Toffees Left in a Sticky Situation

Thomas Horton writes for Football Law, on 17 November 2023, it was announced that an independent Premier League Commission had found that Everton Football Club (“EFC”) had breached the Premier League’s Profitability and Sustainability Rules (“PSR”) (found in section E of the Premier League Rules (“PL Rules”)) and sanctioned EFC with an immediate ten-point deduction.

A statement from the Premier League (“PL”) identified that EFC admitted its breach of the PSR for the period ending season 2021/22 but disputed the extent of that breach. The PL’s statement also identified that a PL Commission (an independent disciplinary panel formed from the PL’s Judicial Panel; for an explanation of the PL’s Judicial Panel, please see Football Law’s overview of the PL) found that EFC’s losses for the relevant period were £124.5 million, exceeding the £105 million permitted loss threshold under r. E.51 of the PSR by £19.5 million.

The Commission’s written reasons are available here.

This article considers the Commission’s approach to sanctioning EFC with an immediate ten-point deduction.

PL’s proposed formula

The Commission considered the EFL’s sanction guidelines dated 17 September 2018 for breaches of the EFL’s Championship Profitability and Sustainability Rules (“CPSR”) (“the EFL Sanction Guidelines”).[1] The EFL Sanction Guidelines are unavailable and are not included in the EFL Handbook or Regulations. An explanation of the EFL Sanction Guidelines has been provided in this earlier Football Law article relating to Birmingham City FC’s breach of the CPSR in 2019.

The Commission’s explanation of the EFL Sanction Guidelines in EFC’s case identifies that a sporting sanction in the form of a points deduction is appropriate when there has been a breach of the CPSR, with a starting point of a 12-point deduction, which can be reduced to zero to reflect the quantum of the breach of the CPSR and other mitigating factors. Reductions can also be made if losses show an improving trend, whereas increases can be made in the event of any aggravating features.

The Commission identified that for EFL Disciplinary Commissions, the EFL Sanction Guidelines are just guidelines that do not restrict an EFL Disciplinary Commission’s power to impose whatever sanction it considers appropriate in each case. The Commission highlighted the decision in the EFL v Birmingham City FC In support of this point.[2] Unless stated otherwise, sanction guidelines are merely instructions, and, in regulated sport, a disciplinary commission can accept or reject submissions made in respect of the same.

The PL does not have any such guidelines.[3] A Commission’s powers in relation to sanction are contained in PL Rules, r. W.50-51. PL Rules, r. W.50 states that ‘[upon] finding a complaint to have been proved the Commission shall invite the Respondent to place any mitigating factors before the Commission‘. PL Rules, r. W.51 then lists a non-exhaustive list of the sanctions that a Commission can impose ‘[having] heard and considered such mitigating factors‘, and which include a points deduction where the respondent is a club.

Notably, the PL Rules do not provide for the consideration or application of aggravating factors. This should be compared with, for example, express references to aggravating factors or circumstances in the FA Disciplinary Regulations – Part A – Section Two, para. 42.2, or the WADA Anti-Doping Code, article 10.4. However, it is appreciated that the discretion on sanction afforded by the PL Rules, r. W.51 is sufficient to allow for consideration of aggravating factors, in addition to the Commission’s requirement to impose a sanction that is proportionate.

The Commission noted that on 10 August 2023 the PL Board adopted ‘a sanction policy that it considered to be appropriate to breaches of the PSR‘, however this transpired to be nothing more than submissions made by the PL in respect of the appropriate sanction.[4]

The PL’s sanction policy or submissions were similar to the EFL Sanction Guidelines:

• The presumption is that an appropriate penalty will be a sporting sanction in the form of a points deduction, with a fixed starting point of a six-point deduction;
• There shall be an increase to that starting point of one point for every £5m by which the offending club has breached the PSR threshold of £105m; and
• Adjustments can then be made to reflect aggravating or mitigating factors.[5]

The Commission considered that the structured formula proposed by the PL was inconsistent with the unrestricted powers in the PL Rules, r. W.50-51 and therefore declined to adopt the structured formula proposed by the PL.[6]

Sanction principles and the nature of sanction

The PL advanced four principles to guide the Commission’s decision on sanction:

