On 27th February 2024, it was announced that Reading would be hit with a two-point deduction in relation to defaults on amounts owed to other parties (which included loan fees to other clubs, as well as payments to the tax authority, known as His Majesty’s Revenue and Customs (HMRC)), with a further two-point deduction suspended until the end of the season. In addition, owner Dai Yongge was fined a further £100,000, with a further total of £200,000 in fines suspended, for continued failure to comply with an independent disciplinary commission’s order back on 15th August 2023 to deposit a sum equal to 125% of the club’s forecast monthly wages in case of any future non-payments of players within 28 days. This article will focus on providing the factors that led to the independent disciplinary commission taking these decisions, with a little bit of background into the case.
Background
On 15th August 2023, Reading were given a one-point deduction with a further three suspended, provided that owner Dai Yongge made a deposit of a sum equal to 125% of forecast monthly wages within 28 days of the decision. However, Yongge failed to do so, and the suspended three-point deduction was triggered. As a result of his failure to comply, Yongge was charged on 20th September 2023, and on 15th December 2023 was issued with a fine of £20,000 with a further fine of £50,000 suspended until 12th January 2024, provided he met the deposit requirement in full. In the event, Yongge failed to make the payment due and the £50,000 fine was activated. On 19th January 2024, Yongge was again referred to an independent disciplinary commission following the continued failure to comply with the deposit requirement.
In the case of the club, on the 1st November 2023, they were referred to an independent disciplinary commission for repeated failures to make payments due to other parties (including loan fees due to other clubs and payments to HMRC) when they fell due. Reading, as well as Dai Yongge (the two respondents), attributed the non-compliance to a lack of funding by Yongge.
It has been well-established that disciplinary sanctions seek to serve four principles: punishment for proven breaches, vindication of those compliant with the rules, deterrence of future breaches and restoration/preservation of public confidence in the fairness of the league competition. Furthermore, it is well-established that any sanction must be proportionate.
EFL position
In the case of Reading, the EFL argued that the appropriate sanction would be an immediate four-point deduction, with part of the rationale being that any penalty should be more severe than previous sanctions due to necessity and appropriateness of reflecting repeated misconduct.
In the case of Dai Yongge, the EFL once again argued that he should be disqualified from being a director of the club, with the practical effect being to force him to sell the club.
Respondents position
Kendra Potts, representing the club and Dai Yongge in the hearing, argued on behalf of the club that Reading should only be subjected to a warning in relation to its defaults. Alternatively, she suggested a suspended one-point deduction to be activated in the event the club made a further late payment, during the 12-month period either from when a sale of the club was completed, or if no sale completed by then, the 12-month period starting from 1st May 2024.
On behalf of Dai Yongge, Potts argued that the appropriate sanction was an increased fine. Alternatively, she suggested a suspended disqualification in the event the Commission felt that a further sanction other than a fine were to be imposed.
Reasons for decision
In relation to the club, the Commission considered this breach to be serious. The Commission accepted the EFL’s submission that the referral arose out of obligations that the club itself owes to HMRC as an employer, and is accordingly accountable for these failures even accounting for the difficulties presented by Yongge’s funding.
Furthermore, the Commission considered the fact that, although the club made steps to reduce the overall wage bill during the summer and January transfer windows, it remains the case that they are apparently unable to satisfy its financial obligations in a timely manner, a fact it considers to form part of a wider pattern of living beyond the club’s means which gives rise to an actual or potential sporting advantage. The Commission did accept that, albeit limited, credit should given for admissions and self-reporting, even in this case where the facts are almost unarguable and self-reporting is obligatory.
The Commission did not accept that the penalty imposed in August, which concerned non-payment of player wages, should be the starting point for any sanction, as these two referrals are different sanctioning regimes. However, the fact these breaches all concern non-payment of employee costs was taken into account.
The Commission accepted the EFL’s submission that an immediate points deduction for Reading is appropriate and proportionate, but suggested that only two points should be deducted immediately, with a further two points suspended until the end of the season, in the hope of providing further incentive for compliance.
In relation to Dai Yongge, the Commission understood the EFL’s frustrations and its criticism of his conduct and evidence. The Commission accepted the EFL’s submission that Yongge’s non-compliance is deliberate by choosing not to provide evidence that could justify a conclusion that it was not reasonably possible for him to pay the deposit as required, and the Commission inferred that even if he was unable to comply with the order, he did not exhaust all available means to do so in the last five months.
The Commission also considered it self-evident that the sanctions previously imposed on Dai Yongge, have failed, which prompted them to express concern about the signal that this disregard of the disciplinary process may send to others. However, the Commission accepted that Yongge has not “simply disengaged”, but they did refute his contention relating to his inability to comply.
Although the Commission understood the EFL’s position on disqualification, it remained concerned that any such “forced sale” would have wholly unforeseeable consequences for all other stakeholders in the club for a breach caused solely by Yongge. The Commission also considered a suspended disqualification would have potentially far-reaching and uncertain consequences. Therefore, it was deemed appropriate and proportionate to increase the fines against Yongge for his non-compliance, which runs directly contrary to the purpose of disciplinary sanctions – thus the Commission decided that a substantially increased fine should be imposed, with further additional substantial fines to follow in the event of continued non-compliance.
Sanctions imposed
In the case of the club, a two-point deduction was imposed, with a further two-point deduction suspended until the end of the 2023/24 season provided the club does not default on any payments due till then.
In the case of Dai Yongge, a fine of £100,000 was imposed, with a further suspended £100,000 fine to be triggered if 28 days from the 26th February 2024, he fails to meet the deposit requirement, and a further £100,000 fine to be triggered 35 days from 26th February 2024 should he still fail to meet the deposit requirement.