The new rules and their impact on clubs

In the 2023-24 season, several Premier League teams found themselves unexpectedly restricted by the league’s Profitability and Sustainability (PSR) rules.

These rules meant that despite their wealth, clubs were unable to sign new players or in some cases had to sell players to meet their financial targets. Consequences for failing to meet those targets included points deductions – the league’s first in decades. In April 2024, the league announced further controversial changes that will have a significant impact on what clubs can spend in the transfer market this summer.

Why the Change?

The rules came under intense scrutiny in 2024, when points deductions for Everton and Nottingham Forest were highly controversial, and in Everton’s case, later reduced on appeal. As a result, the Premier League is moving towards a team cost ratio orientation similar to UEFA and La Liga. In addition, the clubs voted in favor of exploring a transfer spending cap linked to the broadcasting revenue of the lowest-placed club.

Current PSR

The current PSR states that Premier League clubs are allowed to lose a maximum of £5m in any three-year reporting period, which can be increased to a maximum allowable loss of £105m if owners offer £90m of pounds in guaranteed funding. This led to points deductions for Everton and Nottingham Forest, both of whom were outside this limit in the most recent three-year reporting period.

The proposed new framework

The proposed new framework has two parts:

1. Team cost control report: limits club expenditure to 85% (70% for UEFA competition clubs) of income from wages, amortized transfer fees and agents’ fees combined in any season.
2. Rigid upper cover: An absolute cap on spending on wages, transfers and agent fees linked to the broadcasting revenue of the bottom club in the Premier League.

The key differences

• Annual check: The three-year reporting period has been replaced by an annual check, which means that the benefits of a very positive season can no longer be obtained for several years to come.
• Rigid upper cover: aims to boost equalization so that even if a club like Manchester City has massive revenue, their squad cost is still capped by what the lowest-placed Premier League club earns from broadcasting.

Vote and opposition

Most clubs voted in favor of exploring the spending cap, with Manchester United, Manchester City and Aston Villa voting against, while Chelsea abstained. However, the hard cap has not yet been voted on. The Premier League decided not to put this hard cap to a vote at the recent AGM due to strong opposition from the PFA, which remains against any form of salary cap.

Impact on clubs

Team cost control report

The cost of the team is calculated as the sum of three elements: player salary, player depreciation and agent fees or other intermediate fees. This is then divided by the sum of revenue from football operations and profit from player sales to give the team’s cost control ratio. The ratio must be below 85% for clubs not in UEFA competition and below 70% for clubs in UEFA competition.

• Top six clubs: The top six traditional clubs, minus Chelsea, are comfortable with their team cost ratio even below the 70% limit. This is due to the massive revenue gap between these clubs and the rest of the league. For example, Manchester City’s revenue plus profit from player sales is over £830m, giving them a cap on team costs of £580m. The effective cost of their squad is around £470m, giving them a substantial financial margin.

Rigid upper cover

The proposed cap, which is still being explored, was five times the broadcasting revenue of the lowest-placed Premier League team, which was Southampton in the 2022-23 season, at around £105m. This involves a fixed cap of £525m. Manchester City’s current team cost would still fall below this cap, and all Premier League clubs (minus Chelsea) would also fall below this cap.

• The multiplier debate: The five-fold multiplier is crucial. If it were reduced to four or three times, more clubs would be out of bounds, which is why further exploration is significant.

Future implications

The Premier League is trialling a shadow anchor scheme in 2024-25, designed to have no impact unless there is a significant divergence in club incomes. Therefore, at least for next season, the hard cap is unlikely to have immediate effects. However, the changes to the PSR will ensure that clubs remain in check each year rather than relying on previous years’ results, promoting a degree of equalization and potentially creating a fairer competition.

Conclusion

The changes to the PSR, while not extremely strict, will ensure that clubs remain financially responsible each year. Exploring a spending cap linked to the bottom-placed club’s broadcasting revenue is significant and could lead to fairer competition in the Premier League. As the debate continues, the implications for all teams will be closely watched.

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