All eyes are being drawn to Mexico City on the eve of the World Cup but, across the Atlantic, a footballing legal battle has concluded with a significant verdict.
An independent commission ruled on Wednesday that Everton must pay Burnley £35.1million ($47m) after their breach of the Premier League’s Profitability and Sustainability Rules (PSR) in 2021-22 was found to have given them a crucial sporting advantage.
Everton stayed up and Burnley went down in that season but, four years, on there is now a big bill to settle. Everton, who said in a statement they were “surprised and angered” by the verdict, intend to fight on but the case is likely to have long-term implications.
What was the basis of Burnley’s case against Everton and what were they seeking?
This all dates back to the 2021-22 season, when Everton were found to have breached PSR with an overspend of £19.5m. Everton finished that campaign in 16th position but, importantly in this case, Burnley ended up relegated in 18th. The final gap between the two clubs was four points.
Burnley have always felt wronged, believing that Everton’s breach resulted in them enjoying an unfair sporting advantage. The claim has consistently been made, all the way back to May 2023 with the first legal action involving Burnley, that Everton would have been relegated had they kept within spending rules.
This case, heard over three weeks in London in the autumn, was Burnley’s attempt to claw back compensation from Everton through a principle known as “loss of chance”. Through the US-based legal firm King and Spalding, Burnley argued that relegation to the Championship had seen them miss out on £51.7m before interest and Everton should be liable for that sum.
What was Everton’s defence?
Everton, it is worth stating, have always been willing to accept that their PSR breach “conferred a sporting advantage”. They admitted as much when reaching an out-of-court settlement with Leeds United last year, a team they finished one place above in the 2021-22 Premier League season. That one position was worth in excess of £2m through the merit payment system.
Everton have known their PSR breach carried implications but they have consistently disputed the “extent and effect” of the sporting advantage they held over Burnley. It was also argued that Burnley suffered no financial loss during their one season in the Championship, with Premier League football quickly returning to Turf Moor in 2023-24.
Everton went on to highlight that Burnley’s relegation in May 2022 was settled before a PSR breach had been confirmed by their rivals at the end of the financial year, namely June 30, 2022. Burnley’s resulting losses, therefore, could not have been caused by Everton’s breach when there had still been the opportunity for compliance through player sales.
Burnley were relegated from the Premier League in May 2022 (Lindsey Parnaby/AFP via Getty Images)
Why did the panel find in favour of Burnley?
A three-person panel of David Phillips KC, Alan Greenwood and Nick Igoe — the very same commission that had hit Everton with an initial 10-point penalty at their first PSR hearing with the Premier League in October 2023 — reached a pivotal conclusion after hearing all submissions.
“We conclude that, on the balance of probabilities, Everton’s breach of the PSR caused Burnley to be relegated,” they wrote.
That decision, in part, was reached after Burnley had put forward detailed statistical modelling to support their claims. Two academics, Dr Rob Wilson and Will Daniels, established a link between player-related expenditure and points won in the Premier League over 12 seasons and calculated that Everton’s overspend of £19.5m had resulted in a gain of between 7.13 points and 3.85 points.
Everton had pushed back on those findings and questioned whether the £19.5m overspend ought to have been spread over the three-year PSR assessment period. Their own calculations, even when applying the whole overspend to 2021-22, found that the advantage enjoyed by Everton would not have bridged the eventual four-point gap they held over Burnley last season.
The commission, though, found Burnley’s evidence to be “more compelling” and was even “lent support” by Everton’s own submissions.
Why were Burnley awarded such a large sum?
Once the extent of Everton’s sporting advantage had been established, the question then centred on just how much Burnley would be awarded.
Financial experts on both sides of the divide calculated the claim to be the difference between Burnley’s actual cash flows and the cash flows they might have enjoyed as a Premier League club.
Burnley calculated that sum to be a £51.7m loss, while Everton argued that Burnley had seen a gain of £6.8m.
The variance relied on different projections of operating profit/loss and player trading, with Burnley selling the likes of Nathan Collins, Maxwel Cornet, Dwight McNeil and Nick Pope in the summer of 2022 following relegation to the Championship.
Nick Pope left Burnley in May 2022 after they were relegated (Geoff Caddick/AFP via Getty Images)
The commission ultimately fell somewhere in the middle of the two parties, ruling that an adjusted loss should be £26m. Interest of £9.1m, calculated up to the end of last July, was also added to the compensation Everton must pay Burnley. That sum will continue to climb, with an interest rate of 11.8 per cent applied to the due amount.
What was Everton’s reaction?
In a statement released on Wednesday afternoon, Everton expressed their “shock and anger” at the decision and said the ruling was “fundamentally flawed in both law and fact”.
They have already indicated their intention to appeal and are confident of making inroads in the new hearing.
