Everton, a founding member of England’s Premier League that has fallen into financial crisis, faced yet more pain on Friday after it was given a 10-point penalty for breaching the league’s economic rules. The punishment, the largest points deduction in the league’s history, sent Everton to the bottom of the standings and left it facing the threat of relegation from England’s top division at the end of the season.
The penalty was not a surprise, as the Premier League had come under pressure to act by rival teams angered by Everton’s rule breaches. But it will deepen the crisis that has engulfed Everton as it operates under a cloud of hundreds of millions of dollars in debt, and it raised the prospect that a far more serious punishment could await wealthy rivals like Manchester City and Chelsea in separate financial cases.
An independent league commission hearing the case against Everton found that the club had breached the league’s profit and sustainability rules. It ruled the points deduction must be applied immediately, which dropped Everton to 19th place in the 20-team league and on the same points total, 4, as last-place Burnley.
At the end of each season, the three worst finishers in the Premier League — the world’s richest domestic sporting competition — are relegated out of the division and into the second-tier Championship.
Everton said it was “shocked and disappointed” by the scale of the penalty, which its interim chief executive, Colin Chong, called “disproportionate and wholly unjust.” The club immediately announced its intent to appeal.
The team’s perilous financial state has required regular cash infusions from external sources to allow the club to continue operating. The most recent loan came from 777 Partners, an American group that in September agreed to acquire the storied club. That deal has not yet been approved by the Premier League and the Financial Conduct Authority, a regulator, amid questions about 777 Partners’ own finances.
The Premier League referred Everton to an independent commission in March after Everton posted financial losses for the fifth straight year. Under the league’s regulations, teams are allowed to lose no more than 105 million pounds, or $130 million, over a three-year period. Everton acknowledged being in breach of those rules for the financial year through 2022.
The panel, according to a 41-page written judgment, agreed with the Premier League’s assessment that Everton had breached the allowed amount of losses by £19.5 million (almost $25 million).
The scale of the penalty in Everton’s case, though, suggested that a far larger punishment could await the league’s dominant team, Manchester City, which is facing its own accusations of financial rules violations.
City has been charged with 115 breaches of league regulations related to its financial declarations. Its case, now in its fifth year, is being heard by a similar panel to the one that decided the one against Everton.
The Premier League is also investigating another traditional powerhouse, Chelsea, amid recent revelations of improper conduct under its former ownership.
“This is a landmark moment in the history of the Premier League and one of its most famous clubs, and will cause shock waves — particularly in the board rooms of Chelsea and Manchester City,” said Simon Leaf, a partner and head of sport at Mishcon de Reya, a law firm based in London.
While the points deduction significantly increases the chances that Everton will suffer a costly demotion to the second tier for the first time in its history, the low point totals obtained so far by some of its relegation rivals may yet allow it to escape. Even with its 10-point penalty, Everton is only 2 points behind Luton Town, the team currently occupying 17th place — the final position offering safety, and a place in the league, for next season.
A spokesman for 777 Partners said the company had no comment on the punishment or how it might affect its proposed acquisition of Everton because that process remains ongoing.
Part of the reason Everton’s punishment was as harsh as it was, the panel said, was related to a claim, upheld by the panel, that the team had failed to engage with the league in good faith, an accusation the team continues to reject.
“Both the harshness and severity of the sanction imposed by the commission are neither a fair nor a reasonable reflection of the evidence submitted,” Everton said.
Everton blamed its ballooning losses on costs associated with a new stadium project and the financial impact of the coronavirus pandemic. The Premier League countered in its claim that some of the losses were simply down to the poor running of the club, resulting in overspending on recruitment and salary costs. Under the rules, Everton has seven days to submit its appeal.
The size of the penalty is one point more than the previous record, 9, issued to Portsmouth after the club was forced into a form of bankruptcy protection in 2010. That fate may await Everton if its efforts to complete a sale of the club prove unsuccessful.
Everton’s agreement to sell to 777 Partners, an investment company based in Miami, has produced scrutiny of the latter’s operations and ability to remain a long-term sports investor. That deal with Everton’s current majority owner, Farhad Moshiri, contains contingencies for points deductions and even a possible relegation.
Mr. Moshiri, a British-Iranian businessman, would receive the entirety of the roughly 139 million pound sale price only if Everton is not docked points, according to documents reviewed by The New York Times.
The amount 777 Partners will pay for Everton tumbles in stages based on the severity of any points deduction, a potential demotion out of the Premier League, and, if a relegation occurs, a failure to return to the top flight within a set period of time, according to the documents.