Editor’s note: This is an updated version of a piece that was first published in March 2023. It has been updated now that the commission is sitting.
Everton’s disciplinary hearing into an alleged breach of the Premier League’s profit and sustainability rules is underway.
The club was referred to an independent commission last March, with the potential breaches relating to the 2021-22 season. This followed an official complaint made during that campaign by then Premier League rivals Leeds United and Burnley.
The process involves submissions from both Everton’s legal team and that of the Premier League, as well as an element of cross-examination. No timeframe has been given for the outcome from the commission to be delivered, with the verdict to be published on the Premier League’s website when ready. Both sides will have the right to appeal the initial outcome.
It is only the second time action like this has been taken, after Manchester City were hit with more than 100 financial fair play charges last season.
Premier League rules dictate clubs are allowed to lose a maximum of £105million ($128.4m) over three years, with Everton having recorded losses of £370million between 2018 and 2021.
The Athletic examines how Everton have reached this point and the potential outcomes of the process.
Why were Everton referred to an independent commission?
Farhad Moshiri’s arrival in 2016 was supposed to be a game-changer for Everton.
The Anglo-Iranian was certainly a generous owner at first.
The first permanent manager under his reign as a majority investor, Ronald Koeman, spent around £145million on players in his first summer in charge, and Moshiri extended a similar level of support to the subsequent three managers before Rafa Benitez and Frank Lampard inherited tighter budgets.
That excess included inflated sums spent on underperforming players with too few sold at a profit, leaving the club vulnerable to the rules of FFP.
Staying within their limits became a key preoccupation for Everton over the last four years. Had it not been for the Covid-19 pandemic and the subsequent deductions allowed from losses, they would already be in deep trouble.
They have since embarked on a series of cost-cutting measures, including player sales, but March’s developments suggest Everton may have been unable to claw back enough.
Moshiri made his feelings about the situation known, calling it “unfair play” during a radio interview in 2021. In another interview in May that year, the former Everton manager Carlo Ancelotti quipped: “The Premier League has to solve different problems than the financial fair play of Everton.”
In March 2022, the club posted a loss of £120.9million in their last annual accounts which prompted greater scrutiny, along with anger from fellow strugglers Leeds and Burnley.
A joint letter signed off by Leeds chief executive Angus Kinnear and Burnley chairman Alan Pace is thought to have prompted the Premier League investigation which has led to this point.
Details about the extent and nature of Everton’s alleged wrongdoing are thin on the ground, but one early working theory at the club was that it related to stadium costs incurred around the building of their new arena at Bramley-Moore dock. Others in the game have pointed to Everton’s Covid-19 losses being significantly higher than those at other clubs.
Regardless, the club were surprised by the referral, particularly given their close working relationship with league officials in recent seasons, and intend to defend their position robustly.
Work continues on Everton’s new stadium (Paul Ellis/AFP via Getty Images)
What is permitted under the Premier League’s profitability and sustainability rules?
Clubs are allowed to lose up to £105million over a three-year period.
Everton’s recent losses have been much higher, but all clubs are allowed certain deductions when making their final submissions. These include monies spent on infrastructure, community schemes, as well as women’s and academy teams.
From the point at which they were granted planning permission for their new stadium in early 2021, Everton were also able to capitalise — write off from their profit and loss figures — money spent on the project.
In the 2021-22 season, clubs were also permitted to attribute certain losses to the impact of the pandemic. For financial years 2020 and 2021, Everton said those losses amounted to £170million — £103million of which came in 2021. This was much higher than the figures reported by other clubs.
Upon publishing their 2021 accounts, Everton said their “ability to generate material profits on player trading, which also yields significant wage and amortisation savings due to the players no longer being contracted to the club, has unquestionably resulted in a material and negative impact on the club across the last two reporting periods”.
They added: “We are continuing to assess the uncrystallised financial impact caused by the COVID-19 pandemic and the board strongly believe that a further substantial financial loss, not reflected in the £82.1 million cumulative crystallised figure, has been incurred.”
Everton’s argument will be that these deductions make them fully compliant with the Premier League’s profit and sustainability rules.
What have Everton said about the case?
Everton have always made clear they would defend their position.
