The Premier League Outfoxed?

As explained in Football Law’s July 2024 Roundup, a Premier League Disciplinary Commission dismissed Leicester City FC’s (“LCFC”) jurisdictional challenge to a Premier League (“PL”) complaint brought against LCFC for an alleged breach of the PL’s Profitability and Sustainability Rules (“PSR”) during the 2022/23 season (“the DC Decision”). The DC Decision is available here.

As also explained in Football Law’s July 2024 Roundup, LCFC had appealed against the DC Decision. On 3 September 2024, LCFC and the PL announced that LCFC had succeeded in its appeal, with a Premier League Appeal Board deciding that ‘[PL Rules, r. E.49] did not apply to LCFC when the PSR Calculation could be carried out and that LCFC was not in breach [of the PSR Upper Loss Threshold], and should not be treated to be in breach, of the [PL Rules 2022/23]’ (“the AB Decision”).[1] The AB Decision is available here.

This article, firstly, will summarise those relevant parts of the PSR that were considered by the Appeal Board, secondly, will analyse the AB Decision and, thirdly, will consider whether the AB Decision was right.

The PSR

References herein to parts of the PL Rules (including the PSR) are to the 2022/23 version, unless stated otherwise.

The PL Rules ‘constitute an agreement between the League and Club […] and between each Club to be bound by and comply with’ the PL Rules.[2]

PL Rules, r. A.1.39 defined ‘Club’ as ‘an association football club in membership of the [PL]’.

PL Rules, r. A.1.183 defined ‘PSR Calculation’ as ‘the aggregation of a Club’s Adjusted Earning’s Before Tax for T, T-1 and T-2’ (and, for the season 2022/23, the aggregation of a Club’s Adjusted Earnings Before Tax for T, the mean of a Club’s Adjusted Earnings Before Tax for T-1 and T-2, and a Club’s Adjusted Earnings Before Tax for T-3).

PL Rule, r. A.1.74 defined ‘Earnings Before Tax’ as ‘profit or loss after depreciation and interest but before tax, as shown in the Annual Accounts’.

PL Rules, r. A.1.8 defined ‘Annual Accounts as:

‘(a) the accounts which each Club’s directors are required to prepare pursuant to section 394 of the [Companies] Act [2006]; or

(b) if the Club considers it appropriate or the Board so requests, the Group Accounts of the Group of which the Club is a member and which it is required to prepare pursuant to section 399 of the [Companies] Act [2006], or which it is required to deliver to the Registrar of Companies […]

provided that in either case the accounts are prepared to an accounting reference date (as defined in section 391 of the [Companies] Act [2006]) which falls between 31 May and 31 July inclusive’.

PL Rules, r. A.1.1.1 defined ‘Accounting Reference Period’ as ‘the period in respect of which Annual Accounts are prepared’.

PL Rules, r. A.1.216 defined ‘T’ as a Club’s Accounting Reference Period ending in the year in which assessment pursuant to the PSR (PL Rules, r. E.45 to E.50) takes place, and with T-1, T-2, T-3, T+1 and T+2 taking the corresponding temporal meaning.

PL Rules, r. A.1.5 defined ‘Adjusted Earnings Before Tax’ as ‘Earnings Before Tax adjusted to exclude costs (or estimated costs as the case may be) in respect of’ specified costs, which included Women’s Football Expenditure and Youth Development Expenditure.

The PSR required a Club to submit to the PL Board by 1 March in each season:

‘E.45.1 copies of its Annual Accounts for T-1 (and T-2 if these have not previously been submitted to the Board) together with copies of the directors' report(s) and auditors' report(s) on those accounts;

E.45.2 its estimated profit and loss account and balance sheet for T which shall:

E.45.2.1 be prepared in all material respects in a format similar to the Club’s Annual Accounts; and

E.45.2.2 be based on the latest information available to the Club and be, to the best of the Club’s knowledge and belief, an accurate estimate as at the time of preparation of future financial performance; and

E.45.3 if [PL Rules, r. E.46] applies to the Club, the calculation of its aggregated Adjusted Earnings Before Tax for T, T-1 and T-2 in Form 3A [i.e., a PSR Calculation]’.

