Everton's  hopes of appointing David Moyes as Walter Smith's successor were in jeopardy last night because of their refusal to meet Preston's compensation demands.

Tony Scholes, chief executive at Deepdale, revealed he had given Moyes permission to speak to Everton, but only if they were willing to compensate the first division club to the tune of £1.5 million.

Everton have offered only £320,000, and negotiations between the clubs failed to reached a compromise yesterday, with Scholes stressing unless Everton were willing to match their requirements they would be refused permission to speak to Moyes.

"We regard David as the best young manager in the game and our first wish would be that he stays at Preston in our bid to reach the play-offs," Scholes said. "I would say that, given Everton's reluctance to offer a reasonable level of compensation, there is a good chance that might be the case."

Moyes (38), made it clear yesterday he wanted to accept Everton's offer and end his four-year tenure at Preston. But Michael Dunford, Everton's chief executive, has been forced to make contingency plans, sounding out West Bromwich last night about Gary Megson.

It is clear Moyes remains Everton's first choice but there will have to be a serious rethink about the amount of compensation they are willing to offer. If they agree to Preston's demands, Moyes could be appointed within the next 24 hours.

"The ball is in their court now," added Scholes. "They clearly regard David very highly and therefore they should be willing to pay a figure that recognises his worth.

Everton's financial situation is further complicated by the fact that, after terminating Smith's contract on Tuesday, making him the 34th managerial casualty of the season and the fifth in the Premiership, they will have to reach a settlement with him in the region of £1 million.

Guardian service