The timing of this announcement in the middle of an international soccer window is noteworthy.
This press release timing designed for maximum publicity on the ruling and the immediate points deduction for Everton FC.
Before we delve into the judgement and the ramifications, one must understand the rule that was allegedly breached by Everton FC.
What are Profitability and Sustainability Rules?
Each EPL member have to submit by March 1st in each season a set of accounts for the current season and the accounts for the previous two seasons. The three season period here includes Covid-19 where fixtures were played to empty stadiums.
From the three sets of accounts provided, the Premier League creates a PSR calculation. The value produced is the aggregated of the adjusted earnings before tax for the current season and previous seasons.
What is adjusted earnings before tax I hear you say? Adjusted earnings takes into account of its profit or loss after depreciation and interest, but before tax, and then applies a series of ‘add backs’ which include investment in infrastructure, community initiatives, women’s football, youth development and depreciation of tangible fixed assets (e.g. the stadium, the training ground).
The PSR calculation breach is when a club reports an adjusted earnings loss over a three year period in excess of 105 million pounds. There is a dispensation for a club who has been in the championship during the relevant period.
What transpired today?
An independent commission has imposed an immediate ten point EPL deduction on Everton FC for a breach of the Premier League’s PSR rules. The 105 million adjusted earning loss was breached as Everton FC reported a 124.5 pound adjusted earning loss.
Everton FC have the right to appeal and their statement was clear in their surprise at the severity of the points deduction which results in the side dropping to nineteenth in the EPL league table. This is a precedent case and this appeal which should be heard quickly could set a baseline for further sanctions.
Everton FC are now in the relegation zone despite their performances improving this season. Sean Dyche will relish this challenge and expect a siege mentality approach to be adopted by the team for the rest of the season.
Manchester United travel to Goodison Park on Sunday week which should be an explosive fixture. Everton FC keen to issue a statement of defiance and a win to get themselves out of the bottom three. Luton Town were the main beneficiaries of today’s ruling as they move to fourth from bottom.
Everton have shown significant signs of improvement this season. This setback will galvanize Sean Dyche and staff to get out of the bottom three and stick to the Premier League and this independent commission.
The transfer embargo was an option of the independent commission to leverage in the ruling but it appears that option was not pursued. Everton FC board and legal team have their work cut out to first suspend the points deduction and then win the appeal.
What else should we looking out for here?
This is a case about Premier League sporting governance. This is an acid test on how this league is governed. A clear PSR breach was identified and a punishment has been sanctioned. How this appeal verdict goes will determine whether the Premier League body has any governance control?
If you have time, please read the 2021/22 LCP Report as it outlines the Covid-19 impact for football clubs during the 2021/22 season. I am genuinely surprised that Everton FC are only in the dock here given the financial matrix illustration enclosed on this report. Covid-19 crippled all football clubs (some more than others). If the Premier League are genuine on the PSR sanction, others EPL clubs should be probed and sanctioned. Everton FC’s breach is not an isolated case.
The fact that a number of football clubs lodged a complaint to the EPL on Everton FC leading to this ruling means that repeated complaints will be filed against other football clubs. Legal wrangles may ultimately determine league standings over performances on the pitch which is a sporting governance minefield.
The elephant in the room is the staggeringly delayed judgement on Manchester City and their financial rule alleged breaches. No immediate timelines when a ruling will be made here which is astonishing given the speed on this Everton FC ruling. The one rule for one, one rule for another mantra can be easily leveled here so the Premier League will need to close out the Manchester City financial rule breaches case as soon as possible.
What recourse do the clubs who got relegated to the EFL Championship have if Everton FC are confirmed as breaching PSR rules? Leicester City, Southampton and Leeds United will reflect with interest on today’s ruling.
Do they have a legal case to pursue on potential revenue stream losses to Everton FC and Premier League? This PSR ruling is going to open several key questions and legal challenges. I expect more revealing evidence may come out before this season concludes.