Everton points deduction: How key arguments played out after double jeopardy and sporting advantage disputes

Everton were plunged deeper into a relegation battle on Monday after the club was handed a two point penalty for its second breach of Premier League spending rules.

Having been found to have crossed the £105m limit for losses up to June 2022 by £19.5m, the club admitted that it overspent that threshold by £16.6m for the timeframe ending in June 2023. A hearing with the Premier League, before an independent three person panel, followed in March and the result was the club's second points deduction of the season.

The process is far from over, however, with Everton set to be the subject of at least two further hearings over its finances following its decision to appeal the latest verdict. Following the publication of that judgement, the ECHO looks at some of the key points - from double jeopardy to guilty pleas to the impact on Everton of the Russian invasion of Ukraine.

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Everton admitted the breach

A key starting point for analysis is that Everton admitted breaching the £105m threshold for losses from the start of this process, the club’s second offence under the Premier League profit and sustainability regulations (PSR).

There remains a dispute over the extent of the breach - one so complicated it will only be resolved after a separate hearing, most likely in the summer (more on this below). But this case proceeded on the basis that the club overspent by £16.6m with the arguments and punishment directly reflecting that.

That Everton accepted it broke the rules was an important part of this case. In its first case, which ultimately led to a six point penalty, Everton initially claimed it was not guilty of any wrongdoing. The way that process played out clearly influenced the approach of Nottingham Forest in its own PSR case, heard earlier this year and which led to a four point sanction. Forest ended up receiving a reduction to its penalty because of the “exceptional cooperation” it could evidence.

Everton benefitted this time around too. The independent panel that heard these arguments did not find proof of “exceptional cooperation” but it did dismiss Premier League claims the club had been uncooperative. And the panel ultimately ruled that Everton admitted its guilt early enough in proceedings to help bring down the final penalty.

Key arguments

In this case, like with the case against Nottingham Forest, the Premier League did not make any claims that there were “aggravating factors” to Everton’s breach. This meant the arguments that followed were largely based around Everton’s attempts to defend the club’s breach with the hope the club could show a second points deduction would not be necessary.

Everton’s case focused on five key areas:

A) The direct loss resulting from decisions taken following Russia’s invasion of Ukraine

B) That the club had already received a punishment for two of the three years in play

C) The early admission of a breach

D) Broader issues such as stadium costs and whether a sporting advantage was gained

E) The extent of its co-operation with the Premier League in these proceedings

Everton essentially won the arguments over A, B and C, lost D and drew over E. Points C and E have already been discussed above, so the following arguments are summarised below.

Why Everton had success over the impact of Russia’s invasion of Ukraine in this case

A major part of the first case centred on what Everton claimed was the specific impact on the club of Russia’s invasion of Ukraine. The Blues had a series of sponsorship details, most notably for the naming rights of the Finch Farm training ground, with USM and other companies linked to the oligarch Alisher Usmanov. These were suspended by the club in the wake of the invasion, which led to Usmanov being placed on European Union and UK sanctions lists.

In the first case, Everton argued this ended its plans to bring forward a 20 year, £200m stadium naming rights deal that would have benefitted the club to the tune of £10m in the 2021/22 financial year - thus reducing the £19.5m breach it was punished for. The club lost this argument because it could provide no documents to back up claims the deal was to be brought forward.

In this second case, covering the year 2022/23, Everton could directly point to the loss of around £20m for its existing sponsorship deals - money the club was expecting to receive as part of an existing agreement. This was the first financial year that the suspension of the deals already in place could be shown to have a real impact on club finances.

Everton argued the loss was due to an “extraordinary and unforeseeable circumstance”. The Premier League disputed it was “fundamentally ordinary” and the risk of losing out on such a deal should have been accounted for in advance.

The panel described the Premier League’s argument on this as “unpersuasive”. Of Premier League claims that Everton should have factored in the “heightened risk profile” of Usmanov, it added: “That is a nice point to be made in hindsight, as was the Premier League’s invocation of the Russian invasion of the Crimea and the Russian poisoning episodes on UK soil. It is, in the commission’s view, too much to ask that Everton should have taken these matters into account with respect to the prudent management of the sponsorship risk.”

Double Jeopardy

Everton argued the club deserved credit because it had already been punished for two of the three years the second case focused on. Club representatives warned against double jeopardy - essentially being punished twice for the same offence. The Premier League disputed double jeopardy was a risk, but did accept that the second punishment should bear in mind the “overlapping years of assessment”. The Premier League suggested Everton should receive two points off the total sanction to account for this - but, it argued, only if the starting point was at least a five point deduction. The commission agreed its punishment had to take the six points already deducted into account.