PL Rules, r. E.46 provided that if a Club’s Earning’s Before Tax for T-1, T-2 and T-3 resulted in a loss, then the Club ‘must submit to the Board the calculation of its Adjusted Earnings Before Tax for each of T, T-1, T-2 and T-3’.

PL Rules, r. E.48 provided that if a Club’s PSR Calculation resulted in a loss of in excess of £15 million then, inter alia, the Club must by 31 March provide Future Financial Information until the end of T+2 and a calculation of estimated aggregated Adjusted Earnings Before Tax until the end of T+2 based on that Future Financial Information.

PL Rules, r. E.49 provided that if a Club’s PSR Calculation resulted in a loss of in excess of £105 million (and pursuant to PL Rules, r. E.50 to be reduced by £22 million for each year a Club was in the EFL Championship for T-1, T-2 and/or T-3) then, inter alia, the ‘Club shall be treated as being in breach of the [PL Rules] and accordingly the Board shall refer the breach to a Commission constituted pursuant to Section W of [the PL Rules]’.

The AB Decision

LCFC’s Accounting Reference Period up to and during the 2021/22 season was 31 May, and LCFC’s Annual Accounts for the year ended 31 May 2022 and previous years were prepared using that reference date.[3]

In the 2022/23 season, LCFC amended its Accounting Reference period to 30 June, and LCFC’s Annual Accounts for the year ended 30 June 2023 were prepared using that reference date.[4]

LCFC was a member of the PL for the 2022/23 season and was relegated to the EFL Championship after the end of the 2022/23 season. LCFC transferred its share in the PL to Luton Town Football Club 2020 Limited on or around 13 June 2023.[5]

LCFC’s appeal concerned the applicability of the PSR following LCFC’s relegation from the PL.[6]

The AB Decision concluded its decision by explaining that LCFC’s successful appeal:

‘[…] depended on the club’s adventitious decision as to its accounting reference date for 2022/23. However, this results from the discrepancy between the requirement of [PL Rules, r. A.1.8] and the chronology in the PSRs. The PSRs would seem to have been drafted without taking [PL Rules, r. A.1.8] into account’.[7]

The AB Decision explains that on 28 March 2023, and while still a member of the PL, LCFC provided the PL Board with its aggregated Adjusted Earnings Before Tax for T, T-1 and T-2 (i.e., a PSR Calculation / a PL Rules, r. E.45.3 calculation – referred to hereafter as a PSR Calculation only).[8] The DC Decision states that LCFC provided this PSR Calculation pursuant to PL Rules, r. E.48.1, but this puts the cart before the horse; PL Rules, r. E.48.1 only applies after a PSR Calculation shows a loss of £15 million (but less than £105 million) and refers to the provision of information beyond a PSR Calculation.[9]

In any event, LCFC’s calculation of T in its PSR Calculation (and under PL Rules, r. E.45.2) represented an estimation of its Adjusted Earning Before Tax for T, as LCFC’s year end was not until 30 June 2023. This is not and should not have been controversial; for example, Form 3A found in the PL Handbook expressly states that the figures provided for T are ‘estimated figures’. It is surprising that the Appeal Board used this point as a peg to hang the criticism that the PL Rules are ‘in relevant parts, far from well drafted’.[10]

The AB Decision explains that on 31 March 2023, and again while still a member of the PL, LCFC provided the PL Board with its Future Financial Information and a calculation of estimated aggregated Adjusted Earnings Before Tax until the end of T+2 based on that Future Financial Information, presumed to be in accordance with PL Rules, r. E.48.1.[11]

As stated above, LCFC ceased to be a member of the PL on or around 13 June 2023. At that point in time, LCFC’s “Annual Accounts” in respect of T remained an estimation only.

As indicated above, the nub of the issue in this case came down to the definition and use of a ‘PSR Calculation’ in PL Rules, rr. E.45-49 and when LCFC was considered to be in breach of PL Rules, r. E.49.

