NFFC Financial Talk

[Reds73]

Will we find out today if we have appealed or not?

Deadline today, so yes it will be reported you would imagine if we decide to appeal.

[The reds]

I suspect that the discrepancy is linked to the treatment of promotion payments, which amounted to £21m, as per Forest’s accounts, largely in the form of £18.9m contractual bonuses to the playing squad and coaches.

Even though such a deduction is not explicitly listed in the regulations any more, it was clearly highlighted in the EFL’s 2014/15 guidelines, so if this is no longer allowed, the goalposts have been moved over the years.

This was the understanding of pretty well every commentator on football finance matters, but more importantly Forest were also very much working under the same impression, as they attempted to deduct the £21m promotion payment.

It would seem to be simple common sense that promotion bonuses could be excluded from the PSR calculation, given the disproportionate impact on the underlying wage bill, especially for a club like Forest without parachute payments.

Quite frankly, it seems unfair for a club to effectively be penalised for success if such bonuses take it over the maximum allowable loss.


This is in the latest Swiss Ramble article about Forest.

[Shawoddyred]

I suspect that the discrepancy is linked to the treatment of promotion payments, which amounted to £21m, as per Forest’s accounts, largely in the form of £18.9m contractual bonuses to the playing squad and coaches.

Even though such a deduction is not explicitly listed in the regulations any more, it was clearly highlighted in the EFL’s 2014/15 guidelines, so if this is no longer allowed, the goalposts have been moved over the years.

This was the understanding of pretty well every commentator on football finance matters, but more importantly Forest were also very much working under the same impression, as they attempted to deduct the £21m promotion payment.

It would seem to be simple common sense that promotion bonuses could be excluded from the PSR calculation, given the disproportionate impact on the underlying wage bill, especially for a club like Forest without parachute payments.

Quite frankly, it seems unfair for a club to effectively be penalised for success if such bonuses take it over the maximum allowable loss.


This is in the latest Swiss Ramble article about Forest.

I maintain, we simply have to appeal if we think we can get this accepted, so that we can improve our calculations for the next 2 years with what is a very large amount of money.

[wassy04]

I suspect that the discrepancy is linked to the treatment of promotion payments, which amounted to £21m, as per Forest’s accounts, largely in the form of £18.9m contractual bonuses to the playing squad and coaches.

Even though such a deduction is not explicitly listed in the regulations any more, it was clearly highlighted in the EFL’s 2014/15 guidelines, so if this is no longer allowed, the goalposts have been moved over the years.

This was the understanding of pretty well every commentator on football finance matters, but more importantly Forest were also very much working under the same impression, as they attempted to deduct the £21m promotion payment.

It would seem to be simple common sense that promotion bonuses could be excluded from the PSR calculation, given the disproportionate impact on the underlying wage bill, especially for a club like Forest without parachute payments.

Quite frankly, it seems unfair for a club to effectively be penalised for success if such bonuses take it over the maximum allowable loss.


This is in the latest Swiss Ramble article about Forest.

The slight argument against this is a club could massively load up the bonuses compared to basic salaries I guess.

The fact the rules have subtlety changed seems pretty dubious though. I was certainly not expecting them to count personally based on the previous rules.

[optimistic_red]

I suspect that the discrepancy is linked to the treatment of promotion payments, which amounted to £21m, as per Forest’s accounts, largely in the form of £18.9m contractual bonuses to the playing squad and coaches.

Even though such a deduction is not explicitly listed in the regulations any more, it was clearly highlighted in the EFL’s 2014/15 guidelines, so if this is no longer allowed, the goalposts have been moved over the years.

This was the understanding of pretty well every commentator on football finance matters, but more importantly Forest were also very much working under the same impression, as they attempted to deduct the £21m promotion payment.

It would seem to be simple common sense that promotion bonuses could be excluded from the PSR calculation, given the disproportionate impact on the underlying wage bill, especially for a club like Forest without parachute payments.

Quite frankly, it seems unfair for a club to effectively be penalised for success if such bonuses take it over the maximum allowable loss.


This is in the latest Swiss Ramble article about Forest.

The slight argument against this is a club could massively load up the bonuses compared to basic salaries I guess.

