EFL Championship sides Derby County and Reading were slapped with points deductions by the league this week following their violations of the EFL’s financial rules. Reading were slapped with a 6-points deduction, which sent them tumbling from 16th to 19th in the league table, while financially-stricken Derby’s woes were compounded even more by their 9-points deduction, which, adding to the 12 points already been taken off them for entering administration earlier in the season, pretty much seals their relegation to League One next season.
Derby’s “death sentence” was confirmed on Tuesday, following the Rams’ withdrawal on their appeal towards the EFL’s decision to deduct nine points off them for breaching accounting rules in August 2020.
The deduction meant that Wayne Rooney’s Derby side are well-planted in the basement of the Championship table on -3 points, a whopping 18 points away from safety – basically confirming a trip down to League One for the Rams next season. The 2021/22 season have not been kind for Derby and their fans as they already have 21 points deducted this season due to their financial plight and violation of financial rules, and they could be set for yet another points deduction as the EFL have suspended docking three further points off Derby, with the deduction coming into effect should Derby fail to comply with the terms of a budget for the remainder of the season.
The suspended three points deduction came as a result of an agreement between Derby and the EFL in response to the club’s violation of the league’s profitability and sustainability rules.
Underneath the mismanagement of owner Mel Morris, Derby had breached the EFL’s accounting rules in terms of amortization, which refers to the cost of any transfer fee accounted for evenly over the length of that player’s contract – so a £5m fee over a five-year deal would be charged as £1m per year, and worth zero come to the end of the contract period.
The Rams had given their players “residual values,” meaning that the club could increase the value of players during the life of the contract – a practice which it was claimed was not in line with generally accepted accounting principles.
It is understood that all prospective owners interested in taking Derby off the hands of administrators would be doing so on the basis that Derby will be playing in League One next season.
As for Reading, their points deduction came on Wednesday following the EFL’s investigation of the club’s losses in recent years.
EFL rules stipulate that a club shouldn’t lose more than £39m in a period of four years. Reading had posted losses amounting to £57.8m between 2017 and 2019, way above the limit imposed by the EFL.
Along with the six-point deduction, a further deduction of six points await the Royals at the end of the season should they fail to comply with a business plan that includes player spending.
Reading are already in a transfer embargo following their violation of the EFL’s profitability and sustainability rules since the summer of this year, which came as a result of the Berkshire-based club’s overspending underneath the ownership of Chinese siblings Dai Yongge and Dai Xiuli.
Since the Dais’ Renhe Commercial Holdings Ltd had taken over a majority stake at Reading from a Thai consortium consisting of Lady Sasima Srivikorn, Sumrith Thanakarnjanasuth, and Narin Niruttinanon in May 2017, the Royals have spent more their double their income on wages.
Renhe’s spending spree saw them bringing in the likes of Modou Barrow, Sone Aluko, Leandro Bacuna, Darren Sidoel, Sam Baldock, Lucas Joao, and Ovie Ejaria for undisclosed fees between 2017 and 2021, while the same time period also saw Reading bringing in the likes of Charlie Adam, David Meyler, and John O’Shea on free transfers. Even before they were slapped with a transfer embargo, Reading managed to bring in several free transfers that placed further strain on their wages – namely the arrivals of former Barcelona wonderkid Alen Halilovic, former Blackburn Rovers and Queens Park Rangers winger Junior Hoilett, and more recently former Newcastle United, Liverpool, and West Ham United ace Andy Carroll, with the latter coming in after the embargo in November.
The high turnover of players, coupled with the high-profile loan signings of Tommy Elphick (2017/18), Emiliano Martinez (2018/19), Matt Miazga (2018/20), Danny Drinkwater, and Baba Rahman (2021/22) meant that Reading has lost a total of £93.1m over four years – a timespan that saw them post mediocre finishes in the league with the exception of a 7th placed finish in 2020/21.
The EFL has been quite lenient and allowed COVID-19 costs to be waived off from the club’s average losses, but the lowered total losses of £57.8m still triggered a sanction from the league.
Reading’s huge losses and its ensuing points deduction came as a second blow for Renhe in the world of football, with the company already dissolving their Chinese League One club Beijing Renhe due to financial issues brought on by the pandemic earlier this year.
Despite this setback, Dai Yongge has vowed to continue his support of Reading, with his ambitious vision of seeing the club duking it out with the best still well and truly alive.
“While there are undeniably extenuating and unforeseeable circumstances that have contributed to this breach, we accept this to be a fair and reasonable punishment and will learn the lessons from our recent past which have resulted in this deduction,” said a club statement as quoted from BBC Sport, “Our owner, Mr. Dai Yongge, remains wholeheartedly committed to the club. His commitment to our club remains unequivocal; having supported the club throughout a period of unprecedented disruption when key revenue streams for all clubs were suddenly severed. His investment has been overtly evident to all who visit our new multi-million pound Bearwood Park training complex – an environment tailored to attract the best players to our club, helping our existing players flourish, and ensuring our developing young players can reach their maximum potential.”