Everton 'have a case to answer'

From neutral Switzerland, the authoritative Swiss Ramble casts a judicious eye over the complaint about Everton’s spending made to the FA by Burnley and Leeds United.

It is difficult to know how this will play out, though it does look like Everton have a case to answer. Leeds United and Burnley have asked for an independent inquiry, which they want to be fast-tracked, though it is debatable whether the Premier League will make a quick decision.

The Premier League Profitability and Sustainability (P&S) rules allow a £5m loss a year, which can then be boosted by £30m equity injection, giving allowable losses of £35m a year. This works out to £105m over the 3-year monitoring period.    However, the Premier League have relaxed the regulations in order to help neutralise the adverse impact of COVID, so the 2022 monitoring period will assess the seasons 2019/20 and 2020/21 as a single (average) period.

This is important, as it means that Everton’s loss over the adjusted three-year monitoring periods is “only” £255m, as opposed to the £373m reported over the last three years between 2018/19 and 2020/21. That said, it is still £150m above the P&S £105m limit.

Permitted deductions

But the reported losses are not the ones used for the P&S calculation, as clubs are allowed to make deductions for “good” expenditure, including infrastructure, academy, community and women’s football. The Swiss Ramble estimates that these are worth around £41m to Everton

In addition, they have incurred £29m costs on their new stadium in this period, which can also be deducted. Another £20m was spent in 2020/21, but that was capitalised, as there is now more certainty around project completion (planning permission granted), so did not hit the P&L.

Therefore, Everton can deduct a total of £70m from their reported expenses, comprising £41m allowable deductions plus £29m for development costs on the new stadium (which will be capitalised when this is operational).   If we deduct this £70m from the P&S loss of £255m, the net loss is reduced to £185m, though this is still £80m above the P&S target of £105m.

Worth noting that commercial income significantly increased in 2019/20, due to a £30m payment from USM (where owner Farhad Moshiri is a shareholder) for an option on new stadium naming rights. For now, let’s assume that the Premier League is happy with this innovative deal.

Covid losses

Everton said that COVID has caused £170m losses over the last 2 years (£103m in 2021) with a further £50m to be added (based on market analysis), though the accounts only list £82m impact, split between 2020 £67m and 2021 £15m.

COVID impact to reach the £170m losses claimed by the club is attributed to a significant deterioration in the transfer market, leading to an inability to generate higher player sales profits plus more costs incurred (wages and amortisation).

The question is how realistic is Everton’s claim that their losses would be £88m lower if the transfer market had not been depressed? Interestingly, this figure is the same as the club’s record profit from player trading in 2018, though their next highest gain is only £52m.   Furthermore, some clubs still managed to generate decent profits from player sales in the same transfer market in 2020/21, especially Man City £69m, Wolves £61m and Leicester £41m. In fact, the average profit of £19m for Premier League clubs is not that much lower than other years.

No other club has claimed anything like Everton’s £88m for player trading COVID losses. Most have not reported anything at all, while the next highest is Aston Villa with only £13m.