The team started the 2006-2007 campaign brightly, but slipped down the table due to off-field distractions. West Ham were knocked out from UEFA Cup by Italian Serie A side Palermo (0–1 and 0–3) and saw themselves dragged into the relegation zone.

Eventually an Icelandic consortium, led by Eggert Magnússon, bought the club on 26 November 2006. Following a poor run of form leaving the club in 17th position (despite the signing of big name players like Javier Mascherano and Carlos Tevez, who both failed to perform to expectation for much of the season), the new owners sacked Alan Pardew, replacing him with former West Ham player Alan Curbishley who had recently ended a 15-year spell in charge of Charlton. Curbishley's first game was at home against Manchester United; West Ham won 1–0, but went on to draw at fellow relegation strugglers Fulham, get crushed 6–0 at newly promoted Reading and get knocked out of the FA Cup by rock bottom Premiership team Watford. An end-to-end thriller at home to Tottenham Hotspur ended with West Ham losing 4–3 after having been 3–2 in front with minutes to play, but the bright performance signified a change in form.

At the same time the signings of Mascherano and Tevez were being investigated by the Premier League, who were concerned that details regarding the transfers had been omitted from official records and whether or not the influence of MSI (led by Kia Joorabchian) breached Premier League rules regarding third party ownership of players (rules U.18 and B.13) came into question. The media at this time touted the idea Tevez's contract could be terminated, possibly resulting in a deduction of points for playing an "ineligible" player (despite Premier League statements to the contrary). On 27 April 2007, West Ham pleaded guilty and were handed a record £5.5 million fine by the Premier League, but avoided a points deduction. Liverpool's signing of Mascherano was investigated and he was cleared to play after a two-week delay.

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