11th Mar 2024 | Articles & Newsletters

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Thomas Horton writes for Football Law, on 26 February 2024, it was announced that Everton Football Club (“EFC”) had succeeded in its appeal against a Premier League Commission’s decision to sanction EFC with an immediate ten-point deduction for EFC’s breach of the Premier League’s (“PL”) Profitability and Sustainability Rules (“PSR”) (found in section E of the PL Rules) for the period ending season 2021/22.

The Appeal Board’s decision identifies that EFC succeeded on two of its nine grounds of appeal (referred to as grounds one and seven in the Appeal Board’s written reasons) and, consequently, that the Appeal Board set aside the Commission’s decision on sanction and imposed an immediate six-point deduction.[1]

This article identifies notable analysis on the PSR provided by the Appeal Board, explains why EFC were successful on grounds one and seven of its grounds of appeal, and considers the Appeal Board’s approach to sanctioning EFC with an immediate six-point deduction.

An earlier Football Law Article Toffees Left in a Sticky Situation provides analysis of the Commission’s decision. Readers are invited to read that article first to provide context and background to the Appeal Board’s decision and this article.

The Appeal Board’s analysis of the PSR

Aside from EFC’s two successful grounds of appeal, which are analysed in the next section of this article, the Appeal Board provided five helpful points on the PSR’s purpose and its disciplinary aims.

Firstly, the Appeal Board identified that the PSR, and financial fair play rules more generally in European football, are ‘designed to ensure that the debt of a club is not such as to jeopardise that club and, consequently, the integrity of the competition itself and the sport of football more generally’.[2] The purpose of financial fair play regulations is to provide a disciplined framework within which football clubs work within to avoid unsustainable spending. The Appeal Board noted that such regulations are not designed to ‘maintain a level playing field in terms of resources available to clubs’ but that the same should be applied equally to all clubs in the competition to which those regulations apply to avoid a non-compliant club obtaining an unfair advantage for their breach of those regulations.[3]

Secondly, the Appeal Board identified that cooperation with the PL is not by itself a mitigating factor that provides for any reduction in, or lesser sanction being imposed for, a breach of the PSR. The Appeal Board noted that as the PL operates as a joint venture – with each PL club being a shareholder of the FA Premier League Limited, agreeing to be bound by rules and regulations and distributing profits – the cost of enforcement of the PSR against one club falls on all the clubs by reducing money available for distribution.[4] Moreover, each PL club agrees to an expected standard level of behaviour, cooperation and reporting requirements.[5] Mere compliance with those agreed working principles is to be expected, and only cooperation ‘over and above’ that expected cooperation could possibly amount to a mitigating factor.[6] In practice, it is difficult to envisage what cooperation could reach that level.

Thirdly, breach of the upper loss threshold of £105 million permitted by the PSR is a serious breach of the PSR warranting a serious penalty:

While we accept that seriousness of breach of rule E.51 is commensurate with the amount the PSR Calculation losses are over £105m […] with (a) the exclusions in respect of costs in place [(i.e. those costs included in the definition of ‘Adjusted Earnings Before Tax’ in the PL Rules)], (b) the £105m “buffer” before any action as a breach is triggered and (c) the fact that any club has a three-year period over which to change course if necessary to avoid a breach, a PSR loss of any amount over £105m over the three-year PSR period is a serious matter warranting serious concern and, subject to mitigation, a serious penalty (emphasis added).[7]

Fourthly, where there is a breach of the PSR (or other financial fair play regime) a sporting advantage can be inferred, and a sporting sanction is appropriate. While it is possible for a club to rebut that inference (although this is likely to be difficult if the club’s overspending has been on player acquisitions), it is not necessary for the PL (or other competition organiser) to prove that the club in breach of the PSR (or other financial fair play regime) obtained a sporting advantage.[8]

Fifthly, the consequences of a points deduction being imposed ‘are likely to be of less significance in proceedings for breach of rule E.51 because the overarching concern is the integrity of the PL competition’.[9] The Appeal Board noted that to do otherwise ‘would be a failure to treat the clubs in the PL equally and fairly.[10]