The fact the rules have subtlety changed seems pretty dubious though. I was certainly not expecting them to count personally based on the previous rules.

 
Bonuses are more sustainable that higher wages, isn't that what the rules are trying to do?

I'm sure I read (probably on this thread) that both Fulham and Bounemouth claimed about 20m in promotion bonuses, if so why are they allowed?

[Salvatore Matrecano]

Any chance someone can post the whole Swiss Ramble article?

[The reds]

So Nottingham Forest have been found guilty of breaching the Premier League’s Profitability and Sustainability Rules (PSR) and been hit with a 4-point deduction that has sent them into the relegation zone.

This is the second time this has occurred this season after Everton’s 10-point penalty, subsequently reduced to 6 points on appeal, as the Premier League is increasingly being played out off the pitch. It’s fair to say that Forest were not amused, immediately publishing a statement to say that they were “extremely disappointed with the decision of the Commission”.

Forest added that they were “extremely dismayed by the tone and content of the Premier League’s submissions”, while they were “also surprised that the Premier League gave no consideration at all to the unique circumstances of the club and its mitigation.”

We will dive into the detail of the Commission’s 50-page decision later, but first it is worth reminding people of how the Premier League’s Profitability and Sustainability Rules (PSR) operate.

As Forest are yet to publish their accounts for the 2022/23 season, we will look at the assessment for the previous 2021/22 season to get this understanding. We have provided an estimate before, but have been able to update this, based on some of the figures provided in the Commission’s report.

Profitability and Sustainability Rules
The Premier League’s PSR allow a club to lose up to £5m a year, which can be boosted by £30m secure funding, giving allowable losses of £35m a year. The monitoring period covers three years, so this works out to a maximum allowable loss of £105m.

The Commission noted that the Premier League’s £90m additional investment to increase the loss threshold over the 3-year period is much higher than is allowed in other competitions, such as UEFA or the EFL.

Secure funding is defined as either an equity contribution or an irrevocable commitment to make a payment for shares. The definition has also been broadened to include a letter of credit from a reputable financial institution.

These regulations are aligned with those used in the EFL’s Championship, though the limits in England’s second tier are much lower, namely a £5m loss plus £8m secure funding, giving an allowable loss of £13m per annum.

Up to 2021/22, Forest had a maximum allowable loss of £39m over the 3-year monitoring period, as they spent that time in the Championship.

Their limit increased following Forest’s promotion from the Championship to the Premier League, so their allowable loss for 2022/23 was £61m, i.e. two years in the Championship at £13m apiece and one year in the top flight at £35m.

However, this was still much lower than the £105m allowance for clubs that were ever present in the Premier League throughout the period. In other words, Forest’s allowable loss was reduced by £22m for each season that the club was playing in the Championship.

The Premier League relaxed the regulations to neutralise the adverse impact of COVID, which means that the 2021/22 monitoring period assessed the seasons 2019/20 and 2020/21 as a single (average) period. In other words, this period effectively covered four years.

PSR 2021/22
It’s no great surprise that Forest have faced challenges to comply with PSR, as they have consistently lost money. In fact, they have only reported a profit once since 2005 – and that was entirely due to a £40m loan write-off in 2017.

Reported Losses
In the four years covered by PSR up to 2021/22, their losses were over £100m, including a hefty £46m deficit in the season they were promoted. Not only was this the largest in the Forest’s history, but it was also the 10th highest ever in the Championship.

The reality is that Forest have been regularly posting large losses since the takeover by Greek businessman (and Olympiacos owner) Evangelos Marinakis.

After averaging the two COVID seasons, Forest’s total loss for the 3-year monitoring period up to 2021/22 was reduced to £87m, though this was still miles above the £39m threshold.

Allowable Deductions
However, clubs can adjust their reported losses to add back “healthy” expenditure that is recognised to be in the general interest of football, including investment in infrastructure (mainly depreciation on tangible fixed assets), youth development, community and women’s football.

These costs are rarely divulged in the club accounts, so they have to be estimated. Over the 3-year monitoring period, I have included £9m for youth development, £3m for community, £2m for women’s football and £2m for depreciation on infrastructure.