For some reason (presumably through practical application of the PL Rules rather than applying principles of contractual interpretation), the PL conceded the following point:

‘It was thankfully common ground before the Appeal Board that [PL Rules, rr. E.45, E.47 and E.48] refer to a PSR Calculations based, so far as T is concerned, on an estimate, whereas [PL Rules, r. E.49] refers to a PSR Calculation based on audited accounts. Indeed, it would be odd if the [PL Rules] created a breach, giving rise to potential penalties, based on no more than an estimate that could be falsified by actual audited results’.[12]

However, the PL Rules, rr. E.45-E.48 and PL Rules, r. E.49 make no distinction between a Club’s Aggregated Adjusted Earnings Before Tax for T being audited or unaudited, or for the relevant Accounting Period to have concluded for a Club’s Aggregated Adjusted Earnings Before Tax for T to be calculated (as an estimation or otherwise).

Further, it is noted that PL Rules, r. E.45.2 requires the estimation for T to be ‘prepared in all material respects in a format similar to the Club’s Annual Accounts’ and PL Rules, r. E.45.3 requires the estimation for T to be ‘based on the latest information available to the Club and be, to the best of the Club’s knowledge and belief, an accurate estimate as at the time of preparation of future financial performance’.

This accords with the PL Appeal Board’s comments at [92] in Everton Football Club Company Limited v The Football Association Premier League Limited (t/a The Premier League), 26 February 2024 (and agreed with at [104] in the PL Disciplinary Commission’s decision in The Premier League v Everton Football Club Company Limited, 8 April 2024):

‘[…] flexibility in the PSR Threshold is restricted because the PSR Calculation is defined in terms of a club’s audited annual accounts which must be prepared under recognised accounting standards and approved by the club’s directors in compliance with Companies Act 2006 requirements (including a certificate that they be true and fair). While we accept that, in respect of some items, there might be issues as to what the accounting standards require, the wording of the PL Rules means that on many matters there is little scope for argument as to what is and is not to be counted in for the purposes of the PSR Calculation. The scope of the Calculation is, to a large extent, visible and predictable for clubs both in real time and when they prepare their audited annual accounts’ (emphasis added).

If it is accepted (and interpreted) that T will always be an estimation under PL Rules, r. 45.3, then PL Rules, r. A.1.8 does not sit in isolation, and it was not necessary for PL Rules, r. E.49 to be interpreted so as to undermine the workability of the PSR. Following the Appeal Board’s interpretation or the parties’ agreed position through to its fullest, no Club would ever be subject to a breach of the Upper Loss Threshold of £105 million in PL Rules, r. E.49 (as may be varied by PL Rule, r. E.50) until a Club’s audited accounts for T are available –  which is invariably later than a Club’s financial year end but subject to the effective longstop date of PL Rules, r. E.3 and/or the PL’s powers of inquiry in PL Rules, rr. E.1 and W.1.

Indeed, it is noted that in the PL Rules version 2023/24, the above-stated PL Rules, r. E.46 was updated with what is now PL Rules, r. E.50:

‘If the aggregation of a Club’s Earnings Before Tax for T-1 and T-2 results in a loss then:

E.50.1 by no later than 31 March the Club must submit to the Board the calculation of its Adjusted Earnings Before Tax for each of T, T-1 and T-2; and

E.50.2 the Club must submit to the Board (or, in any event that the Club is relegated following the relevant Season, to the EFL) its Annual Accounts for T by no later than the following 31 December’ (emphasis added).

The above-quoted amendment to the PL Rules makes it unlikely that the issues arising from this case will arise again, but the point still remains, and the criticism can be fairly made, that the PL Rules 2022/23 have been incorrectly interpreted in the AB Decision.[13]

If the above-quoted PL Rules 2023/24, r. E.50.2 was present in the PL Rules 2022/23, then the interpretation and/or agreed position in the AB Decision would be more understandable. Instead, the interpretation in the AB Decision appears to have implied a requirement that for PL Rules, r. E.49 to bite, the Annual Accounts (i.e., audited accounts) must have been provided before a PSR Calculation can be made under PL Rules, r. E.49.

