On 18th March 2024, it was announced that Nottingham Forest would be hit with a 4-point deduction after breaching the Premier League’s Profitability and Sustainability Rules (PSR). This article will look at the independent Commission’s findings which led them to handing out the points deduction. Initially, a background will be provided in relation to the charges relating to the PSR breach by the club.
Background
The PSR limit the amount of losses a club can make over a rolling three-year period. In this case relating to Nottingham Forest, the monitoring periods in question related to the financial years (FY) of 2021, 2022 and 2023. The PSR calculation for FY 2023 included FY 2021 (which was an average of FY 2020 and FY 2021 due to a concession in the rules brought about by COVID-19), FY 2022 and FY 2023. In the Premier League, a club is required to have losses not exceeding £105 million. However, in the case of Nottingham Forest, as they were not in the Premier League in either FY 2021 and FY 2022, their loss allowance was reduced by £22 million in each of the two seasons, since under English Football League (EFL) Profitability and Sustainability regulations, these losses are capped at £13 million, and thus their total losses allowed for the relevant three-year period was £61 million instead of £105 million.
If a club shows losses exceeding the limit (in this case, £61 million), then they are considered to be in breach of the PSR and are referred to an independent Commission. On 31st December 2023 (as required under the rules), Nottingham Forest submitted their PSR calculation which initially showed total losses of £86.825 million, however, following clarification from the Premier League, the two parties agreed that in FY 2022, the club could only claim back a total of £2.5 million in costs related to COVID (a concession allowed under the regulations at the time) rather than the initially claimed £11.811 million by the club. Therefore, Nottingham Forest’s PSR calculation for FY 2023 showed total losses of £95.536 million (approximately £3 million in FY 2021, approximately £40 million in FY 2022 and approximately £52 million in FY 2023, thus exceeding their PSR loss threshold by £34.536 million.
Therefore, on 15th January 2024, Nottingham Forest were referred to an independent Commission, composed of Mark A. Hovell, Robert Glancy KC and Steve Holt FCA. The club accepted being in breach by £34.536 million, and the Commission agreed too about this. Several issues were determined before the points deduction was ultimately handed out, which will be investigated.
Principles for determining sanction
The Premier League made several submissions regarding the principles that should be applied by the Commission when determining the appropriate sanction, partly influenced by the approach taken by the Appeal Board who oversaw Everton’s appeal against a 10-point deduction (which was in fact, then reduced to 6 following the appeal). The Premier League ultimately considered that there were 3 key principles:
1. The purpose to be achieved – that the sanction should be proportionate and one that punishes the club for the breach, vindicates other clubs compliant with the PSR, acts as a deterrent for future breaches and helps restore/preserve public confidence in the fairness of the competition.
2. It submitted that a points deduction would represent the appropriate sanction for a PSR breach, and considered the minimum points deduction reasonably required to achieve PSR aims. It noted that the Appeal Board in relation to the Everton appeal considered the guidelines adopted by the EFL, as well as the Premier League penalty applied if a club enters an event of insolvency (e.g. administration, which would incur a 9-point penalty). Other facts from the Everton were also referred to, such as the number of points available in a Premier League season (114), the fact that a 3-point deduction would represent the loss of one win while a 1-point deduction would represent the loss of 1 draw, the median and mean points accumulated in a Premier League season (49 and 52 respectively), and the broad view that PSR breaches require the imposition of a points deduction to carry merit.
3. It argued that suspending any points deduction would be inappropriate, and that only an immediate points deduction for PSR breaches would be justified.
Nottingham Forest, on the other hand, argued that discretion of the Commission as to sanctions for a PSR breach is “very wide”, with no applicable guidelines having been developed by the Premier League to guide that discretion. That said, the club acknowledged that the discretion is limited by the purposes of the PSR regime and sanctioning powers. In conclusion, Nottingham Forest argued that any sanction must go no further than reasonably necessary and must be proportionate to achieve the legitimate purposes of the PSR regime (namely protecting the integrity of the Premier League, ensuring fairness of all clubs, and acting as a deterrent to similar conduct in the future).
