Here’s a pub quiz question for you: where did Leicester City play their home games during the 2023-24 season?
It wasn’t, as it turns out, at their King Power Stadium home during that Championship-winning campaign — in fact, they may not even have been in the Championship at all.
According to an independent appeal panel ruling published on Tuesday, Leicester were operating in no man’s land for 12 months from June 14, 2023. They played in a twilight zone, somewhere between the Premier League and the English Football League, an alternate dimension, outside the law, free of restraints.
Sounds exciting, doesn’t it? But the implications of the ruling are far from thrilling for the Premier League — or the EFL, for that matter — as it means, once again, their rules around financial sustainability have been held up to the light and found to be full of holes.
So how did we get to a place where a club can be further over the Premier League’s permitted loss threshold than Everton were in 2022, an offence that eventually cost them six points, and yet avoid any sanction at all?
What were Leicester meant to have done wrong?
At the end of the 2022-23 season, Leicester, the 2016 Premier League champions, were relegated to the Championship, bringing an end to nine mostly wonderful years in the top flight.
Having finished fifth, fifth and eighth in the three previous seasons, Leicester’s brains trust hoped the seventh-biggest wage bill in the league would keep them at the fun end of the table but injuries, poor recruitment and a collapse in form saw them finish 18th.
That also wrecked their financial projections, as the loss in prize money, coupled with the cost of sacking well-paid manager Brendan Rodgers, meant Leicester would be filing a fifth straight annual loss.
As we all know, Premier League clubs are only allowed to lose £105million ($138.1m) over a rolling three-year period but can deduct expenditure on things the league is trying to encourage — building new facilities, charitable work, youth development and so on — from their pre-tax result to come up with what is known as their “adjusted earnings”.
With every club losing money during the pandemic, the two seasons affected by it were merged for PSR purposes, with an average of the two counting towards the rolling total. This meant Leicester had a pre-tax loss of about £50million for the Covid-19 seasons, then a huge loss of £92.5m in 2021-22, followed by an almost-as-bad deficit of £89.7m in their relegation season.
Leicester, like many clubs, suffered losses during Covid-19 (Alex Pantling/Getty Images)
Once all the usual deductions had been made, including an amount knocked off for losses directly caused by the pandemic, that left a PSR figure of £129.4m, £24.4m over the threshold.
The Premier League duly charged Leicester with a breach of its rules on March 21, 2024, which meant the case was sent to an independent commission, as per last season’s cases involving Everton and Nottingham Forest.
As mentioned, Everton were only £16.6m over the limit when they became the first club to be charged with breaching the Premier League’s spending rules in 2023, so almost everyone in the game had Leicester pencilled in for a deduction that would start at six points before aggravating factors were considered. And Leicester had caused the league plenty of aggro.
But the club promptly appealed against the Premier League’s right to charge them, claiming it had no jurisdiction as they were members of the English Football League at the time they may or may not have breached the rules.
They lost that battle in June, when an independent commission effectively told them, “Come off it, you know what the rules really mean.” The club, however, thought otherwise and took their arguments to an appeal panel comprising two retired appeal court judges and a senior barrister.
And guess what? They agreed with Leicester.
GO DEEPER
Leicester’s PSR case hurt them this summer – now they have a fighting chance of staying up
OK, so why are they getting away with it?
Good timing and bad drafting.
Under the league’s PSR regime, clubs are obliged to provide their calculations of their financial position for the relevant season by the end of March, which means they are estimates as the rules allow clubs to choose a financial year-end between May 31 and July 31.
Leicester, who were 17th in the table at the time, sent their PSR estimate to the league on March 28, 2023, with some “future financial information” following three days later.
On April 24, the club sent a modified version of their estimate but they also did something far more consequential at Companies House, the UK’s registrar of companies, where they sent a notification to say they were moving their usual year-end from May 31 to June 30, thereby adding a month to the 2022-2023 financial year.
Why? Well, some might say they did it to bring themselves in line with many other clubs. Some might suggest they did it to give themselves another month to sell players, like James Maddison, to bring themselves under the threshold. Some might speculate it is because they were nine moves ahead of the Premier League in a game of speed chess.
