence before the Commission.
10 August 2023: The Premier League Board adopt a sanction policy for breaches of PSR. By using this calculation, the likely penalty is circa 10 or 12 points. The Commission subsequently refused to adopt the sanctions policy stating that they should act in accordance with the rules which gave them total discretion as to the penalty to be imposed.
4 October 2023: Everton now admit to the Commission for the first time that they were in breach of the PSR rules albeit their calculation was by £7.9m making a breach figure of £112.9m for the 3-year period in question. The Premier League responded with a revised figure of £124.5m making Everton £19.5m over the limit. Everton still claimed an interest allowance for the period prior to the grant of planning permission and the transfer levy deduction totalling together £11.6m.
16 October 2023: Start of the commission hearing behind closed doors which lasted 5 days.
25 October 2023: A story is leaked to The Telegraph claiming the Premier League have recommended to the independent commission that the club be docked up to 12 points as punishment.
17 November 2023: the date of the Commission decision which upheld the PSR breach figure of £124.5m which was £19.5m over the £105m limit for the 3 years in question. The sanction imposed was an immediate deduction of 10 points from 14 to 4 putting Everton 2nd from bottom on goal difference and ordering Everton to pay the costs of the Premier League commission which is likely to be several million pounds.
1 December 2023: Everton file their appeal.
The starting point and PSR dispute
There is an excellent podcast by Kieran Maguire on this subject and he makes the point that the starting position is that our losses for the 3 years in question were actually £287m as at 30 June 2022. An eye-watering sum.
Our accounts for 2021-22 were submitted in March 2023 and we also submitted our PSR calculation which reduced the loss figure from £287m to £88m. So we therefore said to the Premier League for PSR purposes we were £17m under the £105m limit. Everton included, as they did in March 2022, amongst the deductions, the interest we were paying on £176m of working capital loans. Everton had levied this interest, ie, transferred responsibility for it, in February 2022 to the Stadium Development Company.
The Premier League decided to charge us later in March with being in breach of the PSR limit by £15m and subsequently that figure was increased to £19.5m. So the Premier League actually agreed allowances of £162.5m but not the figure of £199m we originally claimed. We the fans understood our club were not in breach and were fighting the complaint vigorously.
Our guilty plea
To make it very clear, and for reasons never made public by Everton, it was at the start of October 2023 that our lawyers announced to the Commission that Everton would no longer be contesting the complaint. Presumably based on legal advice, Everton abandoned its position that it was £17m under the limit of £105m and now admitted it was £7.9m over. We therefore accepted £24.9m of PSR deduction claims were not in fact allowable.
This was made up of the £10m claimed in respect of Player Y and post-planning-permission interest that had been incurred on the working capital loans and levied on the Stadium Company. There was still an issue of fact to be determined, however, in that whilst the figure of £199m for allowances was abandoned, it was replaced by Everton with a figure of £174.1m.
The Premier League maintained we were entitled to allowances of £162.5m. This meant it was for the Commission to determine the sum at the forthcoming hearing, once it had heard the arguments about transfer levy/pre-planning permission interest, and then to decide the appropriate penalty after representations from the Premier League and Everton legal teams.
The Lawyers
So who are our lawyers who gave Everton this advice? Pinsent Mason are solicitors acting for us, they were our commercial lawyers and were it seems instructed to deal with this matter. They engaged the services of two barristers, James Segan KC and Celia Rooney. Both are said to be experts in sports law. You can find their details on the website of Blackstone Chambers.
You will also note the Premier League barristers and indeed the barristers representing the clubs seeking compensation are from the same Chambers. This is not unusual, especially since Blackstone Chambers promote their members’ expertise in sports law.
Indeed the “Lionel Messi” of the Bar, David Pannick KC, who is retained by Manchester City to deal with their battle with the Premier League, is in the same Chambers. Maybe he might join us on loan to assist with our appeal as it would certainly benefit City!
Incidentally the Premier League use City of London Magic Circle firm Linklaters as their lawyers. Very, very expensive but they have a great reputation. Linklaters instructed Adam Lewis KC and Jason Pobjoy. The members of Blackstone Chambers representing the clubs seeking compensation from Everton are Nick de Marco KC and David Lowe.
The Commission
In basic terms, the Premier League has a pool of independent members to sit on any Commission that is set up in accordance with a very complicated set of rules. A Member of this pool selects each Commission that is needed. Each club in the Premier League sign up to the rules. The Commissioners are to act in accordance with the rules.
Any appeal is dealt with by a separate Judicial Panel with Members drawn from the same pool. Rule W.79 does not allow any appeal thereafter to a court or to an arbitration body – the decision is final.
The members of our Commission were David Phillips KC, Alan Greenwood, who is a Judge, and Nick Igoe, who is the finance expert on the panel. Igoe was Finance Director of West Ham at the time of the Carlos Tevez affair.
The Hearing
This took place in private over 5 days in mid-October. We only have the decision report from which to try and work out what precisely went on as the hearing was behind closed doors.
There is mention of 28,000 documents, expert witnesses and oral evidence being given. No transcript has been made available. It is therefore hard to objectively comment on the evidence and arguments put forward by both sides.
In a nutshell, everything argued by Everton to say we were £7.9m over the limit and not £19.5m was rejected. Would it have made much difference? – Maybe 8 points instead of 10 points, so the answer is Yes. My view – and it is only based on what I have read, like everyone else – is that our case was not strong and, in any event, our credibility went with the guilty plea.
