Everton has become the first English Premier League club to be deducted points for breaching profitability and sustainability rules, when the league docked the Merseyside club 10 points over their finances in the 2020/21 season.
An independent commission has imposed an immediate deduction, which will see Everton drop from 14th in the standings into the relegation zone with four points, above bottom side Burnley on goal difference.
The club describes the decision as unjust and says it would appeal.
The league says it has issued a complaint against the Merseyside club and referred the case to the independent commission earlier this year.
"During the proceedings, the club admitted it was in breach of the PSRs for the period ending season 2021/22, but the extent of the breach remained in dispute," said the league.
"The commission determined that Everton FC's PSR calculation for the relevant period resulted in a loss of 124.5 million pounds (NZ$259m), as contended by the league, which exceeded the threshold of 105 million pounds (NZ$218.5m) permitted under the PSRs."
Everton's most recent figures showed a fifth straight year of losses, with their total loss over that period amounting to more than 430 million pounds (NZ$895m).
The club says they posted a loss of 44.7 million pounds (NZ$93m) for the 2021/22 season earlier this year.
After three straight years of losses in excess of 100 million pounds (NZ$208m), Everton says it made significant reductions to their losses, down 76 million pounds (NZ$158m) from the previous year's loss of 121 million pounds (NZ$252m).
While Everton's 10-point deduction for breaching the league's financial rules is unprecedented, clubs in England's top flight have been docked points before.
Middlesbrough had three points deducted in 1997, when it failed to fulfil a fixture against Blackburn Rovers, while Portsmouth were given a nine-point penalty in 2010, when the financially troubled club entered administration.
Everton narrowly avoided relegation in the last two seasons, finishing 16th and 17th respectively. The club's survival ultimately led to Burnley and Leicester City being demoted to the second-tier Championship in successive seasons.
'Culpability is great'
The independent commission says the position Everton found itself in was of their own making.
"It is Everton's responsibility to ensure that it complies with the PSR regime," it said. "The excess over the threshold is significant.
"The consequence is that Everton's culpability is great. We cannot ignore the fact that the failure to comply with the PSR regime was the result of Everton irresponsibly taking a chance that things would turn out positively."
The league says one of the factors that aggravated Everton's default was overspending on players, despite repeated warnings.
Everton has invested nearly 750 million euros (NZ$1366m) in transfers to build the squad since the 2016/17 season. The club was taken over by British-Iranian billionaire Farhad Moshiri in 2016.
"The commission considers that it was unwise for Everton not to have curtailed player purchases," it added. "It was aware of potential PSR difficulties, but pressed ahead in the hope that it would make sales of players that would enable it to achieve PSR compliance.
"Events have proved that to be a poor judgment."
Everton appeal
Everton says the sanction was "wholly disproportionate and unjust", and has announced its intention to appeal the decision to the league.
"Everton maintains that it has been open and transparent in the information it has provided to the Premier League and that it has always respected the integrity of the process," it said.
"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 was sold to 777 Partners in September in a deal reportedly worth more than 550 million pounds (NZ$1144m), with the company acquiring Moshiri's 94.1 percent stake in the club. The deal is expected to be closed by the end of the year.
The US private equity firm has declined to comment on the points deduction, while the change of control process remains ongoing.
Earlier this year, Manchester City was also referred to an independent commission over more than 100 alleged breaches of finance rules, since the club was acquired by the Abu Dhabi-based City Football Group. No verdict has been reached in that case.
"The club will also monitor with great interest the decisions made in any other cases concerning the Premier League's profit and sustainability rules," Everton added.
Culture, media and sport committee chair Caroline Dinenage says Everton's sanction is another sign the sport needs an independent regulator.
"It is clear that the status quo cannot continue," said Dinenage. "I repeat my call for the government to urgently introduce the Football Governance Bill, as announced in the King's Speech, to enable a statutory independent regulator to be in place as soon as possible."
Reuters