EFC’s appeal – the Appeal Board’s approach to the appeal

EFC’s appeal was based on the overall argument that:

The sanction imposed upon [EFC] by the Commission of an immediate deduction of ten league points was flawed, unduly harsh, disproportionate in all the circumstances and lay outside the range of reasonable decisions’.[11]

EFC’s appeal was against the sanction imposed by the Commission only. As explained in Football Law’s previous article, EFC admitted that it had breached the PSR, and the Commission found that EFC had breached the PSR upper loss threshold of £105 million by £19.5 million.[12]

The criteria applied to EFC’s appeal by the Appeal Board can be summarised as follows:

  • The Appeal Board was entitled to set aside the Commission’s decision on sanction if ‘it had made a material error of law which may have affected its ultimate decision, or if it acted in a way that was procedurally unfair’. The Appeal Board identified that “errors of law” include: ‘(i) an error in approach, (ii) taking into account something which, as a matter of law, should not have been taken into account, and (iii) failing to take into account something which, as a matter of law, should have been taken into account’.[13]

  • Further, the Appeal Board noted that ‘the rules governing appeals by way of review in the court system can be applied to an appeal such as this, with appropriate recognition of the sport regulatory context’.[14] Civil Procedure Rules, r. 52.21(3) allows an appeal where the decision of the lower court was wrong or unjust because of a serious procedural or other irregularity in the proceedings in the lower court.

While EFC succeeded on grounds one and seven of its nine grounds of appeal, as explained in the next two sections of this article, it is noted that the Appeal Board made two positive observations on the Commission’s decision:

  • Firstly, echoing the conclusion of Football Law’s article on the Commission’s decision, the Appeal Board noted that the Commission ‘did not have the benefit of any guidelines developed by the PL itself as to how the very wide discretion as to sanction for a breach of rule E.51 should be exercised, nor any precedents in respect of sanctioning for such breaches’.[15]

  • Secondly, the Appeal Board noted that the Commission ‘expressly identified and adopted the principle that any sanction should be no greater than that which is necessary and proportionate for achieving the sanction’s purpose […] the Commission clearly had in mind both the correct principle, and the availability of other sanctions’.[16]

EFC’s appeal – ground one

Ground one related to the Commission’s findings that EFC had been ‘less than frank’ and breached PL Rules, r. B.15 (duty to act with utmost good faith) in respect of the source of funds used for the development of EFC’s new stadium, and the same being aggravating factors when considering the appropriate sanction to impose on EFC.[17]

Although the Appeal Board identified that EFC had clearly been wrong in respect of the information provided in respect of the source of funds used for the development of EFC’s new stadium, EFC succeeded on ground one for the following reasons:

  • The Appeal Board decided that it was not open to the Commission to find that the club had been less than frank. In submissions to the Appeal Board, the PL confirmed that ‘it was never part of the PL’s case before the Commission […] that the misrepresentation as to the source of the new stadium funding […] was […] dishonest, intentional, reckless or even negligent’.[18]

  • Despite this clarification, it is notable that the Commission’s decision plainly said that the PL ‘complains that Everton deliberately misled it about the source of the funds used for the stadium development’, and it is surprising as to why the Commission would have relied upon this if it was not the PL’s position before the Commission (or at the least why the PL did not seek correction of the same before publication of the Commission’s decision, if that opportunity was afforded to the PL).[19]

  • The Appeal Board also found that a case of EFC being less than frank was not put to appropriate witnesses during cross-examination, and nor was it developed during submissions.[20] In such circumstances, it was procedurally unfair to make a finding that EFC had been less than frank.

