Everton’s points deduction ruling shines a bright light on football club financial mismanagement

Everton Football Club’s 10-point deduction for a breach of the English Football League’s (EFL) Profitability and Sustainability Rules (PSR) has thrown a spotlight on football club financial management. The ruling sets a precedent that reaches beyond Everton and prompts a re-evaluation of financial practices across the premier league and all EPL clubs, as club owners will review their own PSR compliance more rigorously.

A November ruling by an independent Commission appointed by the Premier League (PL) revealed Everton’s breach of PSR, with losses amounting to £124.5m during the 2021/2022 season, surpassing the £105m threshold by just £19.5m. The PSR framework is designed to promote financial responsibility and to create a level playing field by limiting losses that PL clubs can incur, guarding against unlimited cash injections from owners and ensuring that clubs do not spend beyond their means.

The independent panel wrote in its conclusion: “The position that Everton finds itself in is of its own making – it is Everton’s responsibility to ensure that it complies with the PSR regime. The excess over the threshold is significant. The consequence is that Everton’s culpability is great.” The Commission added that “failure to comply with the PSR regime was the result of Everton irresponsibly taking a chance that things would turn out positively … This was a serious breach that requires a significant penalty.”

Everton did not contest the financial rules transgression, which the club attributed to a confluence of headwinds, including lost funding and naming rights for its new stadium as a result of the political impact of the war in Ukraine. However, the severity of the 10-point deduction, the most substantial in Premier League history, raises questions about proportionality and fairness in enforcement. Everton is appealing the ruling.

Commentators have called the ruling “a low bar for severe sanction”. Andy Burnham, the Mayor of Greater Manchester and an Everton season-ticket holder speculated that the Premier League’s motive for seeking a harsh punishment for Everton was to show its strength to self-regulate amid the prospect of the government introducing a new independent regulator to oversee football. Burnham claimed that the Premier League introduced a new sanctions policy in the middle of the Everton hearing which “amounts, in my view, to an abuse of process”.

The impact of the ruling is, of course, significant for Everton, but also has implications for the wider EFL. In addition to potential relegation, Everton faces the prospect of being sued by clubs relegated in the past two seasons after the chair of the Commission, David Phillips KC, indicated that Leeds United, Leicester City, Southampton, Burnley and Nottingham Forest all had “potential claims” for compensation. These litigation liabilities could potentially run into the tens of millions of pounds. 

The points punishment also sets a precedent for a single PSR breach for poor financial management and notably comes ahead of two high-profile cases of alleged financial rule breaches by two of the league’s richest clubs: Manchester City and Chelsea Football Club. The harsh ruling raises attention to perceived equitable enforcement of financial rules across the league. 

Last February, the Premier League charged Manchester City with 115 charges for alleged breaches of financial rules over a decade to 2018. Alleged rule breaking relates to manager and player remuneration as well as UEFA financial fair play (FFP) regulations. Manchester City denies any wrongdoing. Chelsea is under investigation by both the Premier League and the Football Association over potential financial rule breaches by the club during Roman Abramovich’s ownership. It is alleged a string of secret payments worth tens of millions of pounds was routed through Abramovich-owned offshore vehicles over a decade, financing direct payments to star players’ agents and players, according to reporting by The Guardian. 

Analysts and advisors will closely monitor these two cases – which have been successfully delayed until later in 2024 – to see whether the punishment handed down to Manchester City and Chelsea is consistent with the Everton precedent, should the two clubs also be guilty of financial rules transgressions. 

While the purpose of the PSR and FFP regulations is to create a level playing field so that no club owner can ‘buy’ the Premier League title or Champions League simply by investment, it has also created an environment where clubs are incentivised to test and bend the rules. Football’s biggest clubs are highly motivated to protect their status as regular contenders for top honours – which also helps to reinforce their global supporter base. Along the way, football clubs have found ways to bend the rules in ever more imaginative ways. It is a question of which clubs are found out, which clubs are punished, and the ramifications for everyone else of those precedents. There is a concern that the smaller clubs will be the ones forced to absorb the punishment while the bigger clubs will hire the best lawyers, push rulings into the long grass, and arrange favourable settlement deals behind closed doors to prevent the disruption that would otherwise follow.

As the footballing world awaits the outcome of Everton’s appeal, and rulings on Manchester City and Chelsea’s alleged rule breaking, the need for consistent and equitable enforcement to safeguard the sport’s integrity is crucial. The repercussions may shape the future direction of financial governance in football, which must find a balance between regulation, fair play and protection of football’s competitive spirit.

When football clubs face the prospect of a points deduction, possible relegation and/or possible league expulsion, it is a serious adverse scenario which requires independent advice to navigate. BTG Advisory has a specialist team with a considerable pedigree in providing advisory and insolvency services to football clubs, as well as rugby and cricket, across a range of ‘what if’ scenarios. We provide a pre-insolvency planning options review for sports clubs facing a material financial event. In the case of a football club accused of poor financial management, our specialist team helps club owners and management determine what relegation, a points deduction, a significant financial fine or a transfer ban would mean in practice. If your club would benefit from independent financial scenario planning, do not hesitate to get in touch with one of our team today.