Everton, a Premier League mainstay that has spent nearly its entire 145-year existence in English soccer's top flight, has been hit with a 10-point penalty for breaking financial rules — an unprecedented punishment that will drag the club down into the EPL's relegation zone.
The points will be deducted immediately, pending appeal, and leave Everton on 4 points, in 19th place, after 12 matches this season.
They represent the most severe sporting sanction in Premier League history. They also spark all sorts of messy questions about the rules themselves, the consequences of Everton's breach, and the implications for Manchester City — the EPL juggernaut that has separately been charged with over 100 breaches of similar rules.
Shortly after the Premier League announced its decision Friday, Everton responded with a statement, saying it was "shocked and disappointed by the ruling." It plans to appeal what it called "a wholly disproportionate and unjust sporting sanction."
But the independent Premier League commission that ruled on the case was unequivocal: "The position that Everton finds itself in is of its own making."
What did Everton do?
Everton ran afoul of the Premier League's so-called "Profitability and Sustainability Rules," which essentially state that a club must not lose more than £105 million ($130 million) over a given three-year period.
Everton, over three years beginning with 2019-20 and ending with 2021-22, lost £124.5 million ($155 million) in relevant areas, according to an independent Premier League commission that ruled on the case.
It initially used fishy accounting to try to cover up that loss and avoid punishment. The Premier League cited that "misleading information," and argued that the real reasons for the losses were "that Everton overspent on players, and that it failed to take steps to reduce expenditure."
What is Everton's defense?
Everton eventually admitted to exceeding the £105 million limit, but, by the end of a five-day hearing last month, the club still argued that its losses were only £9.7 million beyond what's allowed, not £19.5 million.
And all along, it essentially argued that stadium costs and losses stemming from the COVID-19 pandemic were mitigating factors that the Premier League, in its calculations, wasn't fully taking into account.
What makes the Everton case so complicated?
"This is a complicated case," the lawyers who ruled on it acknowledged in their 41-page decision. It's complicated because the Premier League's rules — similar to UEFA's Financial Fair Play rules — don't cover all income and expenses.
Everton actually reported a £305.5 million loss over the three seasons in question, but the relevant numbers are "adjusted earnings before tax" — which, as the ruling commission explained, "exclud[e] costs incurred, broadly speaking, on matters that the Premier League recognizes to be in the general interest of football," such as spending on youth development and women's teams.
The EPL also allowed clubs to exclude pandemic-related costs when they calculated their "adjusted earnings." Additionally, Everton hoped to exclude costs related to the new stadium that it's currently building, and which it hopes to open in 2024 or 2025.
The Premier League permitted some exclusions, but then questioned the legitimacy of Everton's accounting. Specifically, it pointed to "£13.6 million in respect of interest incurred on inter-company loans used to finance stadium costs." It also cited "calculation errors."
The EPL also disputed other excluded costs related to transfers and the termination of a player's contract. Everton, according to the ruling, "claimed to exclude a sum of £43.9 million on the grounds of impact on player trading in the 2020 summer transfer window caused by Covid." In other words, the club tried to write off losses by arguing that it would have been able to sell certain players for eight-figure fees if not for the economic impacts of the pandemic.
Why did Everton lose the case?
The Premier League referred all those irregularities to the independent commission. The commission concluded: "Everton’s [financial] difficulties are not attributable to the costs of the stadium development. ... The cause of Everton’s  difficulties was the fact that it overspent (largely on its purchase of new players and its inability to sell other players), and because it finished lower in the league than it had projected in [2021-22] (16th against the projected 6th — causing a loss of expected income of £21 million)."
In other words: Everton spent like a big club but performed like a middling club.
In layman's terms, where did Everton go wrong?
Everton, under owner Farhad Moshiri, spent huge sums on players that, it hoped, would propel it into the Premier League's top six. It aspired to play in the Europa League or even the Champions League, which, in turn, would have yielded record revenues and helped pay for stars.
But it picked the wrong players to invest in — overrated players, aging players — and plummeted toward the bottom of the league instead. That is the root of its problems.
Why is Everton's punishment so severe?
The Premier League sought a 12-point deduction. It argued that other potential sanctions — a fine, or a transfer ban — would be insufficient, because Everton's illegal spending gave it an advantage over competitors. The commission agreed.
"We have no doubt that the circumstances of this case are such that only a sporting sanction in the form of a points deduction would be appropriate," the three-person panel of lawyers wrote in their decision. "A financial penalty for a club that enjoys the support of a wealthy owner is not a sufficient penalty. We agree with the Premier League that the requirements of punishment, deterrence, vindication of compliant clubs, and the protection of the integrity of the sport demand a sporting sanction in the form of a points deduction. The issue is not the form of sanction, but its extent."
In determining extent, they acknowledged that "there is no fixed formula to be applied," only their discretion and precedent. They decided on 10 points.
Is there precedent?
Previously, the most severe sanction in EPL history had been the nine points deducted from Portsmouth in 2010. The club had become insolvent, and went into administration. The nine-point penalty, finalized in March of that season, all but confirmed the club's already-likely relegation — it left Portsmouth on 10 points, 14 behind 19th-place Hull City.
Could Everton win its appeal?
Everton almost certainly won't get the punishment wiped out entirely, but the club could presumably argue that the 10-point penalty is excessive and get it amended to, say, 6 points.
How will the penalty and appeal affect the EPL relegation battle?
That possibility will linger above a suddenly-very-compelling relegation battle. Everton, for now, sits level with last-place Burnley on four points, one behind 18th-place Sheffield United, and two behind 17th-place Luton Town. (The bottom three get relegated to the second division.)
For obvious reasons, the appeal — which could trigger further hearings — must be wrapped up by the end of the season.
Even in the absence of a successful appeal, though, Everton will be favored to survive.
Shouldn't Everton be penalized retroactively?
Everton narrowly escaped relegation last season and in 2021-22 — two outcomes that were arguably influenced by all this outsize spending. The clubs most harmed by its rule-breaking, therefore, seem to be the likes of Leeds, Leicester and Southampton, all of whom are now playing in the second-tier Championship. So shouldn't those "compliant clubs," as the commission termed them, have some sort of recourse here?
That's the question many of them have asked. Leeds, Leicester and Burnley (which was relegated in 2021-22, then won promotion the following year) have previously threatened to sue Everton for damages. They have also written to the Premier League in search of justice.
In May, they were notified that, if Everton were found guilty and punished, they'd have 28 days to inform the commission whether they wished to pursue a claim for compensation. It's unclear what, exactly, that compensation would be.
What does all this mean for Manchester City?
Man City has been accused of far worse than Everton.
City, which has won five of the last six Premier League titles, and which is owned by the Abu Dhabi-ruling family, allegedly inflated the value of sponsorship contracts with Abu Dhabi state-owned companies so that it could report higher revenues, spend more on transfer fees and salaries, and still comply with Premier League and UEFA rules.
Leaked emails exposed City's scheme. UEFA passed on sanctioning the club. But the Premier League, after a yearslong investigation that City allegedly tried to obstruct at every stage, charged the club with scores of violations this past February.
The EPL referred that case to an independent commission, just as it did with Everton. The City verdict — the equivalent of what the EPL released Friday — might still be years away. And it will likely be subject to a vigorous appeal (and perhaps more City interference).
If the verdict is guilty, though, City will almost surely be hit with a punishment far beyond that of Everton.
Everton, perhaps alluding to City's alleged transgressions, concluded its statement by saying: "The Club will also monitor with great interest the decisions made in any other cases concerning the Premier League's Profit and Sustainability Rules."