A four-point deduction — what next for Nottingham Forest?

Having breached the Premier League’s profitability and sustainability rules (PSR), Nottingham Forest face an immediate four-point deduction — ahead of any possible appeal. Here are the key points

Following January’s news that Nottingham Forest had breached the Premier League’s profitability and sustainability rules (PSR), an independent commission has applied an immediate four-point deduction. The hearing on 7 and 8 March revealed that the club’s losses over the three-year period were £95.5m — breaching the £61m threshold by £34.5m.

The rolling three-year assessment included allowed losses of £13m for two seasons in the Championship and £35m for the 2022/23 season in the Premier League. Both the club and the Premier League have seven days to appeal if they wish, although it might not be heard until after the season has ended.

The key points

Forest’s PSR calculations showed losses of £3m for 2020/21, £40m in 2021/22 and £52m in 2022/23.

Currently, it is projecting to realise losses of approximately £12-17m for the year ending 30 June 2024.

Submitted in March 2023, the club’s PSR calculation for 2021/22 included a Covid Add-Back allowance of £12m and an add-back of £20m promotion costs. However, the Premier League only allowed a Covid Add-Back of £2.5m and no promotion allowances.

Net transfer spending in 2022/23 was £142.8m.

Atletico Madrid bid €50m (£43m) for Brennan Johnson on 30 June 2023 — the final day of the financial year — but that offer was contingent on a player being sold and was rejected. Brentford’s bids of £32.5m, £35m and £40m were all rejected prior to the player joining Tottenham Hotspur on 1 September for £47.5m.

Forest filed its 2022/23 accounts — with a PSR calculation of £86.8m — to the Premier League on 31 December and stated that it “[…] admit a breach of the PSR and that [it] wishe[d] to enter into early discussion with the Premier League concerning the extent of the breach and the possible sanction”. Forest further submitted that its case differed from that involving Everton FC, “not only due to [its] immediate admission of breach and full cooperation but also as to the substantial mitigation that exists”. Forest also placed on record that it was “taking steps to improve its PSR position, by already agreeing the sale of one player for a significant profit in the forthcoming [transfer] window.

The Premier League noted that the Appeal Board took into account the following ‘benchmarks’ in the Everton Appeal: a maximum sanction of 12 points and a minimum of three points. Other available sanctions, such as warnings, fines, embargos and the like are not appropriate in the case at hand.

Forest argued that it had six main points of mitigation:
1. A unique position being the only club that was either not previously in the Premier League, and taking advantage of higher PSR Thresholds, or newly promoted with the benefit of parachute payments.
2. It breached the PSR Threshold because the sale of Johnson occurred a short period later than was necessary.
3. Most of the excess loss was due to the price of promotion, the Covid Add-Back and finishing lower than expected.
4. No sporting advantage as a result of the breach.
5. A good prior record with respect of FFP rules, admitting the breach and making player sales in January 2024.
6. Cooperation with the Premier League.

The Premier League noted the “very substantial” player acquisition activity that Forest engaged in during the summer 2022 transfer window — Forest’s net transfer spending in 2022/23 was £78.7m (123%) higher than the average net transfer spending of all Premier League clubs (excluding Chelsea) and its incoming transfer volume was not only the highest in the Premier League but nearly double the next-highest club.

The Commission noted that there were few documents that demonstrated what Forest was doing about its PSR issue. There were no board meeting minutes and only a few emails or messages included within disclosure. Most communications were apparently oral.

By 29 September 2022 (following the end of the summer transfer window), Forest’s finance director prepared a forecast showing a PSR breach of £6.9m. Further forecasts prepared in December 2022 also showed a breach. It is not therefore clear why Forest did not take steps to address the looming PSR problem during the January 2023 transfer window (instead making further signings).

Forest’s argument that Johnson’s sale during the summer of 2023 was a ‘near miss’ was not accepted by the Premier League, particularly as it was completed two months after the 30 June deadline.

The Commission agrees with the Premier League and commends Forest for its early plea and for the cooperative way it has 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.

The four-point deduction takes into account three points for a significant breach, three points for circumstances and scale of the admitted breach and a two-point reduction for the early plea and cooperation. Forest did argue for a more lenient reduction based on mitigating factors.

Forest’s response

“We were extremely dismayed by the tone and content of the Premier League’s submissions before the Commission.

After months of engagement with the Premier League, and exceptional cooperation throughout, this was unexpected and has harmed the trust and confidence we had in the Premier League.

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.

We were also surprised that the Premier League gave no consideration at all to the unique circumstances of the Club and its mitigation. 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.

Whilst the Premier League may have called into question the Club’s business plan, the Club maintains that it responsibly balanced compliance with PSR with important investment into the squad to give us the ability to compete in the league for the first time in over 20 years.

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.

The Commission’s decision raises issues of concern for all aspirant clubs. The player transfer market is a highly specialised trading environment that cannot be compared to the sale of normal products and services.”

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