A club statement issued in March laid out that stance. “Everton Football Club is disappointed to hear of the Premier League’s decision to refer an allegation of a breach of Profit & Sustainability regulations to an independent commission for review,” it read.
“The club strongly contests the allegation of non-compliance and together with its independent team of experts is entirely confident that it remains compliant with all financial rules and regulations.
“Everton is prepared to robustly defend its position to the commission. The club has, over several years, provided information to the Premier League in an open and transparent manner and has consciously chosen to act with the utmost good faith at all times.
“The club will not be making any further comment at this time.”
Wasn’t the Richarlison sale in summer 2022 designed to avoid this situation?
Everton have been in regular communication with league officials over their finances and will likely point to a series of cost-cutting measures taken in recent years.
Before the season in question (2021-22) then manager Benitez spent just £1.7million on new players. High-earners were moved on as Everton cut their cloth accordingly, with others following them out of the door.
Their biggest step came shortly before the end of the 2021-22 season when Richarlison was sold to Tottenham for a fee of around £60million.
As The Athletic reported at the time, the sale of the Brazilian was viewed as a key way of staying on the right side of FFP red lines. But that did not stop them being referred to the independent commission.
During proceedings, Everton will also likely point to further cost-cutting measures taken over the past 12 months. Although technically outside the period in question, they will be keen to show the extent to which they are trying to get their house in order after the early excesses of the Moshiri years.
In January, Anthony Gordon was sold to Newcastle for an initial £40million, while Alex Iwobi was another big-name departure over the summer, joining Fulham for £22million.
In total, they have recouped around £180million in transfer fees from sales made in the last 12 months and shaved around £40million off the wage bill over the summer just gone. These gains should become apparent in future accounts.
The sale of Richarlison to Tottenham last summer was done with Premier League FFP rules in mind (Photo: James Gill – Danehouse/Getty Images)
What do we know about the commission?
Very little, in truth. They are a small body separate from the Premier League and details have so far been scant.
While the Premier League went into substantial detail on Manchester City’s breaches, the statement on Everton was curiously brief. With proceedings active, neither the commission nor Everton or the Premier League have been willing to go into specifics.
Murray Rosen KC, a barrister at 4 New Square Chambers, chairs the Premier League’s independent judicial panel and was appointed to the role in 2020.
Rosen’s profile on 4 New Square Chambers’ website describes him as someone who has a “formidable reputation as a tenacious advocate” and as a “neutral who resolves disputes rather than still fighting them”. It also highlights that he is a member of Arsenal FC, something which reportedly antagonised Manchester City ahead of their own hearing.
In this case, Rosen was expected to select a three-person panel. Because the charges relate to alleged financial breaches, one of the panel members will have to be a financial expert.
Rosen is also an arbitrator for the Court of Arbitration for Sport (CAS).
Should either Everton or the Premier League decide to appeal against the panel’s verdict, then there is a process where a separate panel would convene to review any possible appeal.
What are the possible punishments that could be imposed?
It’s worth noting that there is no direct precedent for this type of punishment in the Premier League era.
That means we can only consider the possible sanctions if the club were found guilty, and the Premier League handbook lists what might happen.
Perhaps the most damaging would be a points deduction. Everton could also be fined, face a transfer embargo or have a limit placed on their spending.
There is also the potential for Moshiri to take a financial hit if Everton are charged. It was announced in September that he was selling his 94 per cent shareholding to Miami-based group 777 Partners. The deal contains certain performance clauses, so Moshiri would be in line to receive a lower sum if Everton got relegated.
Then there is the reputational damage that comes with such a high-profile case.
To avoid this becoming a reality, Everton must convince a commission of independent figures that they have not fallen foul of the rules.
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When could punishments be applied? Could other clubs have a case against Everton?
The most likely outcome, should Everton be found guilty, is that the potential punishment would apply to the current season.
But it is also worth pointing out that both sides have a right to appeal and the club would almost certainly do that should the verdict not go their way.
Other clubs will no doubt be monitoring the situation carefully with a view to potential legal action. It is entirely possible that those clubs relegated in recent seasons would seek damages if Everton are charged.
(Top photo: George Wood/Getty Images)