  • The Appeal Board relied upon the above-stated reasons and decided that it was also not open to the Commission to find that EFC had breached PL Rules, B.15.[21] Additionally, it was noted that EFC had never been formally charged with a breach of PL Rule, r. B.15, as required by PL Rule, r. W.24.[22]

  • In such circumstances, it was a legal error or otherwise procedurally unfair for the Commission to give any aggravating weight to the findings that EFC had acted less than frank and in breach of PL Rules, r. B15.[23]

EFC’s appeal – ground seven

Ground seven related to the Commission’s failure to impose a sanction ‘consistent with existing and relevant benchmarks’, most notably in respect of the approach taken under the EFL’s Championship Profitability and Sustainability Rules (“CPSR”).[24]

The Appeal Board noted that the ‘general architecture’ of the PSR and the CPSR is similar, with both adopting a graduated approach to loss in respect of the applicable three-year period but having different lower and upper loss thresholds.[25] The Appeal Board also noted that the EFL has adopted Sanction Guidelines in respect of breaches of the CPSR, which are summarised in Football Law’s article on the Commission’s decision (“the EFL Sanction Guidelines”).[26]

Comparatively, the PL does not have any such guidelines in respect of a breach of the upper loss threshold in the PSR, and the PL’s attempts to rely upon a structured formula before the Commission did not alter this.[27]

However, EFC submitted that, inter alia, the EFL Sanction Guidelines and also the PL Rules, r. E.37, which imposes an automatic sanction of a nine-point deduction when a PL club suffers ‘an Event of Insolvency’, provided the Commission with reference points or benchmarks that, having been raised by EFC before the Commission, should have been used when exercising its wide discretion in respect of sanction pursuant to PL Rules, r. W.51.[28]

EFC succeeded on ground seven because the Commission ‘should have appreciated that it was not exercising its wide discretion as to sanction in a complete vacuum’ and it erred ‘in failing to consider and take into account these comparators which had been raised and relied upon by the Club’.[29]

Clearly the Commission’s saving provisions in its written reasons that it had ‘considered everything that has been put before [it]’ and ‘[the] fact that something may not be dealt with specifically does not mean that it has not been considered’ were insufficient to satisfy the Appeal Board that such reference points or benchmarks had been considered by the Commission.[30]

Appeal Board’s approach to sanction

Upon EFC’s appeal being successful on those two grounds, the Appeal Board set aside the Commission’s decision on sanction and re-performed the assessment of the appropriate sanction.[31]

As the Commission had done, the Appeal Board recognised that any sanction imposed on EFC must be proportionate, which requires the sanction to achieve the legitimate aims pursued by the PSR but not to exceed that which is reasonably required to achieve those aims.[32]

The Appeal Board took a three-stage approach to satisfy the principle of proportionality [33]:

What are the legitimate aims of sanctions imposed for a breach of the PSR?

The Appeal Board recognised those aims of the PSR summarised in the first section of this article and repeated those four principles of sanction recognised in the Commission’s decision: punishment, vindication of compliant clubs, deterrent and integrity.[34] The Appeal Board also adopted those four principles and the Commission’s position that ‘any sanction should go no further than reasonably necessary to achieve those four aims’.[35] However, the Appeal Board clarified the significance of punishment: ‘punishment is far less important than maintaining the integrity of the competition and thus the sport of football, with deterrence being an important overlapping aim’.[36]

Is a points deduction reasonably required to achieve those aims?

The Appeal Board emphasised the point summarised in the first section of this article: ‘leaving aside mitigating factors, any breach of rule E.51 (i.e., any PSR Calculation showing losses of over £105m over the relevant period) warrants a points deduction, and nothing less than a points deduction’.[37] The Appeal Board was resoundingly clear in explaining that ‘only a points deduction, with its immediate and overt effect, has the appropriate power of disincentive for clubs to remain within the upper loss threshold required to maintain the aim of an FFP regime. It also […] addresses both the financial and sporting aspects in the most appropriate way’.[38]

If a points deduction is reasonably required to achieve those aims, what is the minimum points deduction that will do so?

The Appeal Board noted that reaching an answer to this question is not a mathematical exercise, and again noted that the PL had failed to provide any guidelines to assist in reaching an answer.[39]

The Appeal Board took account of the CPSR and the EFL Sanction Guidelines, however it was noted that the sporting and financial value of a point in the EFL Championship does not carry the same sporting and financial value of a point in the PL, and that ‘the structured approach of [the EFL Sanction Guidelines] cannot automatically be translated across in a linear way’ because the competition and economics of each league are different.[40] The submission by Adam Lewis KC for the PL that ‘the number of reported EFL cases arising from breaches of its P&S Rules – compared with the dearth of cases in the PL until FY22 – might suggest that the EFL Guidelines are not a sufficient deterrent’ also carried some force.[41]

