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Published 07:43 14 Sept 2018 BST
Updated 07:44 14 Sept 2018 BST
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The Premier League have already made attempts to settle the matter between the two clubs which have proved unsuccessful. It has now been passed on to lawyers appointed by the English top flight to examine the situation and establish whether there is any basis for a charge.
Should the inquiry find that Everton have done wrong, the report adds that this could result in a substantial fine or even a points deduction.
An official statement from Watford in July - released in response to 'misleading media reports' - made clear that the club was making a stand over what they felt was a clear breach of rules.
'We believe this situation is not about a compensation figure but the principle of making a stand when the actions of one Premier League club completely undermine and cause intrinsic damage to a fellow member club,' the statement explained.
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