Of course, these figures could easily be a little out, though I have fine-tuned these from a previous estimate, so that the overall calculation reconciles to the adjusted earnings loss for 2021/22 given in the Commission’s decision.

Owner Loan Write-Offs
However, as we have seen in previous EFL cases, most notably with QPR, if a club writes-off an owner loan, it cannot make use of the resulting benefit in the P&L to help meet PSR targets.

In this way, Forest had to exclude £10m of loan write-offs (worth £5m in the calculation after averaging the two COVID seasons).

COVID Impact
Exceptionally, clubs can also adjust their reported figures to exclude the adverse impact of COVID, as they were hit hard by games played behind closed doors for pretty much all of the 2020/21 season and a large chunk of 2019/20.

In the notes to their 2020/21 accounts, Forest advised that their COVID impact was £16.7m, split between £8.2m in 2019/20 and £8.5m in 2020/21. This covers lost revenue and additional costs plus anticipated player sales that were not possible in the depressed transfer market.

At that time they also forecast a £12.2m COVID impact for 2022/23, but importantly did not include an actual figure in the notes to the audited 2021/22 accounts.

The EFL guidelines restricted the amount a club can claim for a COVID add-back to £5m for each of the seasons 2019/20 and 2020/21 plus £2.5m for 2021/22, unless it justified a higher amount via supplementary information provided to the authorities.

In Forest’s case, they attempted to do exactly this by using a presentation prepared by Twenty First Group, but this cut little ice with the Premier League, who highlighted various flaws in that assessment.

As a result, Forest could only add back £2.5m for 2021/22, which “Forest now accepts” per the Commission’s Decision.

However, I have assumed that the amounts listed in the accounts for 2019/20 and 2020/21 were accepted, because these were not mentioned anywhere in the Commission’s Decision.

On that basis, Forest could deduct £10.8m for COVID, comprising £8.3m for the average of 2029/20 and 2022/21 plus £2.5m for 2021/22.

Overview
After all these adjustments, my model suggests that Forest were £28m worse than target in 2021/22, in other words miles off, despite former chairman Nick Randall stating that the club had achieved promotion “after full compliance with all FFP rules in the Championship.”

Forest seemingly confirmed their compliance in their submission to the Commission: “Forest submitted that it was in the rare position of obtaining promotion in compliance with the EFL P&S Rules… without having breached the EFL P&S Rules and the EFL Annual Upper Loss Threshold.”

These bullish assertions would seem to contradict the awful picture in my model, so what’s the story (morning glory)?

Of course, I will happily accept that some of my figures could be out, but it seems unlikely that this would explain the magnitude of the difference, given that: (a) the largest numbers in my estimate have been taken directly from the club accounts; (b) my assumptions on the COVID add-back are fairly generous.

Indeed, my £40m P&S loss for 2021/22 is exactly the same as the “loss of £40m in its Adjusted Earnings Before Tax” mentioned in the Commission’s Decision (note 12.34).

Promotion Payments
I suspect that the discrepancy is linked to the treatment of promotion payments, which amounted to £21m, as per Forest’s accounts, largely in the form of £18.9m contractual bonuses to the playing squad and coaches.

Even though such a deduction is not explicitly listed in the regulations any more, it was clearly highlighted in the EFL’s 2014/15 guidelines, so if this is no longer allowed, the goalposts have been moved over the years.

This was the understanding of pretty well every commentator on football finance matters, but more importantly Forest were also very much working under the same impression, as they attempted to deduct the £21m promotion payment.

It would seem to be simple common sense that promotion bonuses could be excluded from the PSR calculation, given the disproportionate impact on the underlying wage bill, especially for a club like Forest without parachute payments.

Quite frankly, it seems unfair for a club to effectively be penalised for success if such bonuses take it over the maximum allowable loss.

If Forest were allowed to add back the £21m promotion payment, then I reckon they would have been only £7m above the 2021/22 PSR limit.

My guess is that they were so close to meeting the target that the EFL effectively gave the club a pass, though they might also have felt that it was a moot point following Forest’s promotion to the Premier League.