But we are getting ahead of ourselves. The season ended on May 28, with Leicester, Leeds United and Southampton relegated. As per the rules, those three were asked to transfer their shares in the league to a promoted team a few days later, with Leicester sending their golden ticket to Luton Town “on or around” June 13, more than two weeks before their new financial year-end.
We then fast forward to late February of this year, when Premier League clubs were meant to provide their audited accounts for the 2022-23 season for a final PSR assessment. Leicester wrote back, via their lawyers, asking why the Premier League wanted their accounts, as they were no longer members, and on March 1, as required under EFL rules, they sent their accounts to the EFL.
Over the next week, letters went back and forth between the club and the Premier League, with both claiming to be confused as to what the problem was. On March 15, Leicester sent a letter-before-action to both leagues, threatening legal action if either tried to charge them with a PSR offence for the 2022-23 season.
Two weeks later, on March 31, the Premier League picked up the gauntlet and charged Leicester, who immediately challenged its jurisdiction.
That brings us up to speed in terms of the timeline, which is clearly laid out in the appeal panel’s 22-page ruling. So let’s get into the rules.
The ruling starts by defining what a Club — yes, Club — is in terms of the Premier League rulebook, as Clubs are subject to the league’s rules for as long as they are members of the League. Again, the upper case is important, as we are not talking about any “association football club” or any league. This case is about Premier League Clubs and the League’s rules.
The panel then goes through the relevant sections of the rulebook, highlighting the sections on how relegated clubs must transfer their share in the league to promoted ones and the fact that clubs are allowed to choose one of May 31, June 30 or July 31 as their financial year-end.
We then get to a section on the PSR regime, which sets out how it works, before moving on to the Premier League’s “complaint” against Leicester and the first commission’s verdict on the jurisdiction issue.
This section is a bit complicated but can be boiled down to the appeal panel saying the commission decided to give the league the benefit of the doubt in terms of what the rules actually say about when clubs are members of the league or not, and base its decision on “intention” of the PSR regime.
From a legal point of view, the commission was effectively saying it is impossible — and not that important — to know at which point in the PSR cycle that Leicester went over the £105million threshold. The key point is that they clearly did and their overspending took place while they were a Premier League club.
Leicester, who were represented by every governing body’s worst nightmare, Nick De Marco KC — football clubs’ go-to lawyer in disputes of this nature — said this was nonsense.
“It is not only possible, it is obvious and it is necessary to determine the point of breach,” De Marco told the appeals panel. “It is how the rules work. The precise date of breach is clearly identifiable under the rules and it is crucial.
“It is the accounting position at midnight on June 30, 2023, if that is the account-ending period. It is that date and time only that is determinative of breach or not.”
Remember, Leicester officially stopped being a Premier League Club “on or around” June 13, when the share transfer to Luton was completed. And their financial year-end was June 30, 17 days after they joined the EFL. Seventeen days, the panel noted, in which Leicester could have sold another player or added another sponsor to bring them under the threshold.
Mic drop.
The league’s legal team tried to argue that everyone in football knows what the rules are for, who they should apply to and when they should come into force. It effectively made a “common sense” argument.
The appeal panel, however, took the view that the rulebook is a contract between clubs and the league and the wording of contracts matters. “The Rules are, in relevant parts, far from well drafted,” is the panel’s withering assessment of the league’s contractual work.
So, having tied up all the legal loose ends, the ruling concludes by saying “it follows” that the £105million loss threshold did not apply to Leicester when their PSR calculation “could be carried out and that LCFC was not in breach, and should not be treated to be in breach, of any rules”.
It added that it “appreciates that this conclusion has depended on the club’s adventitious decision” to move their year-end but it results “from the discrepancy between the requirement of Rule A.1.8 (the one about being able to choose a year-end) and the chronology in the PSRs… (which) seem to have have been drafted without taking Rule A.1.8 into account”.
How is the Premier League feeling?
Angry, frustrated, embarrassed.
In a statement released on its website on Tuesday, it says it is “surprised and disappointed” and that “the Appeal Board’s decision fails to take into account the purpose of the rules, all relevant parts of the PSRs and the need for effective enforcement of alleged breaches to ensure fairness among all clubs.