Despite those differences, the Appeal Board believed that the CPSR and the EFL Sanction Guidelines ‘provide some useful assistance in assessing appropriate sanctions for breach of the PSR’.[42]

The Appeal Board also considered cases decided where the EFL Sanction Guidelines have been applied, particularly the six-point deduction imposed on Sheffield Wednesday FC (“SWFC”) by a League Arbitration Panel on 4.11.2020,[43] following an appeal from an Independent Disciplinary Commission’s decision to sanction SWFC with a 12-point deduction on 4.8.2020.[44] However, the Appeal Board recognised that the reason for the 6-point difference between those decision was because the League Arbitration Panel gave weight to SWFC having sold its stadium shortly after the relevant three-year CPSR period, which, if sold less than three weeks earlier, would have resulted in SWFC not being in breach of the CPSR upper loss threshold.[45] The Appeal Board noted that EFC had ‘no golden mitigation point such as that’ in this case.[46]

The Appeal Board also considered the automatic nine-point deduction applied when a PL club suffers ‘an Event of Insolvency’, which to the Appeal Board suggested that the Commission’s ten-point deduction was ‘internally inconsistent within the framework of the PL Rules’.[47] The submission by Laurence Rabinowitz KC for EFC that ‘an Event of Insolvency is an inevitably more serious matter for the relevant club in respect of its sustainability, and so for the integrity of the PL as a competition; which is indicative that a nine or more point penalty for [EFC] in respect of its breach of the PSR would be too high’ carried some force.[48]

The Appeal Board also noted that a PL club can obtain a maximum of 108 points in a season, that three points are available for a win and one point is available for a draw, and that the median and mean points earned by PL clubs throughout the history of the PL were 49 and 52 respectively.[49] Accordingly, a ten-point deduction would equate to c. 20% of the median and mean points per season. Further, although the PL’s structured formula proposed by the PL to calculating the appropriate points deduction was not accepted, the Appeal Board did give it ‘some respect’.[50]

The only mitigation available to EFC was positive trend. From EFC’s PSR calculation, the relevant years working up to and including FY 2021/22 showed losses of £58 million, £55 million and £10 million.[51] Whilst the EFL Sanction Guidelines provide a mechanical approach to how positive trend is applied to any points deduction as a mitigating factor, the Appeal Board considered there to be difficulties in applying the same to this case and otherwise giving EFC’s positive trend any significant weight.[52] The Appeal Board commented that EFC’s situation was one ‘of having to apply an emergency brake on spending because it has been far too high in earlier years’ and that in such a situation ‘a club is likely to benefit from having spent significantly in the earlier years even when there was much reduced spending/losses later’.[53] In those circumstances, and in agreement with the Commission, EFC was given only a ‘modest’ degree of credit for its positive trend.

Finally, the Appeal Board also noted two modest aggravating factors, being (i) EFC’s breach of the PSR upper loss threshold by £19.5 million, which was noted as ‘substantial’, and (ii) EFC’s admission that it had provided wrong information in respect of the source of funds used for the development of EFC’s new stadium (notwithstanding the absence of any dishonesty or intent behind this provision of wrong information).[54]

While bringing those strands together, the Appeal Board emphasised that ‘the main rationale for the points deduction […] is that there has been a breach of the PSR to a significant extent and, with the picture becoming clearer as time passed, the Club did not act with sufficient financial prudence to avoid this significant breach’.[55]

In those circumstances, the Appeal Board considered an immediate six-point deduction to be the appropriate sanction for EFC’s breach of the PSR for the period ending season 2021/22.[56]

Comment

Considering the Appeal Board’s sharp and repeated comments on the absence of any sanction guidelines for (now) PSR, r. E.53 cases, it is this author’s opinion that it is likely that the PL will take steps to introduce sanction guidelines. This would be in keeping with the structured approach the PL has been taking to deal with cases involving alleged breaches of PSR, r. E.53 expeditiously and fairly (see for example PSR, r. E.53.2 and Appendix 1 – Profitability and Sustainability Rules – Standard Directions).