The interpretation and/or the parties’ agreed position simply does not accord with the express wording of PL Rules, rr. E.47-E.49. Each of these rules begins with ‘If the PSR Calculation results in a loss’ or ‘losses’. That is the only requirement for each of those PL Rules to bite; a breach of the PSR occurs when losses in the PSR Calculation fall within the relevant brackets identified across PL Rules, rr. E.47-E.49. While it was quoted in the AB Decision that PL Rules, rr. E.47 and E.48 can be distinguished for being ‘preventative’, in reality they are still punitive as they impose additional obligations upon a Club.[14] For example, PL Rules E.48.1. and E.48.2 require a Club to provide Future Financial Information and evidence of Secure Funding as the PL Board considers sufficient. Further, PL Rules, r. E.48.3 reserves the PL Board’s powers to, inter alia, impose a budget or “business plan” and to refuse a Club’s player registration under PL Rules, r. E.15.

Further again, the Appeal Board’s comment that ‘it would be odd if the [PL Rules] created a breach, giving rise to potential penalties, based on no more than an estimate that could be falsified by actual audited results’ answers the oddity it raises. If a Club was charged with a breach of PL Rules, r. E.49 based upon a PSR calculation wherein the figure for T was an estimation, the Club would be entitled to disclose and/or directions could be provided by a PL Disciplinary Commission for the disclosure of audited accounts to finalise the figure for T, which may or may not reduce the Club’s PSR Calculation.[15] If the audited accounts for T resulted in a PSR Calculation below the Upper Loss Threshold of £105 million, then the charge simply would not be proven and/or the PL may decide to withdraw the charge.[16] This scenario would avoid the even greater oddity of a Club (or a Relegated Club) escaping a PSR breach simply because its year end (a year end which is expressly permitted in the PL Rules) did not occur before relegation procedurally took place but which the Club’s overspending sought to avoid.

All of the above lends weight to an understanding of what is meant by the reference in PL Rules, r. E.49.2 to ‘If the PSR Calculation results in losses in excess of £105m […] the Club shall be treated as being in breach of these Rules and accordingly the Board shall refer the breach to a Commission constituted pursuant to Section W of these Rules (Disciplinary)’ (emphasis added). This was a key factor of the DC Decision.[17] This conforms entirely with the ‘strict liability’ nature of a breach of the PSR’s Upper Loss Threshold, and it is otherwise hard to identify any logic as to why ‘shall be treated’ was included in PL Rules, r. E.49.2.[18]

The above is also not undermined by the Appeal Board’s concerns that LCFC may have generated further revenue by way of player sales, sponsorship deals et al in the period between LCFC ceasing to be a Club (as defined) on or around 13 June 2023 and its year end on 30 June 2023.[19] Firstly, as indicated above, such further revenue could ultimately be considered by the time a matter came before a PL Disciplinary Commission following disclosure of audited accounts to finalise the figure for T, which could result in a charge being withdrawn. Secondly, if such further revenue is generated but losses still exceed the Upper Loss Threshold of £105 million, it is accepted that “golden mitigation” can be relied upon in appropriate circumstances, and such further revenue would, in this author’s opinion, likely amount to similar mitigation.[20] This also applies insofar as any losses are incurred after LCFC ceased to be a Club. One practical point relevant to this issue was noted in The Premier League v Nottingham Forest Football Club Limited, which should also have been borne in mind: not many players are sold in the early part of the summer transfer window, which was a point noted from evidence and the Disciplinary Commission’s ‘own knowledge and experience of how the transfer window operates’.[21]

Was the AB Decision correct?

The PL and the PL Rules have been described as follows:

‘The clubs in the PL joint venture agree to the form of the competition and the standards of behaviour towards the PL and each other as set out in, not only the company’s Memorandum and Articles of Association, but crucially the [PL Rules]. The PL Rules serve as a contract between the PL and the member clubs, and the members clubs between each other, which includes required levels of conduct by clubs and their officials and the processes by which any misconduct is to be adjudicated and sanctioned […]’[22]

The AB Decision quotes at length from the decision of Carr LJ in ABC Electrification Ltd v National Rail Infrastructure Ltd [2020] EWCA Civ 1645 when identifying the relevant legal principles applicable to the exercise of contractual interpretation.[23] A succinct summary of those principles was provided by Lord Hamblem in Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2 at [29]:

‘(1) The contract must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean.

