4th February 2022: Personal statement of Mel Morris in respect of the EFL, Boro and Wycombe and their stranglehold on DCFC
The EFL’s stance on the Boro claim and Wycombe’s threat of a claim
The EFL appears to have taken the stance that they wish to force the Boro claim, and the Wycombe threat, to be treated as bona fide Football Creditors. They repeatedly choose to ignore the fact that the legal basis of Boro’s claim has not been determined and remains unquantified as to its potential value. Their stance on the Wycombe threat is even more surprising given that Wycombe have merely threatened to make a claim, but have as of yet, never done so. Nevertheless, the EFL seems intent on pushing the DCFC Administrators, and indirectly the uncontested preferential and other creditors, including other undisputed football creditors such as Arsenal Football Club, potential bidders for the club and myself, to “pay off” Boro and Wycombe in order for the EFL to approve any plan for the club to exit from Administration.
The Boro Claim is exceptional
The Boro claim is exceptional, and if it were to be legitimised and proven would create the backdrop for a myriad of claims between clubs, by players, and even by agents who could claim that a breach of the EFL rules could give rise to a claim for compensation. Examples could include a questionable dive by a player in a key match, the tapping up of a manager or player. The list would be endless. When the Boro claim first emerged in May 2019 the club received a letter before action from Boro’s lawyers. This was followed in September 2019 with a letter which included an extract of the P&S regulations which Boro claimed gave them rights to make a claim. While the letter included a sequential passage of text direct from the rule book section 4.4 and 4.5, it had been edited to remove the most important clause which explicitly stated that “(provided always that only The League shall have the right to bring any action whatsoever for any alleged breach of this requirement)”. Even at that stage Boro and their lawyers must have realised that such a claim was explicitly excluded club to club.
Other claims which might follow
Perhaps the best comparison of Boro’s claim would be DCFC’s potential of a claim against QPR. DCFC having lost them in the May 2014 play-off final, after what transpired 2-3 seasons later was what I believe to be the largest FFP breach in the EFL’s history. And let’s not forget we were in the final. I have been asked about why DCFC are not making a claim at this stage. After all the EFL settled the claim with QPR for a large 8 figure sum. None of this was ever considered to be directed DCFC’s way. There is some debate on whether the QPR scenario is now time barred, some think not. However, I have the same personal feeling on this as I do about the Boro claim and have previously expressed the same publicly. There could be further claims by DCFC which fall into the same category, including an identical claim to Boro against the EFL for failing to enforce their rules.
Have breaches been fairly and consistently pursued
The reality is that there is a regular concurrence that clubs that get promoted from the Championship to the Premier League are mostly in receipt of parachute payments, or breached the FFP/P&S spending limits in the season(s) leading up to their promotion. In fact, I believe that for the last 7 years, 2 out of 3 promoted clubs were receiving parachute payments.
Are Parachute payments legal, and are the EFL treating them fairly with regard to the integrity of the competition?
I raise the question of the legality of the entire parachute payment system. It was designed to be a buffer to protect relegated clubs from the overhanging costs of premier league salaries when they drop into the Championship. In reality, the vast majority of player contracts include explicit relegation adjustments to their pay. This means that the forty odd million in each of two seasons amounts to an unfair subsidy which distorts the competition, and ultimately is the driving force behind the high spend by non-parachute clubs to compete. Here again, it has been in the EFL’s gift to address this, but aside from the hollow protestations by their Chairman, they have done very little to address, as they have also with the need to strike balance in the creation and distribution of revenues in the football pyramid.
What about claims against promoted teams?
Then we have to look at the EFL’s unwillingness to pursue clubs with prior FFP/P&S breaches who subsequently get promoted. The Premier League takes a “hands off our club” approach and has significant influence in this debate. This is why the settlement with QPR, which did not occur until years after the breach was so significant. It also led to “precautionary” settlements with other Premier League clubs “just in case we are relegated” let’s settle something now, before that happens. The QPR and other situations also raise the question if DCFC has rights to a similar claim against QPR, others, and then the EFL for not enforcing their rules analogous to Boro’s action against The EFL. If the EFL considers Boro’s claims against DCFC to be so important and well grounded, then they must surely have the same stance on DCFC’s potential claims against others.
Where is the consistency in the EFL’s handling of FFP/P&S breaches?
Next let’s take a look at the EFL’s handling of FFP and P&S with their member clubs. A member club requested information around “exceptional items” which had been allowed in clubs preparation of their FFP/P&S submissions. The list is highly illuminating and includes examples of the EFL allowing clubs to “choose” when the profit of a player is accounted for. For example, if the club sells a player before the end of a season, or at the beginning of the next season, where should the profit sit in their accounts. Well, the list shows that the EFL has historically allowed clubs to negotiate or choose. If they might be in risk of a breach in the last season then the profit is dragged forward, if they need headroom going forward the profit has been allowed to be conveniently carried forward. This is completely arbitrary. However, our amortisation policy was ultimately deemed to be unacceptable. It is interesting to note here that one club of interest, which is owned by a parent company operating in an unrelated industry, chose to sell their tax losses in the football club to their parent company. Nothing wrong with that, it is neutral, after all the losses would have qualified for group relieve to the same value anyway. However, is it ok for the value of that intercompany sale of losses to be allowed as an exceptional item of revenue and profit for the football club’s FFP/P&S submissions, thereby creating additional headroom and spending power? I also question if the EFL examines player transactions between EFL and foreign clubs under common ownership with a view to ensuring “arms length” fair value for transactions with related parties?