From then on, we were portrayed as a club totally out of control in terms of spending on player wages and transfers – but does a £19.5m overspend over 3 years truly represent such a position…? An average of £6.5m a year, equivalent to, for example, the annual loss on Jean-Phillippe Gbamin, signed in 2019 for 5 years for £25m plus salary! Did he really make any difference to our performance on the field?
Our mitigation was rejected out of hand, save for an acknowledgement that our trend was improving. In the last 5 years, I have read, our net spend on transfers is the least in the Premier League save for Brighton. Was this type of information put before the Commission? I know not.
The increases in stadium costs and difficulties obtaining loans caused by the Ukraine war was said to be no more than the type of event businesses have to deal with on a daily basis. Really?
The Commission have undoubtedly, in my view, made an example of Everton, which is what the Premier League set out to achieve, looking at the way it presented its case, but was it really justified? Suffice to say that our arguments on the appropriate penalty were rejected out of hand.
Trying to read between the lines, the Commission were less than impressed as to how our club was run by the owner and the Board. I fear how they will rule on the compensation issue.
For the moment, however, it is time to concentrate on the appeal against our 10-point penalty. Can we get it reduced? We can surely point to the fact that we received a 10-point penalty which was not explained but this, surprise surprise, is as near as dammit to the penalty the August 2023 sanction policy put forward by the Premier League came up with.
When you stand back from all of this, is it any wonder that this process has met with the wrath of our fanbase? Can we have any faith in the continued process and the appeal?
The forthcoming appeal
We can only hope and pray that the lawyers representing our club do very carefully review the almost unanimous condemnation of the 10-point decision and put forward the strongest possible arguments to the Appeal Panel against the rejection of their mitigation and arguments as to penalty. I set out in my initial post some of my thoughts. I would add three additional matters.
Firstly, the message sent out by the All Together Now group about the importance to our community of the new stadium cannot be understated. The stadium is breathtaking. It is magnificent. It is undoubtedly the Fourth Grace.
Our owner has put huge sums into it on an interest-free basis. He is to be applauded for that and perhaps not castigated quite as much as he has been in this decision. It seems to me, as I ponder this situation, that more than anything, the building of the stadium was the real reason why the PSR limit was breached.
Consider this scenario: namely our owner simply putting his money into the club interest free and as working capital. Then our owner agreeing with the lenders that the interest-bearing loans went into the stadium cost. It would appear we could then have rightly claimed to set off that interest and maybe have been under the limit or thereabouts.
It is not a defence but it must be pretty solid mitigation that, if one mistake had been rectified by our management team, we would not be in this position. I just wonder if this has been considered as, to me, it is strong mitigation.
Secondly the issue of Everton being less than frank, which Everton still deny. This is complicated. If I understand it, this actually revolves around the interest claim submitted in the March 2022 PSR submission and documents in support sent in August 2022. Did Everton mislead the Premier League?
The Commission found they did but my concern is Everton were never charged in respect of that March/August submission. Remarkably, the evidence was that, by December 2022 at the latest, the Premier League had decided they did not agree with the deductions in the March 2022 PSR submission. However, they told our Head of Legal Services they would hold it over until the March 2023 submission was received.
Everton made exactly the same deductions in the PSR submissions in March 2023, but crucially at this point in time the Premier League fully understood those deductions, particularly the one for interest, and in response immediately charged Everton and the matter was referred to the Commission by the Premier League.
I simply do not see on the facts as I read them how it can be said Everton were less than frank in regards to the 2023 PSR submission. If Everton were less than frank, it was only in respect of the interest deduction in the March 2022 submission. To my mind, Everton should not be punished in respect of the March 2022 submission when the Premier League took no action on that.
Clearly, I was not at the hearing and did not hear the arguments. Maybe I as a fan have misunderstood the sequence of events but there it is on my reading!
I can fully understand why Everton feel the Commission have got a critical issue in this case wrong which, together with the refusal to accept anything Everton said about the appropriate sanction, led to such a severe sentence being imposed.
Finally, it seems to me that the Premier League actually treated us pretty fairly in August 2021 when allowing us to set off all the pre-planning-permission costs of £39.3m. They also were in no hurry to take any action against us in respect of our March 2022 PSR submission, to say the least.
What changed in March 23…? Was it the fear of independent regulation which had now reared its ugly head so far as the Premier League were concerned? It seems very clear to me that was the answer and Everton became the sacrificial lamb.
The Fans
You would like to think that someone at our club is monitoring each and every point our fans are making in response to the decision and feeding back to the lawyers. After all, Point 1 of the Owners Charter says “We understand the vital role of our fans and we commit to listening to their views and protecting our club’s heritage”.
There has never been a more important time for our club to listen to our fans and also indeed the Premier League and especially its Appeal Panel. Perhaps Sky ought to do the same. The lack of coverage of the protests at Goodison Park last Sunday was a disgrace.
Summary
The disproportionate nature of this penalty must be varied on appeal. Whatever Everton have done wrong, and we have to accept Everton admitted wrongdoing by its guilty plea, the penalty imposed of a 10-point deduction is a decision no fair and reasonable tribunal, properly directed, could have arrived at.
This was a first offence. Everton has demonstrated a commitment to financial responsibility over the years. It is now clearly determined to do so going forward even whilst £760m is being invested into a new stadium. Certainly a more balanced and independent approach would contribute to the overall credibility and fairness of the process.
The starting point has to be the 9-point sanction for going into administration and our deduction should be far less than that – if indeed there should actually be a deduction of points rather than a fine and another sporting penalty such as a transfer ban.
The sooner this appeal is dealt with the better for us all.