In the 2023-24 season, several Premier League teams found themselves unexpectedly restricted by the league’s Profit and Sustainability Rules (PSR).
These rules meant that, despite their wealth, clubs were unable to sign new players or, in some cases, had to sell players to meet financial targets. The consequences of not meeting these targets included points deductions—the first in the league in decades. In April 2024, the league announced further controversial changes that will significantly impact what clubs can spend in the transfer market this summer.
Why the Change?
The rules came under heavy scrutiny in 2024 when points deductions to Everton and Nottingham Forest were highly contentious, and in Everton’s case, later reduced on appeal. As a result, the Premier League is moving towards a squad cost ratio guideline similar to UEFA and La Liga. Additionally, clubs have voted in favor of exploring a transfer spending cap linked to the broadcasting revenue of the lowest-ranked club.
Current PSR
The current PSR states that Premier League clubs are allowed to lose a maximum of £5 million in any three-year reporting period, which can be increased to a maximum allowable loss of £105 million if owners provide £90 million in secured equity funding. This led to points deductions for Everton and Nottingham Forest, both of which fell outside this limit in the most recent three-year reporting period.
Proposed New Framework
The proposed new framework has two parts:
- Squad Cost Control Ratio: Limits club spending to 85% (70% for clubs in UEFA competition) of revenue on wages, amortized transfer fees, and agent fees combined in any season.
- Upper Hard Cap: An absolute cap on spending on wages, transfers, and agents’ fees linked to the broadcasting revenue of the lowest-ranked Premier League club.
Key Differences
- Yearly Check: The three-year reporting period has been replaced by a yearly check, meaning benefits from one very positive season can no longer be reaped over multiple subsequent years.
- Upper Hard Cap: Aims to drive equalization so even if a club like Manchester City has massive revenue, their squad cost is still capped by what the lowest-ranked Premier League club earns from broadcasting.
Voting 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 hasn’t been voted in yet. The Premier League decided not to put this hard cap up for a vote in the recent AGM due to strong opposition from the PFA, which remains opposed to any form of salary cap.
Impact on Clubs
Squad Cost Control Ratio
The squad cost is calculated as the sum of three elements: player wages, player amortization, and agent or other intermediary fees. This is then divided by the sum of revenue from football operations and profit from player sales to give the squad cost control ratio. The ratio must be under 85% for clubs not in UEFA competition and under 70% for clubs in UEFA competition.
- Top Six Clubs: The traditional top six clubs, minus Chelsea, are comfortable with the squad cost ratio even under the harder 70% guideline. This is because of the massive revenue gap between these clubs and the rest of the league. For instance, Manchester City’s revenue plus profit from player sales is upwards of £830 million, allowing them a squad cost limit of £580 million. Their actual squad cost is around £470 million, giving them substantial financial leeway.
Upper Hard Cap
The proposed cap, which is still under exploration, was five times the broadcasting revenue of the lowest-ranked Premier League team, which was Southampton during the 2022-23 season at around £105 million. This implies a hard cap of £525 million. Manchester City’s current squad cost would still fall below that limit, and all Premier League clubs (minus Chelsea) would also fall below this cap.
- Multiplier Debate: The five times multiplier is crucial. If it were reduced to four or three times, multiple clubs would fall outside the cap, which is why further exploration is significant.
Future Implications
The Premier League is trialing a shadow anchoring scheme in 2024-25, intended not to impact unless significant revenue divergence of clubs occurs. Therefore, at least for the next season, the hard cap is unlikely to have immediate effects. However, the changes to PSR will ensure clubs remain in check each year instead of relying on prior years’ results, promoting some degree of equalization and potentially creating a more equitable competition.
Conclusion
The changes to the PSR, while not extremely stringent, will ensure clubs remain financially responsible each year. The exploration of a spending cap linked to the broadcasting revenue of the lowest-ranked club is significant and could lead to more equitable competition in the Premier League. As the debate continues, the implications for all teams will be closely watched.
If you enjoyed this analysis, please consider subscribing to the channel. The Athletic is home to some of the world’s best sports journalists, including David Ornstein, Daniel Taylor, Oli Kay, Amy Lawrence, and Rafa Honigstein, with the latest transfer news and insight on every Premier League football story that matters. Try The Athletic for free now for 30 days—see the link in the description.
Be sure not to miss out on the latest news about Premier League
Download our brand new App and follow your favorite players, clubs, and much more
