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In an article written for The Conversation*, Mark Middling, Assistant Professor of Accounting at 51���� discusses the impact of Everton FC's recent ten point deduction for breaking financial rules.

On November 16 2023, fans of Everton FC may have been reasonably satisfied about how the football season was shaping up. They were 14th in the English Premier League, and had recently  against West Ham and Crystal Palace.

Then on November 17 everything changed. The club were  for breaching the league’s “, pushing them down to  and into the relegation zone.

The rules that Everton broke are designed to force clubs into being financially sustainable businesses, by allowing them to build up footballing losses (separate to spending on things like infrastructure or community projects) of no more than £105 million over a three-year period.

Everton were found to have exceeded this limit by , with relevant losses of £124.5 million to the end of the 2021-2022 season. At this time Everton had the largest Premier League wage bill  and failed to achieve desired returns when trying to .

Everton originally filed returns showing , well within the limit. However, an  decided that this figure was lower than the true value.

Everton also claimed there were mitigating circumstances, including losses on “player X” who was arrested in 2021 and ultimately had his contract terminated, additional losses due to an inability to sell players because of COVID-19, and the war in Ukraine affecting the club’s  with . But the excuses were dismissed by the commission which said the breach was of Everton’s “own making” and due to “mismanagement”.

Everton are reportedly “” with what they call an “” decision, which they are .

Everton said in a statement: “The club believes that the commission has imposed a wholly disproportionate and unjust sporting sanction.”

It added: “Both the harshness and severity of the sanction imposed by the commission are neither a fair nor a reasonable reflection of the evidence submitted.” The severity of the punishment has even been .

Yet some consider Everton to have been . If the points deduction had been applied last season, when Everton were in a tense , they almost certainly would have been demoted to the Championship. This season, under new , they still have a decent chance of staying in the Premier League, despite the points deduction.

But if Everton are relegated, the financial consequences could be severe. The club’s annual revenue, last listed as , would fall significantly due to massively reduced broadcast income (and despite the so-called “” that clubs demoted from the top flight receive).

Then there’s the cost of the new  53,000 seater stadium, which is due to be completed in , and possible  for damages of up to  by six clubs, including Burnley, Leeds and Leicester, who were recently relegated from the Premier League while Everton clung on.

Sticky situation for the toffees

In effect, Everton’s rule-breaking loss of £19.5 million over the limit may lead to much bigger losses further down the line. And this could well act as a  to other clubs thinking of pushing football’s financial boundaries.

It may also be a show of force by the Premier League to try and limit the scope of the soon-to-be appointed independent football regulator, which some in the league consider to be an intervention too far into the business of football. Perhaps the Premier League is trying to demonstrate that  and that it is perfectly capable of governing itself.

Of course,  of English football came to a very different conclusion, which is why a regulator is part of the UK . Its aims are to prevent breakaway leagues, limit undesirable club owners, and further reduce , including making clubs more resilient to  such as the one engendered by .

One MP has  that the severity of Everton’s punishment is a clear indication that an independent regulator is needed – sentiments that have been echoed by the . It is entirely plausible to argue that if an independent regulator had been in place for the past five years, Everton may not have found itself in this position in the first place. The future regulator could, for example, operate a licensing system in which clubs have to prove they are being run within certain financial criteria – or risk having their licence revoked.

For now, the exact details of the regulator’s remit are yet to be decided. But a floodgate of financial sustainability controls seems to have been opened, with punishments and deterrents a key part of the sport’s future culture. It may not be what Everton wants – but it could just be what English football needs.

*This article was originally published by  Please see .