Actually, this also raises an interesting question as to whether promotion payments are allowed in the EFL PSR calculation, but excluded from the Premier League PSR calculation, maybe on the basis that clubs receive a significant revenue boost following promotion. Otherwise, I’m scratching my head.

PSR 2022/23
The PSR 3-year monitoring period is a moving target, so the 2022/23 calculation will have dropped the £25m 2018/19 loss, replacing this with the loss for 2022/23.

The Commission stated that Forest’s PSR loss over this period was £95.5m, thus breaching the £61m allowed loss by £34.5m.

Right off the bat, Forest agreed that there was a breach, eventually also accepting the size of the breach, though the club said that this should be considered in light of “certain exceptional circumstances”.

Based on our model, the total £95.5m loss over the 3-year monitoring period implies a PSR loss of £49m for 2022/23. After adding back £5m of allowable deductions, that would mean a reported £54m pre-tax loss.

That’s a sizeable deficit, but this would by no means be out of the ordinary in the Premier League. Indeed, based on the latest published accounts, no fewer than nine clubs lost more than £50m.

Objectives of PSR
The Commission in Forest’s case reiterated that the primary purpose of PSR is to address any unfairness, i.e. “to protect the integrity of the relevant competition by restricting the level of financial risk a club might take, in the case of the Premier League, to a level and in the manner in which the PL clubs agree”.

However, it added that it also needs to consider fairness in relation to the club in breach, and to ensure that it is not sanctioned in a manner that is unfair, arbitrary, or disproportionate in all the circumstances.

Specifically, this means that the aims of any sanctions are fourfold:

to punish the club for the breach

to vindicate other clubs which had not engaged in conduct that breached the P&S Rules

to deter future breaches of the P&S Rules, whether by the relevant club or other clubs

to restore/preserve public confidence in the fairness of the competition

Ultimately, it is all about protecting the integrity of the competition – or at least it should be.

Aggravating Factors
Unlike the Everton case, where the Premier League put forward several factors that they believed had aggravated the breach (i.e. made it worse), none were raised here, save for the size of the breach itself.

The Everton Commission had noted that allowable losses permitted “considerable latitude”, whereby a club is permitted to make a fairly large loss and still meet the target.

Forest accepted that the normal £105m threshold is relatively generous, but pointed out that their limit, as a recently promoted club, was substantially lower at £61m.

Indeed, Forest were one of only two clubs in the 2022/23 Premier League that had to operate within the £61m threshold, while the other one, Bournemouth, had benefited from parachute payments.

However, Forest advanced six separate factors that, although not reducing the extent of the breach, sought to mitigate it. The objective was to reduce the nature and size of the sanction.

The club said that any sanction should take into account “the unique and exceptional circumstances” it had found itself in, highlighting “substantial mitigation”.

Forest’s Unique Position
Forest argued that they needed to invest significant sums after promotion to the Premier League if they were to have any chance of competing at the higher level. After more than 20 years out of the top flight, they said that they had to spend big, as they were playing catch-up with more established clubs.

Even the Premier League acknowledged that (a) non-recently promoted clubs had the benefit of a higher PSR threshold; and (b) the other two clubs promoted alongside Forest had the benefit of substantial sums from parachute payments.

Furthermore, Forest had little time to act after only securing promotion by winning the play-off final. While that is correct, it is clearly not “unique” for Forest, as all play-off winners have to cope with this particular challenge.

All that being said, the question is whether Forest needed to spend quite so much. According to Transfermarkt, they splashed out around £170m on transfers, including six purchases above £10m, namely Morgan Gibbs-White, Taiwo Awoniyi, Neco Williams, Danilo, Emmanuel Dennis and Orel Mangala.

By my reckoning, 30 new players arrived at the City Ground in 2022/23 (including loan signings), though the Commission only counted 29. Either way, it’s a ridiculous amount of recruitment in a single season.

They spent £141m in the summer, but then doubled down by adding another £29m of players in the January window. Although quite a few of the signings were on free transfers or loans, this still would have increased Forest’s wage bill.

Incredibly, this was actually the third highest gross transfer spend in the Premier League in 2022/23, only surpassed by Chelsea and Manchester United, but ahead of the likes of Manchester City, Liverpool, Arsenal and Tottenham.

