Forest Foul Play: Nottingham Forest’s run in with the Profitability and Sustainability Rules

This article was co-authored by Tom Fennelly, Trainee Solicitor.

Only a few weeks after Everton FC’s appeal, Nottingham Forest (Forest) became the recipients of an immediate 4-point deduction applied by an independent Commission (Commission) for breaching the Premier League’s Profitability and Sustainability Rules (Rules). To the dismay of Forest fans, on 7 May 2024, an Appeal Board upheld the Commission’s decision. As a result of the original deduction, Forest were dropped into the relegation zone and were tasked with an uphill battle to maintain Premier League status for the 2024/2025 season.

The Breach

As set out in our previous article, The Premier League’s Profit and Sustainability Rules: Relegation danger for those in breach, the Rules allow clubs to sustain losses of up to £105m over a three year period before being at risk of sanctions. In Forest’s case, as they spent two seasons in the Championship immediately prior to their Premier League promotion, their permissible loss was reduced to £61m, i.e. a reduction of £22m per season.

In January 2024, the Premier League brought a complaint again Forest alleging that for the period ending season 2022/2023 its loss was £95,536,000, and it was therefore in breach of the Rules by £34,536,000. Following an admission by Forest, the matter was referred to a Commission who, on 18 March 2024, directed an immediate 4-point deduction (Decision).

The Decision

Mitigating factors

Although Forest accepted it was in breach of the Rules, it argued that this should be considered against several mitigating factors. A key head of mitigation raised by Forest, which it described as a “near miss” and “golden mitigation”, was that it had only breached the Rules because the sale of “Player A” occurred a short period later than was necessary for Forest to have fallen within the Rules. 

The Commission rejected this head of mitigation, as it considered:

• Forest had taken a “huge risk” in leaving itself with only the option to sell Player A in a two-week window between the summer 2023 transfer window and 30 June 2023 when it would be assessed against the Rules [1].
• The sale of Player A would only constitute a “near miss” if it was truly near the 30 June 2023 deadline “or at the first available reasonable opportunity proximate to the deadline” [2], whereas Forest sold Player A (now known to be Welsh international winger Brennan Johnson) months later in September 2023.

Other heads of mitigation argued by Forest included that they had not obtained a sporting advantage as a result of the breach, and that they were in a unique position as the only Premier League club in the 2022/2023 season who were unable to take advantage of the £105m loss threshold. Forest also had not benefitted from Parachute Payments in the preceding years.

Ultimately, the Commission accepted only one of Forest’s heads of mitigation: that it had admitted the complaint in full at the first opportunity and cooperated extensively with the Premier League.

Approach to points deduction

Whilst the Commission noted the Premier League’s request for consistency, it rejected a purely mathematical approach, considering “…there is a risk in focusing completely on the amount of any breach in isolation: the context behind a breach should be understood too” [3].

The Commission considered that breaches of the Rules could be categorised into “minor”, “significant”, or “major”. Forest's breach was determined to be significant given that, like Everton, it breached the Rules by tens of millions of pounds. Any sanction less than a points deduction was therefore inappropriate.

The Commission agreed with the Appeal Board in the Everton appeal, that the “entry point” for a “significant” breach is a 3-point deduction. From the “entry point”, the particular circumstances and quantum of a breach are assessed which “might slide it up or down the points scale to find its starting point” [4]. The circumstances and scale of Forest’s breach resulted in a further 3-point deduction being awarded. This was subsequently reduced by 2-points for mitigation, leaving a final total sanction of a 4-point deduction, which the Commission imposed with immediate effect.

Commentary

The typical English football fan may be growing tired of the increasing instances of the Premier League bringing complaints against clubs for alleged breaches of the Rules. Such fans may be pleased to hear that the Premier League will soon be scrapping the Rules, as it was decided unanimously by shareholders that a new ‘Squad Cost Ratio’ rule will come into force to govern clubs spending [5]. However, for now, the Decision brings clarity to the approach to be taken to points deductions. Question marks still hang over Leicester City and Manchester City who are both charged with breaching PSR rules. Similarly, Chelsea FC could be facing down the barrel of disciplinary procedures with reported losses in the hundreds of millions.

Related items:

• Everton’s points deduction appeal: clarity on sanction proportionality
• The Premier League’s Profit and Sustainability Rules: Relegation danger for those in breach