The Merseyside club will likely argue that their breach technically came on June 30, at the end of that PSR cycle, and therefore months after Burnley’s relegation. They may also seek to challenge the view that Burnley’s relegation was solely caused by Everton’s breach, and that the Lancashire club also played a role in their own demise.
Under Premier League rules, this case was heard by the same panel that handed Everton an initial 10-point deduction for their breach. That penalty was reduced to six on appeal.
Everton said on Wednesday that they believed the panel’s ruling “misrepresents the clear evidence presented by its legal representatives and that an appeal will be successful”.
The club feel they have been treated harshly at each step in the process. They have already been punished twice for PSR breaches with points deductions. There is frustration that they have already lost out on around £10m in merit placing money as a result of those deductions, totalling eight points, which saw them finish 15th in the league that season.
Everton say they have been told that the compensation due to Burnley will not be included in future PSR and SCR calculations. They have also sought to assure fans that this news will not hamper their plans in the summer transfer market.
They are now on a much more stable footing under owners The Friedkin Group but this news is undoubtedly a blow. It will have an impact on cash flow and financial planning, for starters. That is saying nothing of what it will do to staff morale and relationships with the Premier League and other clubs, with fans likely to vent their frustration once more next season.
It is just the latest example of the past coming back to bite them.
What was Burnley’s reaction?
Burnley are not commenting publicly on the outcome but, behind the scenes, they are likely to be thrilled by the decision. They will feel vindicated that they won the case and the sum Everton have been told to pay gives them additional financial help.
A sum of £35.1m effectively acts as a second parachute payment, which should help Burnley cover some of the revenue they will lose after being relegated last season, particularly the loss of TV money.
The club has had to sell their top assets after their two previous relegations to ease the financial blow and to allow them to reinvest in the squad. After a very disappointing campaign, there are fewer saleable assets this time around but this payment will ease those concerns. It also may mean they can keep more of the squad together, rather than be forced into sales.
The problem is that it still does not make up for the ‘what if’ question the entire case is based on. Burnley had been a Premier League team for seven successive seasons when they were relegated in 2022. It has led to them becoming a yo-yo club for the past four seasons – too good for the Championship but not good enough for the top flight.
Had Burnley stayed up and not had to go through the process of adjusting to the Championship and the financial constraints that come with it, it is fair to ask whether they would have remained a Premier League team and been able to keep building.
What happens now?
We await Everton’s appeal. That was lodged immediately and will likely be heard before the end of the year.
Everton have attempted to postpone any payment directly to Burnley due to concerns over the relegated club’s ability to return any money. They state in the ruling that Burnley’s financial position is “so weak that there is a real risk that if the appeal were to succeed, Burnley would be unable to repay compensation that it would have received from Everton.”
Why is this judgment so potentially significant?
Compensating clubs on the back of a costly relegation is not new. Sheffield United eventually reached a £20m settlement with West Ham United relating to the impact of star man Carlos Tevez in the 2007-08 Premier League season. He was ruled to have played when ineligible, scoring a number of key goals to help West Ham avoid the drop at Sheffield United’s expense.
Carlos Tevez (left) was instrumental in keeping West Ham up in 2007 (Paul Ellis/AFP via Getty Images)
That was an advantage far easier to quantify than the one Everton enjoyed through a PSR overspend of £19.5m. Even the commission accepted that “trying to quantify the impact of Everton’s overspend in points terms is an inexact science.”
Everton called it a “dangerous” precedent in their statement and a bar has now been set for future cases.
“This decision is a watershed moment in Premier League financial regulation,” says James Philippsohn, associate at Quillon Law. “By successfully applying ‘loss of chance’ principles, Burnley have opened a litigation pathway that transforms PSR breaches from a sporting sanction into a civil liability event
“The significance of this decision lies in the willingness to award substantial damages based on a lost opportunity, a principle that could have far-reaching consequences where regulatory breaches are alleged to have caused financial harm.”
What implications could there be for cases like Manchester City’s 115 charges?
Call this a can of worms carved open.
The Premier League’s long-running case against Manchester City is still to have its verdict known but the breadth of those charges has the capacity to leave a number of clubs considering a compensation claim if the club loses.
Take the 2017-18 season as the most recent example where City are answering charges. That campaign saw them finish ahead of Manchester United, who could theoretically argue that missing out on the title saw them lose significant amounts through prize money and commercial deals. Chelsea, meanwhile, might feel they have a claim after finishing fifth and missing out on the Champions League the following year.
The gaps between City and the rest in a season that ended with them racking up 100 points might be too much to argue against but there could be a number of campaigns that come under a legal microscope.
That eventuality, of course, might never see the light of day if City — who deny any wrongdoing — successfully defend themselves in the 115 charges but any breaching of financial rules now has a compensation framework established.
