As the perilous nature of Everton’s finances became clear in the spring of last year, and the distinct possibility emerged that it would break the financial rules that govern all 20 Premier League members, the club formulated a plan.
The idea was to demonstrate to the Premier League’s governance department that sufficient costs were deductible from Everton’s huge losses. If the club could do so, Everton’s finances could come in under the threshold of £105 million permitted losses for the monitoring period in question. It would not be easy, so Everton’s compliance department had to be creative.
Just how creative was demonstrated in the full judgment published on Friday that detailed the case – prosecuted by the Premier League – which led to Everton’s 10-point deduction by an independent commission.
Everton sought to remove no less than £94.2 million of losses from their financial fair play calculation – now known as profit and sustainability rules (PSR) – in a few clicks on the spreadsheet. What they proposed stretched the credulity of the Premier League’s lawyers beyond breaking point, and one item will be hard to forget.
Everton claimed that they could have made £10 million from suing a player whom they had been forced to dismiss for breach of contract the previous year, 2021. The individual, known only as Player X, was an asset and Everton believed it should be rewarded for not taking legal action against him.
Everton had announced in 2021 that they had initially suspended a player after he was arrested by Greater Manchester Police on suspicion of child sex offences. After a two-year investigation the player was not charged and faced no further action.
On August 26 last year, Everton’s legal department sent that point regarding not taking legal action, and three others, arguing for a total £94.2 million reduction to the losses in its PSR calculation, and waited for a response.
On Dec 9 last year, it came from Jamie Herbert, the Premier League governance director. He called to say the Premier League board was emphatic in its view: the £10 million rebate for Everton not suing Player X would not be accepted. Neither would the other £82.2 million in the loss reduction for which Everton applied. That included £61 million claimed in Covid player trading losses; £17.4 million Everton believed it had recouped by charging interest on an inter-company loan; and £5.8 million that the club thought it could set aside on a universal transfer levy all 20 clubs pay.
On March 1 of this year, and despite the view conveyed from the Premier League board, Everton submitted a revised PSR calculation including some of the items it had been told were not admissible. This time the club said it had made losses of £87.1 million for the period in question – £17.9 million below the permitted threshold of £105 million. The Premier League felt it had no option but to charge the club with a serious PSR breach.
Much of what was revealed in the judgment suggested Everton’s finances were a slow-motion catastrophe. Despite the excuses and the explanations that were thrown in the way, impact was finally reached with Friday’s judgment. Whether a 10-point deduction sends Everton down in May after 70 years in English football’s top flight remains to be seen. What is not in doubt is that the club and its owner, Farhad Moshiri, were given plenty of chances to get their house in order.
Indeed, the club were given meetings and asked to formulate plans. Allowances were made for the anomalies in their situation, especially around the Bramley-Moore stadium project. In Aug 2021, they signed a bespoke agreement with the Premier League. But the club just kept spending on players.
It is telling that in March of this year, when Everton’s lawyers hit send to submit their PSR calculation, they claimed to be compliant. By the time it reached the pre-trial hearing on Oct 4, they accepted they no longer were. Their argument had changed dramatically. They accepted that in fact they were £7.9 million over the £105 million threshold. But, Everton said, there were mitigating factors.
Come the end of the hearing, with the case proven in the Premier League’s favour, Everton were pleading that they should have a financial and not a sporting sanction. The club even suggested they should get a transfer ban of some sort. By then the three-strong commission led by David Phillips KC had seen enough – a points deduction was, in their view, the only credible sanction.
While many will say that Everton have been dealt with much more swiftly than Manchester City’s alleged PSR breaches, and attendant refusal to disclose, which date back to 2009-2010, one could hardly argue that the Merseyside club’s case has been fast-tracked. The first concerns, relating to the investment in the new stadium, came in early 2019. These were addressed by the Premier League.
They would be the first of a number of allowances that the league made for Everton, its precarious financial position and Moshiri whose investment in Everton – the commission heard – now totals around £750 million.
The problem with the new stadium was unusual. The former Unesco World Heritage status of the Merseyside seafront threw up an anomalous accounting problem. Because the Unesco status – since revoked in light of the stadium build – meant planning was not assured, Everton’s investment could not be capitalised on the balance sheet. Instead, it was booked as a loss. In August 2021, the Premier League came to an agreement that those costs incurred before planning was granted – £39.3 million – should not count as PSR losses.
It did so conditionally that Everton would not breach PSR with other costs. The club had a strategy, devised by the now departed sporting director Marcel Brands, which included selling eight players for a net profit of around £50 million. None of this happened as planned. By early last year it was clear that the club were, in spite of the agreement struck the previous August, heading for a PSR breach.
Accordingly, other clubs would, the commission heard, “drive a hard bargain” on player fees. Everton believed the sale of Richarlison would earn them £80 million in the summer of last year. That they received just £60 million from Tottenham Hotspur was, the club said, “directly attributable to [Everton’s] PSR calculation difficulties”.
Even so, the decision by Everton in March this year to ignore the Premier League advice, and submit a PSR calculation the club had been warned would not be accepted, did not help the cause. The Premier League said the claim was an aggravating factor and raised the breach to £124.5 million.
Also in March, Premier League lawyers said that they wanted the case concluded by the end of the 2022-23 season. Had it done so Everton would have been relegated in 19th position and Leicester City – who finished two points behind them – would have been saved. The commission decided such a timeframe was “unrealistic” but it would be one of the few arguments the Premier League’s lawyers would lose.
By the time Everton reached October, their optimistic appeal to write off £94.2 million of losses had been comprehensively revised. Now it sought to have just £11.7 million of losses disregarded. The club admitted breaching PSR. Instead, they pleaded for mitigation. Players could not be sold, Everton said, because of Covid. Russia’s invasion of Ukraine had meant that the training ground sponsorship deal with sanctioned oligarch Alisher Usmanov, £200 million over 20 years, had to be ripped up.
“Recklessness” was the Premier League’s lawyers’ view of Everton’s continued spending on players. As for the selling of them, it was not the case that Covid was hampering Everton in the transfer market, the Premier League said, rather it was the fact there was “no ready purchaser for those players at the prices Everton was seeking”.
“Unwise” said the commission of Everton’s decision to continue buying players in the hope that sales would enable them to comply with PSR. “Events,” the commission concluded, “have proved that to be a poor judgement”. This position that Everton found themselves was, the commission added, “of its own making”. The excess over the permitted £105 million threshold was “significant” and, as a result, “Everton’s culpability is great”.
As for Player X, whose sacking Everton argued cost them £10 million on their PSR calculation, the club said that they did not pursue a legal case in deference to his “psychological wellbeing”. The commission politely disagreed. Even in the event of a successful £10 million legal case against Player X, the commission pointed out, he may never even have been able to pay his old club the damages. That argument, like a great deal else Everton advanced, was a fanciful last defence of a club with nowhere left to go.