Everton Faces Financial Fair Play Investigation And Will Strongly Contest Premier League Allegation

Last week it was announced that the Premier League had referred Everton to an independent commission for an alleged breach of the league’s profit and sustainability rules during the period ending in the 2021/22 season.

This is the Premier League’s own version of the more well known financial fair play (FFP) rules that apply in UEFA competitions, and is aimed at ensuring clubs are sustainable and do not make huge losses each year.

Under the profit and sustainability rules, clubs are not allowed to post a loss of more than £105 million ($129 million) during a rolling three-year period, although this excludes things like youth football, community development, women’s football and—in respect of seasons 2019/20, 20/21, and 21/22—Covid-19 related costs.

There have been a number of reports in recent years of Everton sailing close to the wind when it comes to these rules, going as far back as 2021 and likely further, but the announcement will still have come as a surprise to the club which had been working closely with the Premier League on its finances for much of that time.

In a statement, Everton said it was: “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.

“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.”

In a Q&A with the Fan Advisory Board in February this year, the club cited Premier League rules as one of its reasons for not being as active in the transfer market as fans might have hoped.

“We worked hard on securing players of the right quality, but were unable to reach an agreement with the clubs we were liaising with,” said one answer related to the lack of transfer activity.

“Our efforts were hindered by the fact our negotiating power was impacted by our responsibility to also remain compliant with profit and sustainability rules.”

The cost of transfers isn’t just related to the fee paid, as player contracts have to be taken into account including things such as signing-on fees, bonuses, and agent fees. These can form part of an initial lump sum, but just as wages aren’t paid in one go, transfer fees can also be amortised on the accounts for the duration of a player’s contract.

Chelsea FC has used this method under new owner Todd Boehly, offering players unusually long contracts so the large transfer fees it has been paying out don’t affect financial fair play rules as much in the accounts as they would if the contracts were shorter.

Despite these workarounds, there have been rumblings that Chelsea might also be breaching the Premier League’s profit and sustainability rules.

Both Chelsea and Everton have been impacted by sanctions placed on Russian oligarchs following Russia’s invasion of Ukraine.

Chelsea has been hit most obviously, as their former owner Roman Abramovich was disqualified as a club director by the Premier League board following the sanctions.

Everton will also have been affected by the loss of income from Usmanov-owned businesses USM and MegaFon, who sponsored the club in various ways and used to have links with Everton owner, the British-Iranian businessman, Farhad Moshiri.

The most obvious early signs that Everton was watching its spending came after Rafa Benitez took over from Carlo Ancelotti as manager.

Under Ancelotti, Everton had designs on the top six, even the top four, and qualification for European competition that would have provided extra income, but the Italian left for Real Madrid and Everton was left somewhat in the lurch.

Prior to his departure, Ancelotti mentioned the financial situation and commented that Everton had money to spend in the summer of 2021.

“The Premier League has to solve different problems than the financial fair play of Everton,” Ancelotti said in May 2021.

“For the fact that six teams wanted to go into a Super League—first of all, they have to take care of this and then, maybe, they can have a look at Everton. But we are going to look at ourselves.

“We will take care of our financial aspect but we can buy without selling players this summer for sure.”

It was near impossible for Everton to attract another manager of Ancelotti’s calibre, and when Benitez came in it was soon obvious the club had some financial worries.

Some players with wages at the upper end of the scale, such as James Rodriguez, Bernard, and Lucas Digne departed in the summer of 2021. First-team squad members Muhamed Besic, Yannick Bolasie, Theo Walcott, and Joshua King left on free transfers, while Moise Kean joined Juventus on loan, all with the aim of lowering the wage bill.

In terms of incomings, Benitez was limited to free transfers plus the bargain signing of Demarai Gray for $2.3 million, and commented that the club’s business had been severely restricted.

“We didn’t spend a lot of money but we made some good signings,” Benitez said in September 2021.

“Could it be better? Yes, because if you have more money you can do it, but the financial fair play rules were killing us in this window.”

It appeared that this was when Everton’s troubles on the field started, and things seemed to get worse under Benitez’s eventual replacement Frank Lampard with the club finding itself in a relegation battle for the next two seasons before Sean Dyche replaced Lampard this year looking to steady the ship.

But Everton’s actions in that 2021 transfer window indicated the club was already in trouble prior to the arrival of Benitez and Lampard, and that Ancelotti’s comments about not having to sell to buy were unfounded.

Since then, the club has been working closely with the Premier League to make sure it stayed within its profit and sustainability limit.

Some costs could be excluded from recent losses due to the financial issues clubs faced as a result of the Covid-19 pandemic, but this drew criticism from fellow 2022 relegation battlers Burnley and Leeds who questioned why Everton posted Covid-related losses that were much higher than those of other clubs.

“We have worked so closely with the Premier League to make sure we are compliant, we are comfortable we have complied with the rules,” Everton responded in May 2022.

“External auditors have told us what we can and cannot claim against the pandemic. If they [other clubs] want to take legal action then they can do so by all means.”

Everton and Manchester City are the only clubs to have been investigated for a breach of profit and sustainability rules, and these are both ongoing. This means the investigations and the outcomes are unprecedented and unknown at this stage.

Everton will hope that its liaising with the Premier League for several years, and the obvious restrictions it has placed on itself in the transfer market, will work in its favour as the case is heard.