Nonetheless, in the meantime the decision provides helpful guidance on how a Commission (or Appeal Board) will determine an appropriate sanction in PSR, r. E.53 cases. It is important to emphasise that the EFL Sanction Guidelines have not been adopted into the PSR regime, indeed the Appeal Board’s comments expressed above demonstrate that the EFL Sanction Guidelines are simply not directly transferrable. At most, the EFL Sanction Guidelines, and those cases where they have been applied, provided a yardstick to ensure that the sanction imposed by the Appeal Board was not disproportionate.

Finally, the Appeal Board’s decision will be read with great interest by other clubs facing charges under PSR, r. E53. Considering the guidance provided by the Appeal Board, it is likely that Nottingham Forest FC and EFC (again) will face immediate points deductions if the charges brought against them under PSR r. E.53 for the year ending 2023 are proven (as explained in Football Law’s January 2024 Roundup). However, it could be that NFFC has a ‘golden mitigation point’ considering its anticipated reliance upon the sale of Brennan Johnson to Tottenham Hotspur FC for £47.5 million shortly after the assessment period ending season 2022/23.

Footnotes

[1] Everton Football Club Company Limited v The Football Association Premier League Limited (t/a The Premier League), Premier League Appeal Board (Ch. The Rt. Hon. Sir Gary Hickinbottom), 26.2.2024.

[2] Ibid, [21]-[22].

[3] Ibid, [24]-25] and [150(iii)].

[4] Ibid, [91].

[5] Cf. Premier League Rules, r. B.15; (n1), [92].

[6] (n1), [113]-[114].

[7] Ibid, [132] and [150(iii)]; see also ibid, [150(v)].

[8] Ibid, [147]-[150(ii)].

[9] Ibid, [155].

[10] Ibid.

[11] Ibid, [75].

[12] Ibid, [65].

[13] Ibid, [70].

[14] Ibid, [71]-[73]; cf. General Medical Council v Jagjivan [2017] EWHC 1247 (Admin), [40] (Sharp LJ).

[15] (n1), [188].

[16] Ibid, [161].

[17] Ibid, [76(viii)].

[18] Ibid, [174].

[19] The Premier League v Everton Football Club Company Limited, Premier League Commission (Ch. David Phillips KC FCIArb), 17 November 2023), [106].

[20] (n1), [178] and [179(ii)].

[21] Ibid, [180(i)-(ii)].

[22] Ibid, [180(ii)].

[23] Ibid, [179(iii)] and [180(iv)].

[24] Ibid, [76(ix)] and [182].

[25] Ibid, [42].

[26] Ibid, [43]-[45].

[27] See T. Horton, ‘Toffees Left in a Sticky Situation, Football Law, 14.12.2023; (n1), [184] and [186].

[28] (n1), [187].

[29] Ibid, [189]-[190].

[30] (n19), [4].

[31] (n1), [78] and [193]; PL Rules, r. W.78.

[32] (n1), [194].

[33] Ibid, [194]-[195].

[34] See T. Horton, ‘Toffees Left in a Sticky Situation, Football Law, 14.12.2023; (n1), [197]-[198]

[35] (n1), [197].

[36] Ibid, [199].

[37] Ibid, [201].

[38] Ibid, [202].

[39] Ibid, [207] and [215].

[40] Ibid, [209-213].

[41] Ibid, [213].

[42] Ibid.

[43] Sheffield Wednesday Football Club v The Football League Limited, League Arbitration Panel (Ch. The Rt. Hon. Lord Dyson) 4.11.2020.

[44] The English Football League v Sheffield Wednesday Football Club, Independent Disciplinary Commission (Ch. Sir David Foskett), 4.8.2020.

[45] (n1), [214]; (n43), [113].

[46] (n1), [214].

[47] Ibid, [217].

[48] Ibid.

[49] Ibid, [218].

[50] Ibid, [218(iv)].

[51] Ibid, [221].

[52] Ibid, [224].

[53] Ibid; cf: (n19), [119].

[54] (n1), [225]-[226].

[55] Ibid, [226].

[56] Ibid, [227]-[228].


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