The Commission noted that the approaches of the two parties were broadly similar. It suggested that it would assist to band breaches into 3 categories – “minor”, “significant” or “major”, so as to remove focus on the absolute number of the breach. The Commission considered that there should be a starting point for the breach, with the circumstances and quantum of breach in this case potentially adding or reducing the deduction before considering aggravating or mitigating factors. Finally, the possibility of suspending the sanction was considered.
In relation to these factors, the burden of proof fell on the party asserting the factor as appropriate based on the balance of probabilities.
Aggravating factors
The Premier League did not rely on any points of aggravation, except for the size of the breach itself. In fact, it raised absolutely no aggravating factors in its complaint.
The Commission considered the quantum of breach as part of the consideration for the starting point of the sanction, but not as aggravation as otherwise this would constitute double counting.
Mitigating factors
Nottingham Forest advanced six heads of mitigation, which were the following:
1. Its “unique position” as only club in 2022/23 Premier League season that was either not previously in Premier League or not newly promoted with benefit of parachute payments, thus unable to take advantage of higher PSR limits.
2. It breached the PSR threshold because the sale of player A (widely presumed to be Brennan Johnson, even though he remained unnamed) took place a short period later than necessary.
3. The reason for the excess (namely most of the excess) loss was incurred due to: the price of promotion to the Premier League; a reasonable reliance on the FY 2022 COVID add-back; and a reasonable but ultimately inaccurate estimation of the Merit Award to be received.
4. Nottingham Forest obtained no sporting advantage as a result of the breach.
5. Nottingham Forest had a good prior record with respect to the PSR; admitted the breach at the first opportunity; and had made further profitable player sales during the January 2024 transfer window thus demonstrating a “positive trend”.
6. Nottingham Forest had co-operated with the Premier League and admitted the breach at the earliest opportunity.
Ultimately, the Commission rejected all heads of mitigation, except for the co-operation and early admission plea. Before looking into the mitigating factor that was accepted, point 2, relating to the sale of Brennan Johnson, will be looked at in further detail.
In relation to point 2, Nottingham Forest had felt from around the end of January 2023 that it needed to sell one of its most important players to achieve PSR compliance, with Johnson being considered the obvious choice. On 30th June 2023, Atlético Madrid made an offer of €50 million for Johnson on a permanent deal, one which was reportedly contingent on the Spanish club selling a player, and Nottingham Forest made a counter-offer of €65 million. In the end, this offer fell through and nothing came from it. On 21st July 2023, Brentford made an offer of £32.5 million but this was rejected, and on 24th July 2023 they had another offer, this time of £35 million, rejected as well. Brentford then made a third offer on 28th August 2023 of £40 million, which was also rejected, before Nottingham Forest finally accepted an offer of £47.5 million from Tottenham Hotspur on 1st September 2023, and Johnson completed the move to Tottenham.
Nottingham Forest argued that it made every effort to generate a formal offer by 30th June 2023 but felt that none which were suitable or capable of being completed in time arrived by then.
Although the Commission understood that all clubs aim to sell players for the most they can achieve, it felt that Nottingham Forest gave this priority over respecting the PSR regime and looking to make the miss (i.e., not selling Johnson by 30th June 2023) as near as possible. Given that the Nottingham Forest waited until owner Evangelos Marinakis instructed them to sell on 28th August 2023 and then managed to sell Johnson on the last day of the summer transfer window (1st September 2023), the Commission considered this business decision to fly in the face of mitigation and therefore rejected this argument as a mitigating factor.
Further to the issue over the miss of the sale of Johnson, in relation to Nottingham Forest’s argument over no sporting advantage being gained (point 4), the Commission felt that the club effectively played the 2022/23 campaign with an unaffordable squad for purposes of PSR compliance, which also included Johnson who they had not sold. Although the Commission was not asked to consider this as an aggravating factor (the Premier League advanced no aggravating factors in its complaint), it felt that it could not ignore this point and give the club mitigation when the Commission felt it right to infer that Nottingham Forest would have enjoyed a sporting advantage over the season.
