At the end of March 2023, Everton Football Club were referred to an Independent Commission for breaches of the Premier League's Profitability and Sustainability Rules (the Rules). A breakdown of the initial charges is outlined in full within one of our previous pieces here, including the specific regulations referred to as part of the charge.
In the week commencing 13 November 2023, rumours circulated on social media that Everton may be charged and punished with a points deduction as a result. On Friday 17 November, the Toffees were handed a 10-point deduction after being found guilty of the breaches, following a hearing in October. This deduction stands as the biggest points-based punishment in the competition's history, which will now see the Merseyside club drop to 19th place in the Premier League table on 4 points and level with Burnley at the bottom end. The Independent Commission used rule W.51.4.2 to deduct points as a form of punishment, whilst rule W.51.10 grants the Independent Commission to make such orders as they deem fit, which will also be a point of contention in the coming months, due to the announcement of a new Football Regulator.
The club has confirmed that it will appeal the decision in due course, with their right to appeal stated under rule W.62.1.2. The outcome of this appeal will be monitored closely by other teams, namely Leeds, Southampton, Burnley and Leicester who have indicated that they will explore the possibility of pursuing claims against Everton of circa £300 million for losses incurred as a result of relegation.
Everton have released the following statement in response:
“The club believes that the commission has imposed a wholly disproportionate and unjust sporting sanction … Everton maintains that it has been open and transparent in the information it has provided to the Premier League and that it has always respected the integrity of the process.
“The club does not recognise the finding that it failed to act with the utmost good faith and it does not understand this to have been an allegation made by the Premier League during the course of proceedings. Both the harshness and severity of the sanction imposed by the commission are neither a fair nor a reasonable reflection of the evidence submitted.
“The club will also monitor with great interest the decisions made in any other cases concerning the Premier League’s profit and sustainability rules.”
The bigger picture will be the mechanisms the football club can utilise in its appeal and what sources of income they may highlight in justifying their expenses. The initial charges suggested that Everton may have exceeded the threshold of debt carried over a three-year period. Under the Rules, clubs are able to only take a maximum loss of £105 million over a three-year period. Everton's financial summary at the time of the referral to the Independent Commission revealed losses of up to £372 million. Ultimately, the Commission found in favour of the Premier League that Everton's loss during that period amounted to £124.5 million, £19.5 million above what the Premier League’s guidelines permits clubs to lose over a three-year rolling time frame. The technical alleged breaches related to accounting treatments and the sources of income were doubtless the focal point of the charges, punishment and will be in terms of the pending appeal. This of course is against a backdrop of the purchase of Everton by 777 Partners, adding even more uncertainty and precariousness to the matter.
One of the main sources of income for well-advised clubs is sponsorship revenue. The sponsors pay the balancing charge and according to the rule of law (if not the spirit of the rules), sponsorship income is treated as income. This has been a key point of contention between Clubs and FIFA, who appear increasingly uncomfortable with the notion that sponsorship revenue can reliably be treated as accurate and for “fair value”, so a legitimate income source for many leading clubs. It is evident that those without big ticket sponsorship deals will struggle from both a financial and commercial perspective. To highlight its importance, according to KPMG Football Benchmark, the total value of sponsorship deals across the big five leagues in 2020 was more than EUR 3.3 billion per annum, with front-of-shirt sponsorship representing almost a third of this figure. Furthermore, the Premier League generates EUR 832 million annually from front-of-shirt and kit sponsorship, almost double its nearest rival LaLiga at EUR 436 million per annum.
It will be interesting to see how Everton will approach its appeal and whether the focal point of structured sponsorship income will turn out to be the deciding factor in determining whether and if so to what extent the club, and other clubs under investigation, have breached the Rules. We follow this case closely and will monitor any significant changes as the matter progresses.
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