This case focussed on an alleged breach by Sheffield Wednesday Football Club (herein referred to as ‘the Club’) of the Profitability and Sustainability Rules, which were introduced in the Championship at the beginning of the 2016/17 season, resulting in a sporting sanction of a 12- point deduction for the Club. The reason for this alleged breach was the Club had included the sale of their Hillsborough stadium in their 2017/2018 financial statement, although the stadium was not sold until the following year. As per the English Football League (EFL) regulations, all clubs are required to submit their annual club accounts.[1] Therefore there was a dispute whether the sum of money from the stadium sale should be included in the 2017/18 statement.
Within the Profitability and Sustainability Rules (herein referred to as ‘P & S Rules’), clubs are only allowed to lose £39 million over a 3 -year monitoring period.[2] Prior to the 2017/18 season, the Club had lost £9.8 million and £20.8 million respectively in the previous two seasons and therefore had the Club posted a third loss, (projected to be £35 million) this would have evidently take them over the £39 million mark. The Club would be in breach of the P & S Rules. Nevertheless, by including the sale of the stadium, the Club posted a pre –tax profit of £2.5 million.
The Club’s Chairman had agreed to purchase the stadium from the Club to ensure the Club was not in breach of P & S Rules. The EFL were aware of this and as we will see, consented to allow the Club’s accounting period an extension of 8 weeks to conclude the sale of the stadium. It looked like the EFL and the Club had come to an agreement regarding the timing of the transaction and how proceeds of the sale of the stadium were to be to be accounted for in the 16/17 statement, but it wasn’t until 10 months later the validity of the contract agreement came to light and disciplinary charges were brought by the EFL against the Club.
The Charges
Charge 1: The EFL formed the view that the sale of stadium should not have been included within the accounting period for Financial Year 2017/18 and the Club had therefore breached P & S Rules.
From the written submissions, it is known that the Club had been allowed to extend their accounting period twice from 31st May to 30 June and then again to 31st July 2018. For the stadium sale to be accounted in the 2017/18 financial year, there had to be a binding contract, which was not capable of being rescinded, although it was important to note that title of the property did not have to be passed at the same time. Ultimately, this is the downfall to the case, as there was no concrete steps for a binding agreement put in place for the sale of the stadium. The Independent Disciplinary Commission (herein referred to as ‘The Commission’,) made reference to this, ‘despite numerous conversations taking place during this time about other Club issues’. The Commission was of the opinion that the Club ‘had no answer to the alleged breach, as the Club had indeed breached P & S rules and that draft Heads of Term were never executed’. Therefore the sale of the stadium had not been concluded and should not have been included in 2017/18 financial accounts.
Charge 2: The Club had sought to ‘deliberately conceal from the EFL that terms had been backdated’ and as a result had breached the ‘good faith’ principle in P& S Rule 4.4.
The Commission observe ‘that a serious allegation such as deliberate deception made by anyone is not made lightly’. The panel also notes that there are ‘identifiable individuals allegedly responsible for deception’, but ultimately Charge 2 was dismissed on the basis of omissions were innocent for reasons including documentation was not giving the correct level of scrutiny required due to individuals being on holiday. Additionally, no motivation was found among the witnesses to deliberately conceal such information from the EFL.
Conclusion
It is important to highlight two lessons from the case that The Commission set out: Firstly, a lesson for clubs, it is imperative that club owners understand the timetables set out by EFL for compliance with P & S Rules. The rules are there to be followed. The Commission also points out that this present case demonstrates that ‘hastily considered “rescue attempts” can lead to misunderstandings, misconceptions and mistakes’, as mentioned above in relation to scrutiny of documentation. The second lesson is directed towards the EFL, and is in relation to concerns about handling of the allegations relating to dishonesty in this case, Nothing further was done when originally allegations were made against the Club, and under EFL Regulations, it highlights that ‘the League does have the power to investigate any suspected breach of regulations by any Club, Official or Player’ and therefore the EFL should have followed this procedure. [3]
Decision on Sanction of Charge 1 (issued on 4th August 2020)
Outcome: 12 points deduction at the start of 20/21 Season
As a result of Charge 1, as discussed above, the EFL wanted the 12 points deduction to be imposed at the end of the 2019/20 football season with immediate effect. On the other hand, the Club’s primary submission was that there was no requirement for a point deduction and a financial penalty would be more than appropriate. Nevertheless, the Club were keen to point out that if there was a points deduction, they requested this to be no more than 7 points, as 8 points or more would relegate the Club to League 1.
The Commission did acknowledge that other clubs have previously used a similar mechanism to buy their own stadium; just that it was carried out in a timely and proper manner. It is a known fact to all clubs that within the P& S Rules, a penalty breach for 3 seasons is a 12 points deduction for the next season based on EFL Sanctioning Guidelines for P & S cases, which are the maximum points imposed if loss is greater than £15 million.
It is important to note, this sanction is based on Charge 1 alone, and the Commission have advised both parties that had original appeal taken place with charge alone, the point deduction may have taken place at the end of the current season as was intended before the Covid -19 Pandemic took place.
Conclusion
The Commission point out that their decision on sanction was based on a combination of three factors; 1) if the point deduction had occurred during the 18/19 season when it was supposed to be, the club would not have faced relegated due to their league position, ii) the actual/perceived inconsistency in the Derby County case (still waiting points deduction outcome but EFL happy for points to be carried over to next season as club would not be relegated) and iii) the potential effects of delays by bringing Charge 2 which was dismissed, makes it inappropriate, in the Commissions opinion to impose points for the current season and therefore the sporting sanction carries over to the 2020/21 season.
The Club are appealing the 12- point deduction and this is likely to take place in Autumn 2020.
[1] Rule 1.1.3 of the Profitability and Sustainability Rules at Part 2
[2] Rule 3 of the Championship Profitability and Sustainability Rules at Part 2
[3] Section 8, Rule 82.2 EFL Regulations
A Sporting Insight 