In fact, Forest actually spent more than the two other promoted clubs combined (Bournemouth and Fulham)

Marinakis explained the rationale behind this seemingly crazy expenditure: “Five of our key players last season were on loan, so we had to replace them. You also need to buy players at Premier League level, so we had to add quality in all areas. It was unavoidable. I didn’t just buy players to spend money, it was because we needed them.”

That makes sense, and you cannot fault the man’s ambition, but the approach felt a little scattergun to say the least.

Furthermore, no club has spent more in the transfer market than Forest in the first season after promotion to the Premier League. In fact, only four clubs have broken through the £100m barrier: Forest £163m, Aston Villa £156m, Fulham £120m and Wolves £111m.

In fairness, Forest would have been operating with a handicap if they had not invested in the squad, as can be seen by the club’s limited expenditure in previous years. To further place last season’s £170m into perspective, they had spent less than £100m on player purchases in the 20 years before promotion.

In fairness, Forest would have been operating with a handicap if they had not invested in the squad, as can be seen by the club’s limited expenditure in previous years. To further place last season’s £170m into perspective, they had spent less than £100m on player purchases in the 20 years before promotion.

Moreover, Forest also splashed out another £114m this season, which is less than their massive 2022/23, but is still a lot of money. That makes nearly £300m on transfers in just two seasons.

As we have seen, there are many ways to look at Forest’s transfer expenditure, but the Commission concluded that Forest were aware of the risks associated with this strategy and took informed business decisions, knowing full well that this might result in a PSR breach.

It said that Forest must have known that PSR was a major issue, but they continued to splash the cash on new players. The additional signings in the January window made it look like the club simply did not care about the consequences.

They also questioned whether Forest’s situation was genuinely “unique”, as 12 other clubs in the last 10 years had been promoted to the Premier League without the benefit of parachute payments and had not fallen foul of PSR. On the other hand, Marinakis might equally point out that many of these clubs were immediately relegated.

The Commission added that a promoted club benefits from a significant increase in revenue following promotion, which should greatly assist with the bottom line. In particular, Forest’s revenue shot up from just under £30m to £155m.

Brennan Johnson Sale
Forest sold “player A”, i.e. Brennan Johnson, a short period after the 2022/23 accounts closed, so the deal was not included in the PSR calculation. The club described this as a “near miss” or “golden mitigation”.

Even though the club knew that it would need to sell a player before the 30th June accounting close to comply with PSR, it said that it had not received an offer that could be completed by that date.

They did received an offer for Johnson of €50m (£43m) on that date from Atlético Madrid, but demanded €65m (£55.8m). Three offers were also submitted by Brentford in July and August, but all of these were rejected, before the winger was finally sold to Tottenham for £47.5m on 1st September, the last day of the transfer window.

Forest further argued, “Even after the club had missed the PSR reporting deadline, it still took steps to ensure Brennan Johnson was sold before the end of the transfer window. That was a clear demonstration of our respect and support for PSR.” A change in Johnson’s agent also complicated matters.

However, the Commission believed that the club could have done more to complete Johnson’s transfer in time. Not only did Forest know that they would have to make a sizeable player sale to meet PSR, but the Premier League actually warned the club on 6th June that they were sailing close to the wind.

It was understandable that Forest looked to address their PSR problems by selling Johnson, given that the young winger was a homegrown player, so represented pure profit in the club’s accounts.

However, they took a huge risk by relying on the sale of Johnson in the first two weeks of the transfer window, effectively putting all their eggs into one basket.

Indeed, Forest only made £4m profit from player sales in 2022/23, mainly from Brice Samba’s move to Lens, which was the same (low) amount as the previous season. As well as spending huge amounts on buying players, Forest have generated very little from sales with the inevitable impact on their net result.

The Premier League said that Forest had not pushed to sell Johnson as close as possible to 30th June, adding that missing the accounting deadline by more than two months could not be categorised as a “near miss”. This argument would have been more credible, if they had not used the entire transfer window.

Interestingly, they also said that the Atletico deal could have been completed on a conditional basis, as this was contingent on the Spanish club making a player sale of its own, which the Premier League would have considered as “very powerful” mitigation.

