This year a claim brought by Burnley Football Club against Everton Football Club will be heard to recover alleged losses incurred as a result of Everton's breaches of the Premier League's Profit and Sustainability rules ("PSR"). The Premier League’s rules enable clubs to seek compensation from one another in the event that rule-breaking causes loss and Burnley will argue that Everton’s breaches resulted in their relegation during the 2021/2022 season. This case will set a precedent as to how football clubs can laterally litigate breaches of PSR. How will liability be determined and who will have jurisdiction to pursue claims of this nature? With the release of the Manchester City judgment on the not-so-distant horizon, answers to these questions are becoming more and more sought after.
A similar high-profile dispute heard in 2008 involved Sheffield United issuing proceedings against West Ham United in relation to the club’s breach of third-party player ownership. Carlos Tevez, the subject of the breach, scored vital goals that saved West Ham from relegation towards the end of the 2006-2007 Premier League season. Sheffield United successfully argued that this breach was at their expense, as they were relegated that same season. The dispute was settled outside of a hearing to assess quantum (the monetary value of damages); it was a landmark case on the butterfly effect of regulatory breaches in the Premier League. This article will explain the background to the Burnley and Everton dispute and explore its potential consequences.
Implementation of PSR
PSR was introduced in 2015 to cap the financial losses that football clubs can experience within a specified timeframe and, more holistically, to ensure that clubs are financially healthy and able to operate in the future. The Premier League's intention is to prevent owners negligently managing the business side of historic football clubs that are beloved and followed by fans around the world. Pursuant to Section E of the Premier League Handbook, participating clubs must provide to the Board their Annual Accounts, amongst other documents, each year so that compliance with PSR can be verified. In broad terms, clubs are permitted to make a loss of up to £105 million over a three-year period. In the event PSR is breached, offending clubs can face penalties including but not limited to fines, point deductions or even relegation. Alleged breaches are referred by the Premier League to an independent commission where a hearing then takes place to determine liability, with potential sanctions considered.
New systems of financial control in the Premier League will be trialled in the future, such as the "squad cost rules" and "top to bottom anchoring rules", although these are not the focus in this article. This area of regulation is still evolving and is subject to change.
Everton's 2023/2024 point deductions
Everton managed to avoid relegation from English football's top-flight last season despite being deducted a total of eight points due to breaches of PSR. The club were docked six points (reduced on appeal from an initial ten-point deduction) during the 2023/2024 Premier League season for breaching PSR in the three-year period to 2021/2022. Everton found themselves roughly £20 million over the loss-permitting allowance and the independent commission stated that this was largely due to overspending on incoming players and debts incurred in relation to the development of their new stadium. Later in the season a further two points were deducted from the club as they were found to be £16.6 million over the loss-permitting allowance during the three-year period that ended in 2022/2023.
Amidst concerns around the first-team's form and the psychological effects of the points deductions on the club, good performances from Sean Dyche's side saw them end the season in 15th place and 14 points above relegation.
Burnley's 2021/2022 relegation
In a season where spectators saw Pep Guardiola's decorated Manchester City team secure another Premier League title, they also saw the relegation of Burnley, being only three points away from safety. It of course only became clear during the 2023/2024 season that, during this earlier period, Everton had been breaching PSR, for which it was later penalised. The 2021/2022 season found Everton safe from relegation by only four points, being two points less than the six-point deduction the club later received for its rule-breaking during the season. Once these breaches had been uncovered, Burnley expressed grievances that the matter was not dealt with earlier so that Everton's point deductions could have been incurred during the relevant season, therefore saving Burnley from relegation and the negative financial impact this had.
When a club is relegated from the top-flight it receives what are commonly known as "parachute payments" from the Premier League in order to protect it in the adjustment period when its income is substantially lower. The financial rewards for partaking in the Premier League, most notably the broadcasting and sponsorship revenue, is reported to far exceed the parachute payments received following relegation. Burnley are therefore seeking compensation from Everton for the losses incurred as a result of the PSR breaches and its relegation in the 2021/2022 season.
The butterfly effect
The “butterfly effect”, a concept existing in chaos theory, illustrates how a small change in the initial actions of a system can have significant and non-linear effects. Had Everton not breached PSR, a multitude of eventualities can be speculated on and, if Burnley are successful in their claim against Everton, this will set a significant precedent that may open the door to many potential interclub claims.
For example, Manchester City have recently been charged 115 times by the Premier League for breaches of its Financial Fair Play regulations. If the club is found liable for these breaches, what effect could this have had on previous seasons and which clubs will have jurisdiction to bring a claim in damages? In recent years, both Liverpool and Arsenal have narrowly missed out on Premier League victory as a result of Manchester City's dominance; will they be able to sue for the financial benefits a league title would have rewarded them with? What effect might these breaches have had on the top 4 league places that qualified for UEFA's illustrious Champions League competition? What effect might Manchester City's performances have had on the relegation battle?
Vitiating the previous successes of football clubs will have knock-on effects on other clubs. These effects may, however, be unquantifiable and indeterminable. It appears difficult to ascertain liability retroactively in this regard. Burnley’s claim against Everton will be another landmark case in the world of sports regulation and its outcome will have a significant impact on interclub PSR disputes.
If you would like to discuss any of the matters raised in this article, please get in touch with a member of our specialist Sports Law team.