• Punishment: an overspend in excess of £105m is a serious breach and is one that confers a sporting advantage on the club in breach of that threshold.[7] It was noted that ‘[the] fact that a sporting advantage cannot be quantified but must be inferred underlies the need for a sanction that imposes a proper punishment. Anything less than that would encourage default to the expense of compliant clubs‘.[8] The Commission accepted this principle.[9]
• Vindication of compliant clubs: the sanction must ensure that the club in breach of the PSR does not retain a benefit at the expense of other clubs.[10] The Commission did not expressly accept this principle, but it is arguably wrapped up in its acceptance of the principle of punishment.
• Deterrent: the sanction must act as a deterrent to clubs that might be tempted to breach the PSR.[11] The Commission accepted this principle save for the condition that this principle would not ‘justify the imposition of a penalty that was disproportionate to the extent of the wrongdoing in any individual case‘.[12]
• Integrity: the sanction must protect the integrity of the game.[13] The Commission recognised the need to ‘protect the integrity of what is such an important sport‘.[14]

EFC did not dispute the application of those principles and concentrated on the practical application of those principles, and submissions on aggravating and mitigating factors.[15]

The PL also submitted that the only proper sanction was a sporting sanction in the form of a points deduction, as only this would meet the requirements of the above-stated principles.[16] The PL relied upon the decision in Sheffield Wednesday FC v The Football League Ltd to support the point that a sporting advantage is to be inferred so that anything other than a points deduction would be inappropriate [133]. The League Arbitration Panel’s decision in Sheffield Wednesday FC stated at [103]:

‘A club which breaches the Upper Loss Threshold causes unfairness to other clubs competing in the same competition who have stayed within the [CPSR]. In such circumstances a sporting advantage is to be inferred and a sporting sanction is appropriate. A points deduction is not designed to assess and reflect the sporting benefit from the breach, which is likely to be impossible to quantify. Instead, it is to punish and to deter with the wider aim of upholding the integrity of the competition and protecting the interests of the game‘.[17]

Sanction principles – aggravating and mitigating factors

The Commission identified that a party asserting an aggravating or mitigating factor bears the burden of proof, and the same must be proved on the balance of probabilities.[18] This is a fact-sensitive assessment carried out on a case-by-case basis, but it is not a complicated exercise. The Commission noted that ‘the greater the excess, the greater the culpability‘, and that the reasons for the excess will be capable of increasing or reducing the culpability depending on the facts of each case.[19]

Aggravating factors

The PL advanced four aggravating factors, with the Commission providing some useful analysis on and/or accepting three of those factors:

• Overspend despite warnings: the PL relied upon an agreement entered between EFC and the PL dated 13 August 2021 in relation to EFC’s building of its new stadium and compliance with the PSR.[20] A condition of that agreement was that EFC was to obtain the PL’s approval when purchasing new players. While the PL approved such requests, when doing so it warned EFC that the PL was not managing EFC’s finances and that it was for EFC to ensure compliance with the PSR. The PL asserted that EFC’s persistence with player purchases against such warnings was reckless and constituted an aggravating factor.[21] The Commission commented that it was unwise for EFC to not have curtailed player purchases while aware of its PSR difficulties but decided that ‘the reasons for the PSR breach should [not] aggravate the culpability unless they can be said to constitute exceptional conduct‘.[22]

The Commission emphasised that its approach to sanction starts with considering the extent by which the PSR threshold has been exceeded; the greater the excess, the greater the culpability.[23]

• Extent of the breach: Insofar as the extent of the breach was concerned as an aggravating factor, the Commission indicated that whilst this is ‘an important indicator of the level of culpability‘, to include it as an aggravating factor would be a double counting.[24]
• EFC misleading the PL: the PL asserted that EFC deliberately misled the PL about the source of funds used for the development of EFC’s new stadium and that the same bore interest and arrangement fees to be excluded from its PSR calculations. The Commission found that such funds came from loans from Mr Ardavan Moshiri, EFC’s owner, and that the same did not bear interest and arrangement fees. Conversely, loans intended for different purposes, and which did carry interest and arrangement fees, could not be excluded from EFC’s PSR calculations despite EFC’s attempt to do so.[25] The Commission noted EFC’s obligation to act in ‘utmost good faith’ (PL Rules, r. B.15) and that EFC had failed to discharge this duty by providing information that was inaccurate.[26] The Commission therefore accepted that this amounted to an aggravating factor that increased EFC’s culpability.