In addition, the Commission pointed out that the first Brentford offer in July was very close to taking care of the PSR breach, though it was understandable that Forest would want to maximise the amount they could achieve from the transfer fee.

Reasons for the Excess
Forest argued that the breach was largely due to three factors:

The price of promotion to the Premier League

A reasonable reliance on the 2021/22 COVID add-back

A reasonable, but ultimately inaccurate, estimate of the TV merit payment

Forest submitted that it had to bear considerable additional costs as a result of the somewhat unexpected promotion to the Premier League, amounting to £21m. These costs, in effect, penalised Forest for their success on the pitch by reducing the allowable losses by £21m, which was a large slice of their £61m threshold in 2022/23.

Forest’s PSR submission had also relied on an £11.2m claim for COVID add-backs for 2021/22 (originally forecast at £12.2m), but the Premier League ultimately only accepted the EFL’s standard £2.5m allowance, i.e. £8.7m lower.

Forest argued that it honestly believed that they would be able to deduct the higher figure, but now accepts that this belief was incorrect. The Commission had some sympathy here, as it took the Premier League a long time to advise the club that this deduction would not be allowed.

Forest’s budget assumed that they would finish 12th in the Premier League in 2022/23, which was not considered completely unreasonable, though the club eventually ended up in 16th. As each place was worth around £3.1m in the TV deal’s merit payment, this meant that their income was £12.5m less than expected.

If all three of these factors had gone as Forest had anticipated, there would have been no PSR breach. However, as they did not work out, the only way they could hope to comply with PSR was by selling Johnson.

No Sporting Advantage
Forest claimed that they obtained no sporting advantage as a result of the breach, which would be an important mitigating factor, given that the core purpose of any penalty is to remedy any unfairness in the competition.

Johnson participated in three Premier League matches during August 2023 (i.e. this season), which resulted in one win and two defeats. He did not play a full match, nor did he score or provide an assist, but that was not really the point.

The Commission pointed out that Forest had effectively gone through an entire season with a squad that it could not afford – if it wanted to comply with PSR. That squad included Brennan Johnson, who they had decided not to sell.

They concluded that Forest did indeed gain some sporting advantage in playing Johnson in those games.

Track Record and Positive Trend
Forest also argued that they:

Had a good prior record with respect of FFP rules

Admitted the breach at the first opportunity

Had made further profitable player sales during the January 2024 transfer window, therefore demonstrating a positive trend

The Commission said that the absence of a breach is no more than more than part of the standard of required conduct for a Premier League club. It is not something above what is reasonably expected, so it does not justify additional credit, as was also the case with Everton.

They also noted that Forest had not, in fact, demonstrated a positive trend to date, as their losses had been increasing. The club is projecting lower losses of £12-17m for this season, including the sale of Gustavo Scarpa to Atletico Madrid for €5m and the loan of Orel Mangala to Olympique Lyonnais for €10m, but the Commission said that it would not be appropriate to look at later financial years.

Interestingly, based on my model, they would still be above the PSR target for 2023/24 even with the forecast smaller losses. Adding together the 2021/22 PSR £40m loss, the 2022/23 £49m loss and the projected £12m loss would give a £101m net result, which would be a fair bit higher than the allowed loss, even though this has increased to £83m in Forest’s second season in the Premier League.

The Commission did acknowledge that Forest had admitted the breach at the earliest opportunity, which was worthy of some mitigation.

Exceptional Cooperation with the Premier League
The Premier League agreed that Forest did indeed display a level of cooperation which was above the level reasonably expected, so much so that they requested the Commission to record all the cooperation Forest had provided, to serve as a helpful reference point for other clubs.

The Commission concurred, commending Forest for their early plea and for the cooperative way it conducted itself throughout this matter. Without this approach, it would not have been possible to conclude the process, including a two-day hearing, in just eight weeks from the complaint.

In summary, the Commission dismissed all of the mitigating factors advanced by Forest with the exception of the club’s cooperation and early plea.

That might not sound like much, but the Premier League was quite impressed by Forest (a) admitting the complaint in full at the first opportunity, and (b) cooperating extensively with the Premier League before and during the disciplinary process.