(2) The court must consider the contract as a whole and, depending on the nature, formality and quality of its drafting, give more or less weight to elements of the wider context in reaching its view as to its objective meaning.

(3) Interpretation is a unitary exercise which involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its implications and consequences are investigated’.

In the sporting context, the DC Decision also correctly identified the following principles:

‘In the sports context, the approach to interpretation is described as considering the meaning of the words used on the basis of how they would reasonably be understood by the members and athletes they seek to regulate in all its context. In Cellino v The Football League, the Professional Conduct Committee held that a sport’s rules “should be interpreted in a manner that accords with the purpose of the rules and with common sense and not in a technical way”. In Sheffield Wednesday v The EFL […] an EFL League Arbitration Panel considered that whether the EFL had a particular power under the EFL Profitability and Sustainability Rules was to be “determined by giving a purposive construction to the P&S Rules as a whole” [...]

[…] In essence, the purpose of the [PSR] is to prevent overspending and poor financial management that may lead to a club’s insolvency and jeopardise the club, the integrity of the competition and the sport of football, and to a lesser extent preserve fair competition between the PL clubs. The PSRs protect the integrity of the league by restricting the level of financial risk that a club might take to a level and in the manner which the PL clubs agree. Underpinning the application of the [PSR] is the principle of fairness and specifically the necessity to apply the [PSR] in a manner that avoids unfairness to other compliant clubs and ensures that lasting benefits (if any) are not conferred by a breach of the [PSR]’.[24]

The absence of these principles in the AB Decision is stark, and it arguably appears that the same have been confused with an application of ‘commercial common sense’ in a non-sporting context.[25]

Considering the points identified in the previous section of this article and applying the principles of contractual interpretation in the sporting context to the relevant PL Rules, it is this author’s opinion that, respectfully, the AB Decision is wrong. The position is compounded by the following points when further considering the PL Rules as a whole:

• Whilst LCFC did not amend its financial year end to 30 June with the intention to circumvent the PSR, PL Rules, r. B.15.2 states that ‘In all matters […] relating to the League, each Club, Official and Director shall behave towards each other Club, Official, Director and the League with the utmost good faith […] it shall be a breach of the duties under this Rules to […] engage in conduct that is intended to circumvent these Rules or obstruct the Board’s investigation of compliance with them’.[26]

• PL Rules, rr. E.72 and E.74 anticipates a Club’s relegation from the Premier League and provides that where that Relegated Club was subject to an investigation or was engaged in a dispute with the PL in relation to PL Rules, rr. E.45-E.64 (i.e., including the PSR), the responsibility and/or conduct of the same would pass to the EFL.

Footnotes

[1] The Premier League v Leicester City Football Club Limited, Premier League Appeal Board (Ch. Rt Hon Sir Stanley Burnton), 30 August 2024, [59].

[2] PL Rules 2022/23, r. B.14.4.

[3] (n1), [14].

[4] Ibid, [15].

[5] Ibid, [20].

[6] Ibid, [2]-[4].

[7] Ibid, [59].

[8] Ibid, [16].

[9] The Premier League v Leicester City Football Club Limited, Premier League Disciplinary Commission (Ch. Dr Leanne O’Leary), 13 June 2024, [14].

[10] (n1), [47].

[11] Ibid, [17].

[12] (n1), [49].

[13] Cf. The Premier League v Everton Football Club Company Limited, Premier League Disciplinary Commission (Ch. James Drake KC), 8 April 2024, [37]-[40].

[14] (n1), [34].

[15] (n2), r. W.38.

[16] Ibid, r. W.51.10.

[17] (n9), [51].

[18] Cf. Everton Football Club Company Limited v The Football Association Premier League Limited (t/a The Premier League), Premier League Appeal Board (Ch. The Rt. Hon. Sir Gary Hickinbottom), 26 February 2024, [32] and [85].

[19] (n1), [51].

[20] The Premier League v Nottingham Forest Football Club Limited, Premier League Commission (Ch. Mark Hovell), 18 March 2024, [12.26-12.57].

[21] Ibid, [12.53].

[22] (n18), [5].

[23] (n1), [42].

[24] (n9), [32]-[33].

[25] (n1), [45] and [57].

[26] (n9), [53].

3 October 2024