Broader arguments and ‘sporting advantage’

The Premier League argued the ‘double jeopardy’ reduction should be limited to two points because of Everton’s transfer spending in 2022/23 season. The club did not buy anyone in the January of that timeframe, but in the summer it committed to fees for Idrissa Gueye, Amadou Onana, Dwight McNeil, James Garner and Neal Maupay. The spending, which it is claimed added £37m to Everton’s PSR figure, came in the wake of concerns over the club’s compliance with PSR limits.

Director of Football Kevin Thelwell gave evidence on this spending, saying it was part of a “new recruitment strategy” and that “Everton carefully planned its purchases and sales of players, with a view to compliance with the PSR but that Everton was required at times – even in difficult financial circumstances – to purchase players in order to secure long-term viability”.

Thelwell pointed to the release of players from the club and attempts to sell players in January 2023 - which included Anthony Gordon to Newcastle United for a deal of around £40m. But the Premier League argued that the club - already knowing it would be without the USM sponsorship money - "inadequately budgeted and, instead, recklessly purchased players”. The league suggested Thelwell “did what he thought was right for football, without having due regard to compliance with the PSR”. Thelwell, meanwhile, said that “competitiveness was subject to compliance with the PSR” and pointed out that 26 players left the club in the 12 months under scrutiny and only 13 joined.

On this front the commission rejected Everton’s claims the new strategy was reflective of what, in Thelwell’s words, were efforts “to turn the ship around”. It accepted there was a move towards a more sustainable strategy but found the club knew what its target was for complying with the rules and failed to achieve that partly because of how much was spent on transfers.

It also rejected any claims Everton received no “sporting advantage”, finding: “Everton’s witnesses accepted that it had to buy players in order to remain competitive on the pitch. That, it seems to us, tacitly accepts that the trading in Financial Year 23 did provide a sporting advantage which, had Everton complied with the PSR, it would not have obtained.” Everton stayed up on the final day of that season with the 1-0 win over Bournemouth.

This was also the latest commission to dismiss the suggestion Everton should receive credit for the financial strain of building the new stadium when its PSR position is assessed.

The inconsistency of approach

Four judgements have now been passed by independent panels assessing profit and sustainability cases. A clear line of thinking has not emerged and this verdict is the latest example - with both the Premier League and the latest panel finding disputes with previous conclusions.

This panel disagreed with the Forest panel, that ruled breaches could be categorised as minor, significant and major. It agreed with that panel that a starting point of three points for breaching the £105m is acceptable, while a rough guide that one point should be deducted for every £6.5m the limit is exceeded by now seems to be emshrined. But it also disagreed with the Forest panel’s assessment of how Everton’s six point total was calculated. In the Forest case it was suggested Everton received three for the breach, two for the extent of the breach and one for issues around its approach to the case. This latest panel believes Everton’s six was consisted of three for the breach and a further three for the size of the breach. So that is now four different panels that have reached four different conclusions on Everton’s first case.

How was the two point total reached?

The Premier League argued for a starting point of five and said that, should that be the case, it would accept the punishment being reduced by two points for the overlap with the first case. Everton argued no deduction was necessary.

This panel gave a starting point of three for the initial breach and raised it to five for the size of it. It then took two off that total because, it assessed, the club had already been punished for around 50% of the breach, and reduced it by a further point due to a combination of the impact of the suspension of the USM deals and Everton’s early guilty plea.

But at least two more Everton hearings are to come

Everton plan to appeal this latest punishment, meaning another hearing that might not be concluded until the deadline of May 24 - five days after the end of the season. That means, with Forest also appealing, the table could change again, and potentially after the final whistle of the final game of the season.

To complicate matters even further, another hearing is expected to take place in the summer because this panel decided it could not rule on an outstanding issue between Everton and the Premier League. This relates to the capitalisation of stadium interest and means the Premier League actually believes the club may actually have breached the £105m threshold by even more money. The club has sought to retrospectively recapitalise around £6.5m in interest for the financial years 2021 and 2022. It sought to capitalise interest of around £19m in the most recent timeframe. Whether or not those expenses should also be included in the PSR calculations will be the subject of future debate.

The panel explained: “The commission is acutely aware that there are many stakeholders – to name some: the Premier League, Everton, the Everton fans, all other Premier League clubs, the public – interested in the speedy determination of these disciplinary proceedings. Nevertheless, in fairness to the parties in these proceedings, the commission decided that the issues which remain cannot be dealt with in accordance with the timetable set out in the Standard Directions. The Standard Directions will not, therefore, apply to the remaining issues.”

And what does this mean for Everton going forward?

The latest verdict also sets out the totals of the PSR breaches attributed, at this stage to Everton. These are the underlying losses for each year, minus sums that can be deducted from the calculations - typically figures for issues like women’s and youth teams and infrastructure.

Everton lost, in PSR terms, £3.9m in 2021/22 and £62.7m in 2022/23. This means that when this financial year ends on June 30, Everton will need to ensure the club has lost no more than around £38m to avoid another breach.