They said that these factors constituted “substantial mitigation which together justify a material reduction in sanction”, so the moral of the story here is “be nice, kids”.

More topically, Leicester City’s management should probably bear this in mind before taking on the authorities after their recent charge.

Sanctions
The EFL has clear guidelines on sanctions, so that the starting position for a club in breach is a 12 points deduction that is reduced to reflect the size of the breach and other mitigating factors.

In contrast, the Premier League does not have a fixed sanctioning policy or a recommend set of points deductions, though chief executive Richard Masters told the Everton Commission that they do have unpublished guidelines, where the starting position for a breach is 6 points plus 1 point for every £5m above the £105m PSR limit.

This means that each individual case is treated on its merits and heard by a separate Independent Commission. The rules list a number of sanctions that a commission may impose, ranging from a warning to expulsion from the Premier League, concluding with the power to make any such other order as the commission thinks fit.

The appropriate sanction is to be determined by the Commission having heard and considered all aggravating and mitigating factors.

However, even taking into account the contextual background of Forest’s breach, the Commission had no doubt that the starting point for the sanction should be a points deduction, given that Forest’s breach was “significant”, as was the case with Everton.

So the only real question was how many points?

The Premier League pointed out that Forest’s £34.5m PSR breach was 77% (£15.0m) higher than Everton’s £19.5m over-run.

Furthermore, Forest’s breach was 57% of the applicable threshold, compared to Everton’s which was only 19% of its applicable threshold.

On the other hand, Forest’s 61m allowable loss was much smaller than Everton’s £105m, so the comparisons in the Premier League’s statistics are not overly surprising.

The Premier League proposed an 8-point deduction for Forest, by applying the 3 points minimum set by the Everton Appeal Board, then adding 5 points to reflect the seriousness of the breach.

This was calculated by taking Everton’s additional 3 points and increasing them by 77% (per the difference in size of the breach). Alternatively, they said that Everton’s 3 points could be considered as 1 point for every £6.5m (given that the breach was £19.5m), which would also work out as 5 points for Forest (i.e. £34.5m divided by £6.5m).

Either way, Forest were unhappy with the proposed 8-point deduction, “That the Premier League sought a sanction of eight points as a starting point was utterly disproportionate when compared to the nine points that their own rules prescribe for insolvency.”

In fairness, the Premier League then suggested that the combined mitigation provided by the exceptional cooperation and early plea justified a discount of two points, so their overall suggestion was that Forest should be given a deduction of 6 points.

The Commission agreed with the Everton Appeal Board that the entry point for a significant breach should be a deduction of 3 points. They then added 3 points for the scale of the breach, which was in “tens of millions”, before deducting 2 points for the club’s early plea and exceptional cooperation, giving a final deduction of 4 points.

Everton had been given a 10-point deduction, which was subsequently reduced to 6 points on appeal.

Forest’s Commission said that it did not know exactly how Everton’s Appeal Board had arrived at the 3 extra points on top of the starting 3 points, but said that some of this must relate to the provision of incorrect information, so I have assumed that this was split 2 points for the size of the breach and 1 point for incorrect information.

This means that the Commission effectively gave Forest a higher points deduction (3 points vs 2 points), as their breach was larger than Everton’s, because it noted, “there was no additional consideration around incorrect information being provided to the Premier League, as Everton had”.

In summary, Forest were given a 4 point penalty, while Everton were docked 6 points, which might seem a little strange, given that their breach was larger than the club from the blue half of Liverpool.

However, Forest did point out that the Goodison club had been overspending for longer than them and exceeded a higher threshold.

Appeal
Although Forest’s statement made clear their disappointment with the decision, they have not yet indicated whether they will lodge an appeal. As per the regulations, they had seven days to notify the Premier League whether they intended to do so.

Any PSR appeals are intended to be concluded by 24th May, which would be five days after the season ends on the pitch, though any hearing could presumably be expedited before then, based on the level of cooperation between the two parties to date.

An appeal by Forest would run the risk of the sanction potentially being increased, as the Appeal Board has the power to “vary any penalty imposed or order made at first instance”, according to Premier League rules. That said, while an increase in the sanction is theoretically possible, most experts would consider this to be unlikely.