Is the EFL’s Disciplinary and Arbitral Process fair?
Having sat through the Disciplinary on the Stadium Sale transaction and the Amortisation I learned several things. I firmly believe the EFL did not approach the disciplinary with the attitude of a regulator. Instead they had the attitude of “get DCFC at all costs”. How else do you view that they chose a valuer who had little if any experience of valuing football stadiums except a rateable value perspective, when every client wants to get the lowest valuation they can justify. The same valuer who claimed he had done stadium valuations for Chelsea Football Club, which turned out to be a stretch. The same valuer who claimed that Pride Park was comparable to Morecambe Football Club (no disrespect intended here), or that Darlington had as much capacity for high end hospitality as Pride Park. The valuer was also a member of the RRV institute, whose membership has some interesting connections to people in football circles. Connections which I personally wrote to the EFL Chairman asking him to check, but never got a reply.
The Disciplinary Commission was comprised of the usual three panel members and were very experienced. Everyone will recall that we were cleared on both the Stadium Sale and Amortisation charges. Interestingly, the EFL chose to include a very experienced panel member who had considerable accounting and audit experience. They also chose an expert witness who did not have any experience of preparing or auditing accounts except as I recall for an amateur football club. On hearing all the evidence presented we were cleared. The EFL appealed, but due to the rules for the selection of League Arbitration Panels, we were prohibited from including anyone from the Accountancy profession. Yet, in spite of this being denied within the rules, we were told if we wanted an Accountant we could have if we’d asked! Did they not read or understand the regulations. As such three legal experts made a determination on an accountancy issue with no accountancy experience in their panel, or available to them, choosing to say that the Disciplinary panel should have given more weight to the EFL “expert” who did not have any experience of preparing or auditing accounts. Any wonder why I am sceptical of the EFL Arbitral procedures.
The EFL might claim to be a Regulator, in which case their PR is highly questionable
The EFL uses PR to not just to explain or justify their position but to influence it too. Elements of what they have put out of late has been disingenuous at best if not factually inaccurate in the extreme. I would cite their statement that had it not been for DCFC’s Administration then the Boro claim would already have been concluded. I am limited with what I can say about an arbitration process which is inherently confidential but purely to correct untruths, even before Administration the EFL themselves had sent out the schedule for the hearing to be late in May 2022. It was inaccurate, misleading and I have to say typical. The hearing would have been late May, not sooner, because Boro’s counsel could not make the earlier dates our counsel had proposed. Their actions appear to be vexatious and making statements which present DCFC in a bad light while inferring validity to Boro’s unproven claim. The tactics of issuing statements in the middle of the night, or publishing statements before allowing response to their emails on the subject are just further examples, as is briefing the media on time barred or material subject to non-disclosure. Which Regulators do this?
Why are the EFL so adamant to force a settlement of an unproven claim, and even a threat of a claim?
Why are the EFL trying so desperately to have DCFC or its possible stakeholders (creditors, bidders, me) settle an unproven claim, and a threat of a claim for a large seven figure sum. The root of this is that they are also under attack from Boro who basically said you pursue Derby at all costs, or we will continue with our action to pursue the EFL. The pressure here is for DCFC’s stakeholders to proffer a settlement to avoid or deflect a claim against the EFL themselves.
The EFL say they are committed to a Pragmatic Solution, so…
Which brings me to my point. The EFL says they are keen to engage and to find a pragmatic solution. I wish to propose a solution:
I invite Boro, and in due course Wycombe if they so wish, to take their claims to the High Court against me personally. Let DCFC move on for the benefit of the fans, the City of Derby, the sport and the EFL. To the EFL this allows them to see that the rights of Boro’s and Wycombe’s claims should they be proven in due course, preserved.
Why the High Court? It is the right place for a claim such as Boro’s to be heard in a forum which is more suited to that type of claim.
Are the EFL sincere In their claims to want to assist DCFC?
I sincerely hope the EFL, Boro and Wycombe will respond urgently and constructively to my proposal to unlock the impasse. By preserving the rights of these parties to pursue their claims through the high court I can see no reason why the EFL cannot allow DCFC to exit administration without issue or concern that it would be contrary to their rules, articles and insolvency policy.
I have informed Quantuma, the DCFC Administrators, of my proposal so they may discuss it with the EFL, Boro, Wycombe and potential bidders.
Mel Morris 4th February 2022