Mitigating factors

EFC advanced six mitigating factors, with the Commission providing some useful analysis on and/or accepting two of those factors:

• Positive trend: EFC asserted that its PSR calculations showed a downward trend for losses and referred to the EFL’s CPSR which allows credit for such a downward trend.[27] The exact figures for EFC’s relevant PSR calculations are not included in the Commission’s written reasons. The Commission accepted that it was inappropriate to import isolated parts of the EFL’s CPSR but accepted that as a matter of principle a ‘consistent improving trend‘ can be relied upon as a mitigating factor.[28] Further, the Commission accepted that EFC’s relevant PSR calculations showed a downward trend and that this went ‘some limited way to diminish [EFC’s] culpability‘.[29]
• Cooperation with the PL: EFC asserted that it behaved openly and responsibly in its dealings with the PL in relation to its PSR calculations that formed the basis of the charge against EFC. EFC sought credit for this behaviour. The Commission noted that such behaviour was in EFC’s self-interest, and also noted, inter alia, that EFC had mislead the PL and acted contrary to PL Rule, r. B.15, as noted above.[30] In such circumstances, the Commission considered EFC’s behaviour to not be ‘of such an exceptional nature that it should stand as mitigation of [EFC’s] culpability‘.[31]

The sanction

The Commission agreed with the PL in respect of the nature of the sanction to be imposed, namely that there should be a sporting sanction in the form of a points deduction:

‘We have no doubt that the circumstances of this case are such that only a sporting sanction in the form of a points deduction would be appropriate. A financial penalty for a club that enjoys the support of a wealthy owner is not a sufficient penalty. We agree with the Premier League that the requirements of punishment, deterrence, vindication of compliant clubs, and the protection of the integrity of the sport demand a sporting sanction in the form of a points deduction. The issue is not the form of sanction, but its extent‘.[32]

Insofar as quantification of the sanction is concerned, and reflecting the reasoning explained above, the Commission noted that there ‘is no fixed formula to be applied: we are required to determine the extent of culpability, and from that to determine the points deduction‘.[33]

The Commission noted that EFC’s breach of the PSR was caused by overspending, largely resulting from its player purchases and inability to sell players, and because it finished lower in the league than it had projected.[34] The Commission considered EFC’s position to be ‘of its own making‘ and the £19.5 million excess over the permitted loss threshold of £105 million to be significant. Accordingly, the Commission considered EFC’s culpability to be ‘great‘.

The Commission then came to the following swift conclusion:

‘This was a serious breach that requires a significant penalty. The Commission considers that it should order an immediate deduction of 10 points‘.[35]

Comment

The Commission’s task of arriving at a proportionate sanction was always going to be difficult considering the absence of any sanction guidelines and the absence of any directly comparable cases (as opposed to those cases seen in the EFL).

It is notable that if the Commission had adopted the PL’s suggested formulaic approach to sanction (i.e., a starting point of a six-point deduction, and then a further one-point deduction for every £5 million over the permitted loss threshold of £105 million), EFC’s breach of the PSR would have warranted a nine-point deduction, subject to the effects of the above-stated aggravating and mitigating factors. Additionally, it is possible that EFC being just £500,000 short from another full £5 million over the permitted loss threshold could have pushed the sanction to a 10-point deduction.

In this author’s opinion, the absence of any clear metric or rationale of why a ten-point deduction was considered proportionate is striking, and it is unsurprising that EFC has appealed against the sanction. Additionally, considering that EFC is facing the possibility of paying compensation to club’s affected by EFC’s breach of the PSR (as explained in Football Law’s November 2023 Roundup), it is arguable that this factor has not being considered when considering the proportionality of the overall punishment and/or consequences EFC will suffer from its breach of the PSR.

Footnotes

[1] The Premier League v Everton Football Club Company Limited, Premier League Commission (Ch. David Phillips KC FCIArb), 17 November 2023), [84].

[2] (n1); The English Football League v Birmingham City FC, EFL Disciplinary Commission (Ch. Charles Flint QC), 22 March 2019, [29-33] and [38].

(3] (n1), [85].

[4] Ibid, [86].

[5] Ibid, [87].

[6] Ibid, [89].

[7] Ibid, [92].

[8] Ibid.

[9] Ibid, [95].

[10] Ibid, [93].

[11] Ibid.

[12] Ibid, [96].

[13] (n10).

[14] (n12).

[15] (n1), [94].

[16] Ibid, [133].

[17] Sheffield Wednesday FC v The Football League Limited, League Arbitration Panel (Ch. Lord Dyson), 4 November 2020, [103].

[18] (n1), [99].

[19] Ibid.

[20] Ibid, [28] and [102].

[21] Ibid, [102].

[22] Ibid, [103]-[104].

[23] Ibid, [104].

[24] Ibid, [105].

[25] Ibid, [76-82] and [106].

[26] Ibid, [107-108].

[27] Ibid, [117].

[28] Ibid, [118].

[29] Ibid, [119].

[30] Ibid, [131].

[31] Ibid, [132].

[32] Ibid, [135].

[33] Ibid, [136].

[34] Ibid, [138].

[35] Ibid, [139].