Issues

There are obvious issues with PSR, not least the fact that it can sometimes lead to clubs having to do the opposite of what common sense would dictate in order to comply with an arbitrary loss threshold.

This was explicitly acknowledged in Forest’s case after the club opted to sell Johnson after the 2022/23 accounts had closed, “The Commission understands all clubs’ desire to sell their players for the most they can achieve. That is a sensible commercial decision to take for any business.”

However, the Commission still effectively concluded that it would have been better for Forest to respect the PSR regime and try to make the miss as near as possible, rather than maximising profit.

Forest addressed this lack of joined-up thinking in their hard-hitting statement, “The commission’s decision raises issues of concern for all aspirant clubs. There will be occasions when a player transfer cannot be completed in the first half of a transfer window and can only be completed at the end of that window. This should not be a reason for the condemnation of a club. For this not to be recognised by the commission or the Premier League should be a matter of extreme concern for all fans of our national game.”

One question would be: why is the PSR deadline not aligned with the transfer window, especially given the disproportionate impact player trading can have on a club’s profitability? Especially, as the best time for a club to do business is usually at the end of the transfer window, when they are more likely to secure higher transfer fees.

Other questions would include:

Are the PSR allowable losses still appropriate, given the rampant football inflation since the regulations were first implemented?

Is there any “double jeopardy”? In other words, is it right for a club to be punished twice, when there is substantial overlap in the monitoring periods?

Integrity
On the other hand, the PSR rules are intended to maintain the integrity of the competition, so would it be fair that clubs who breach the limits should be allowed to do so with impunity, while others respect the rules?

In practice, this would mean that clubs who had reined in their spending in order to comply with PSR would be “punished” if others could spend what they wanted.

The regulation of financial sustainability is clearly not straightforward, but there’s no doubt it has given clubs another problem to solve. To extend Sartre’s famous quote, “In football everything is complicated by the presence of the opposite team… and PSR”.

Conclusion
The harsh reality is relegation could be decided by the points deductions imposed by PSR, which is not a good look for the Premier League.

Forest will feel that they have been punished for showing ambition, “In circumstances where this approach is followed by future PSR commissions, it would make it extremely difficult, if not impossible, for newly promoted clubs without parachute payments to compete, thus undermining the integrity and competitiveness of the Premier League.”

That is eminently understandable, but the feeling remains that Forest’s spending after promotion was over-the-top, so a breach of the PSR maximum loss was always on the cards. As a result, they have paid the price for their profligacy.

The Commission emphasised that PSR’s objective was to be fair, not just to Forest, but also other clubs playing in the Premier League: “The four points sanction is not to punish Forest so much as it is to be fair to the other clubs; to give the public confidence that when a club invests as Forest did to compete in the Premier League it still needs to comply with the PSR Threshold for losses.”

It added, “When a club like Forest took the risk of effectively ignoring the PSR warning from its Finance Director before the January window in 2023, and rather than looking to sell players, it added players to its squad, ultimately leaving itself with just two weeks to sell Brennan Johnson in the summer 2023 window, such risk taking and “sailing close to the wind” needs a proportionate sanction to maintain the integrity of the Premier League.”

Taking all these factors into consideration, the four points deduction feels about right.

[The reds]

Any chance someone can post the whole Swiss Ramble article?

Just posted it, but without the charts, It is a very long read.

[Salvatore Matrecano]

Thanks much appreciated! Really interesting and balanced article.

[Fumanchew]

I wonder why we tried to high ball athletico, and more importantly who tried to (if these comments in the report are 100% fact) when we ended up only getting 4.5m more from Tottenham. Did BJ and DJ not favour the La liga move?

[Shawoddyred]

I wonder why we tried to high ball athletico, and more importantly who tried to (if these comments in the report are 100% fact) when we ended up only getting 4.5m more from Tottenham. Did BJ and DJ not favour the La liga move?

4.5m is quite a lot of money.....and perhaps we believed we might get even more in the end.

[The reds]

Well Forest are appealing, they were never not going to appeal. I always thought that if the Legal Advice was right then they would appeal, Commission rejected a lot of good points made by De Marco and his team