“If the Appeal Board is correct, its decision will have created a situation where any club exceeding the PSR threshold could avoid accountability in these specific circumstances,” it added. “This is clearly not the intention of the rules.”
What are Leicester saying?
We won!
OK, it is a bit more nuanced than that.
In a statement issued via all the usual channels it said it welcomes the “comprehensive decision, which supports our consistently stated position that any action against the Club should be pursued in accordance with the applicable rules”. Note the upper case.
Observing that the panel “of three, experienced, senior lawyers, two of whom are former Court of Appeal judges, identifies flaws in the drafting” of the rules, the statement concludes by saying all the club ever wanted to do was “ensure rules are applied based on how they are actually written” in the “interests of providing consistency and certainty for all clubs”.
If Leicester are expecting hampers from Everton, Nottingham Forest and every other Premier League club that has had PSR issues over the last 18 months, they might be disappointed.
It should also be noted that Leicester have previous when it comes to making the football authorities rewrite their rulebooks.
In October 2002, the club, then second in what is now called the Championship, went into administration. That wiped out £30m in debt but cost them no points as there was no automatic penalty for such events at the time.
The club was prevented from registering any new players but they were still promoted as runners-up. That summer, the EFL, under pressure from several very annoyed member clubs, brought in the 10-point penalty for club insolvencies that is still in place.
To be fair to Leicester, they finished the season 12 points clear of Sheffield United, so they would not have been caught anyway. But it is the principle that matters, as I am sure Leicester would be the first to point out.
Leicester’s 2003 promotion was controversial (Mike Finn-Kelcey/Getty Images)
What will the Premier League do now?
The Premier League’s statement finishes by saying it will consider “what further action it can take to ensure” it is able to enforce its rules fairly.
It is too early to say what that action will be — officials were still picking themselves up off the floor when The Athletic contacted them late on Tuesday — but it will almost certainly be an urgent look at the wording of the rulebook. There is also the possibility of another hearing on the matter, as section X of the league’s rulebook does allow for a further round of arbitration but only under specific and rare circumstances.
One thing the Premier League should absolutely be considering is taking up the EFL’s idea that all PSR cases, or whichever financial fair play regime replaces PSR next season, should be handled by a single unit, working from one set of rules. Because the status quo involving two regimes — similar but not identical — is not working.
For simplicity’s sake, we have not mentioned until now that the EFL spent much of last season trying to prosecute Leicester for breaching the 2022-23 threshold under its rules but ran into the same chronology problems as the Premier League.
The EFL took a “Hail Mary” approach and tried to force Leicester to sell players in the January window but lost that legal argument, too. It did, however, manage to put the club under a registration embargo for the last two months of the season.
Can the EFL now try to prosecute Leicester for the alleged 2022-23 breach? It will certainly consider it, but Leicester do not sound very concerned about the EFL’s ability to pin them down.
Again, everyone knows that the PSRs are being replaced next season with a system based on UEFA’s “squad cost” regime, a set of rules that ties how much clubs can spend on their teams to a percentage of their income, but this case highlights the importance of getting the wording of those rules watertight.
If there is a lesson here it is that rules made in haste, or without proper stress-testing, tend to be bad rules.
Could there be any repercussions for Leicester?
There is perhaps one unforeseen consequence for the club in that they have spent most of this year knowing they were in danger of breaching the PSR limit for the 2023-24 season, too, whichever league they were in.
Chelsea, another club that loves a loophole, had appeared to have done them a solid by sending them £40million in June in compensation for taking their manager Enzo Maresca and star midfielder Kiernan Dewsbury-Hall.
Enzo Maresca joined Chelsea in the summer (Alex Pantling/Getty Images)
It has been suggested that this solved Leicester’s 2023-24 problem but the rationale for this confidence was that the club would be sanctioned for 2022-23 which meant the EFL would only be looking at the 2023-24 financial result, as it operates a “no double jeopardy” policy for PSR breaches. But with Leicester not sanctioned, those two big losses in 2022 and 2023, of £180million-plus, come back into play.
One to keep an eye on come next spring.
(Top photo: Michael Regan/Getty Images)