In addition, the Commission noted that former club CEO Ioannis Vrentzos claimed that it would have been “catastrophic” not to play Johnson in the opening games of the season, as doing so against the manager’s will would have undermined the manager. Given that the manager saw a benefit in playing him and given that Nottingham Forest took a big gamble by doing so (the risk of a serious injury that could have hampered their chances of selling him), the Commission felt it could and in fact did infer that Nottingham Forest gained a sporting advantage in playing him in those matches.
Therefore, the Commission rejected the argument put forward by Nottingham Forest in relation to no sporting advantage being gained and that this could constitute mitigation.
In relation to point 6, which was accepted by the Commission, while the Premier League agreed with the Appeal Board in the Everton appeal that there is a level of co-operation that is reasonably expected by all clubs in the Premier League, it considered Nottingham Forest to have shown a level of co-operation above and beyond the level reasonably expected. The Commission agreed and in fact commended Nottingham Forest for its early plea and co-operation throughout the matter, and without such an approach, it considered it impossible to have concluded the process (which included a two-day hearing) in just 8 weeks from the complaint being lodged. Therefore, this factor was accepted by the Commission and it was the only head of mitigation to indeed be accepted, as all others were dismissed.
Nature of sanction
The Premier League argued that the only proper sanction would have been a sporting sanction in the form of a points deduction, with the Commission considering the context surrounding the breach as well as mitigating factors.
The Commission suggested that rather than just focusing solely on the quantum of breach, it would be sensible to consider breaches by category, namely “minor”, “significant” or “major”. An example of a “minor” breach would be for example exceeding the limit by £1, for which a points deduction may not be suitable. A “significant” breach could be considered one to be in the tens of millions, which will more than likely mean a starting point of a points deduction. A “major” breach would undoubtedly result in a starting point of a points deduction and may possibly even exceed the event of insolvency “cap” put forward by Nottingham Forest (any club who enters an event of insolvency is subjected to an automatic 9-point deduction).
In this case, the Commission decided that the appropriate starting point for a sanction would be a points deduction and given that this was a breach in the tens of millions, it constitutes a “significant” breach.
Quantification of sanction
The Premier League compared the relevant quanta of breach in the respective cases of Everton and Nottingham Forest, and argued for the following sanctions for Nottingham Forest:
· A starting point for the sanction of 3 points, as per the Everton appeal
· A further 5-point deduction given that Nottingham Forest exceeded the threshold by £34.5 million
However, the Premier League argued that two points should be reduced from the points deduction to reflect mitigation. Therefore, the Premier League suggested a total of 6 points to be deducted.
On the other hand, Nottingham Forest concluded that it was doubtful as to whether a points deduction would be appropriate in this case. The club suggested no sporting sanction as a starting point, but a warning and a reprimand and/or some other sanction such as a fine and/or submission to a business plan. Alternatively, Nottingham Forest argued that if any points deduction were to be imposed, it should be minimal.
The Commission agreed with the Premier League on its position that the starting point for the sanction should be 3 points. It also agreed that 2 points should be removed from the points deduction given Nottingham Forest’s early plea and co-operation. It then considered that the size of Nottingham Forest’s breach moved it up the scale of the points deduction, particularly as it was bigger than Everton’s, as both were considered to be “significant” but there was no additional consideration around incorrect information in the case of Nottingham Forest. Ultimately, the Commission suggested a further 3-point deduction for the breach of the PSR threshold itself.
Finally, the Commission deemed that handing out a points deduction is also to be fair to other clubs and give the public confidence that when a club invests to compete in the Premier League, it must still comply with the PSR threshold for losses, and it is also to maintain integrity of the Premier League while also hoping to enable the club in breach to be more sustainable in relation to the PSR going forward. Therefore, it felt that suspending the sanction would not achieve any of the aims, hence a suspended points deduction was deemed inappropriate.
Conclusion
The Commission decided to impose an immediate four-point deduction on Nottingham Forest, which, at the time of writing has put them in the relegation zone, one point behind Luton Town. On 25th March 2024, Nottingham Forest announced that they are appealing against the decision.