Explained: Why English football club finances are under scrutiny
THREE English Premier League football clubs have been sanctioned or are under investigation for using accounting tricks to play down their financial losses. One of those clubs, Everton, was even deducted points in the standings, putting it at risk of being relegated, or demoted to a lower competitive division. The league, like others in Europe, enforces rules that cap clubs’ losses. But wealthy owners seek ways to bypass the rules to spend more on players.
1. What did Everton do wrong?
Under Profitability and Sustainability Rules enacted in 2013, Premier League teams are permitted to lose a maximum of £105 million (S$177.3 million) over any three-year period, which can include up to £90 million of equity injected by ownership. Though Everton originally claimed to have been within the limit, an independent commission appointed by the league said the club actually lost £124.5 million in the three years to the end of the 2022 season. In November, it was docked 10 points as punishment, putting it into the relegation zone for demotion to the second tier of English football. Everton has appealed.
2. How had Everton calculated its losses?
Everton’s accounts show assessed losses of £287 million over the three years. However, the Premier League allows clubs to knock off several expenses from their stated losses before imposing the £105 million limit, including the costs of running a women’s team, community activities and infrastructure investment. The disagreement centres mostly around Everton having deducted interest payments on loans to build a new stadium. The Premier League’s investigatory commission also disallowed some losses and expenses the club incurred on players and transfers.
3. Isn’t a new stadium a permitted infrastructure investment?
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It can be, but the money that Everton borrowed – from sources including banks and the club’s owner, Farhad Moshiri, who is trying to sell the club to US investment group 777 Partners – was for working capital, not to build the stadium. Everton also tried to claim some of the interest expenses before the stadium had received planning permission. That meant it couldn’t show the guaranteed future income necessary to meet the accounting test. The league accepted Everton’s assurance that it hadn’t deliberately attempted to game the financial rules. But it also said that Everton, in scrambling to find money to spend on players, broke rules in a way that conferred a competitive advantage.
4. Could Everton’s appeal succeed?
The grounds haven’t been made public but likely centre on the accounting treatment of the new stadium and a series of mitigating factors the club believes should minimise its punishment. The club says its financial planning was thrown into chaos by the pandemic, which made it hard to carry out foreign transfers of players, and by Russia’s invasion of Ukraine, which cost it some lucrative sponsorship deals from Russian firms that would have helped pay for the stadium. The consequent lack of money left little choice but to use working capital to pay for the stadium, the club says.
“It looks like management incompetence rather than an attempt to game the rules,” said football finance expert Kieran Maguire at Liverpool University. Moshiri has thrown around £750 million at the club since taking over in 2016, spending heavily on players in an unsuccessful bid to finish in the top six.
5. Which other clubs face scrutiny?
Two other Premier League clubs, Chelsea and Manchester City, face allegations of cooking the books. Manchester City, champion for five of the past six seasons, is being investigated by the league for allegedly making hidden payments to a former manager and disguising payments from its ownership group – which is led by Sheikh Mansour Bin Zayed Al Nahyan of Abu Dhabi – as sponsorship money. Chelsea self-reported false financial reporting under Roman Abramovich, the Russian billionaire who owned the club from 2003 to 2022. Everton, Chelsea and Manchester City have lost the most money since the Premier League was formed in 1992. Other teams, including Manchester United and Arsenal, have remained profitable, with high revenues making them less reliant on money from their owners. There have also been a spate of scandals in continental Europe, with Italian giant Juventus docked points for false financial reporting. BLOOMBERG
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