Premier League profit and sustainability regulations and UEFA profit and sustainability Rules explained after clubs deterred from spending big in January; how things could change from start of next season
Tuesday 12 March 2024 13:01, UK
Keeping the bank balance in check has become a major talking point for Premier League clubs this season. What exactly are the rules which stop them splashing the cash?
A thrifty January has shown just how much the Premier League's Profit and Sustainability Rules (PSR) have begun to bite, since they really flexed their muscles in deducting Everton 10 points for excess spending late last year - even if it was then reduced to six on appeal.
This certainly isn't the lay of the land we're used to. Even ignoring Chelsea's shopping spree 12 months ago, in the pre-Boehly era the 20 Premier League clubs spent £322.9m between them in January 2022 - over £230m more than they did this winter.
That Everton sanction, plus another one hanging over the Toffees' heads and an outstanding charge against Nottingham Forest, have exposed some flaws in the system. Premier League clubs now look set to ditch the existing laws and reform them, potentially as soon as this summer.
So what is the deal with PSR, or the catch-all term you may be more familiar with, Financial Fair Play (FFP). And where might we be going next?
Let's start at the beginning...
In the simplest terms, when every Premier League team tots up their annual accounts, they can have made a loss no greater than £105m across the previous three seasons.
Sounds straightforward, but this would be a very short explainer if it were that easy. There are a fair few caveats and sub-clauses to keep any club on their toes before they can find itself in the clear, or not...
For a start, not all losses are created equal.
Clubs can only lose £15m of their own money across those three years. So that's no more than £15m extra on outgoings like transfer fees, player wages and, in a lot of clubs' cases, paying off former managers compared to their income from TV payments, season tickets, selling players and so on.
Anything above that, up to the £105m barrier, must be guaranteed by their owners buying up shares, known as 'secure funding', and essentially means bankrolling the club.
In those circumstances, the Premier League require clubs to submit their financial plans for the next two seasons and how they are going to avoid overstepping the mark.
If any club owner is not feeling particularly flashy, or cannot find the best part of £100m down the back of the sofa, that does not leave much wiggle room.
Of teams still in the top flight, only Chelsea and Everton's owners utilised that full amount in the most recent published accounts. Nine clubs, including Arsenal, Liverpool and Manchester United, did not benefit from any form of equity injection.
Just in case you wanted something to make things extra interesting, there's another rule to remember. For sides who have spent any of the last three seasons in the EFL, owners can only put in £8m of secure funding for those years, leaving an overall maximum annual loss of £13m for the campaigns in question.
As you are probably aware, Premier League clubs have expensive tastes. Let's start off with transfer fees. The top flight spent almost £2.4bn in the 2023 summer transfer window, at an average of £120m per club.
That in itself would potentially blow their three-year balance sheet apart in one go - but those sums don't go in the accounts all at once.
Using a process called amortisation, clubs are able to treat players as 'assets' in a financial sense rather than one big outgoing, even if they do pay the whole cost up front.
If you sign a £50m player on a five-year contract, they are 'worth' £50m at the start and £0 at the end in your accounts. In accounting terms, that can be put down as a £10m loss every year.
That's exactly why we have seen Chelsea and other clubs signing players on contracts as long as eight years, and why Premier League clubs voted in December to limit spreading those transfer fees over a maximum of five years from now on.
Beyond the creative accounting, there are a number of other expenses which do not count towards PSR. These are not set in stone, but are generally accepted as being costs which are incurred 'in the general interests of football' such as a club's infrastructure, any associated women's team and the cost of running their academy.
There was also some added leeway granted for the unforeseen income drop caused by Covid-19. Losses across 2019/20 and 2020/21 were averaged, and clubs were allowed to exclude any drop in income which could be directly attributed to Covid - though this will drop out of the three-year accounting period for the current season.
Those two regulations play a major part in the Premier League's decision to hand down a 10-point deduction to Everton, which has now been reduced to six.
When the Toffees first sent the Premier League their PSR calculations for 2021/22, they claimed their losses after allowable exclusions only amounted to £87.1m.
The authorities disagreed on what could be left out of PSR and said Everton's losses had amounted to £124.5m, almost £20m above the allowable total.
Everton appealed against both the ruling and the punishment dished out.
In February, an independent board found that the initial decision had been largely correct, but that the Premier League's implementation of its own sanctions was harsh compared to EFL sides who have breached financial limits - and restored four of the Toffees' points.
A new streamlined system has been implemented this season, which means clubs have been required to submit their annual accounts to the Premier League by December 31.
In January, Nottingham Forest and Everton were found to have exceeded their spending limits for the three seasons to the end of 2022/23, and are both waiting to find out their fate.
Everton have questioned whether they should be punished twice given they have already been sanctioned for their spending covering some of that period. It remains to be seen whether the Premier League agree, but both they and Forest will learn their fate by April 15 at the latest.
There is also the long-running dispute between the Premier League and Manchester City, though the charges brought against the league champions are far broader and cover a far wider timescale.
"The volume and character of the charges laid before Manchester City, which I obviously cannot talk about at all, are being heard in a completely different environment," Premier League chief Richard Masters told a Parliamentary select committee in January.
A date has been set for Pep Guardiola's side to argue their case to the league, but is being kept private.
As promised, here's another set of rules on clubs' financial outgoings, for any Premier League sides who do, or hope to, play in Europe.
UEFA are currently implementing new rules, and have dropped the 'Financial Fair Play' moniker which they previously used. The heads of European football have said their new rules are not designed to create a level playing field, but rather force clubs to live within their means.
In the same style as the Premier League, clubs are permitted to make three-year losses of €60m (£51.8m), with €55m (£21.5m) of that through 'secure funding' from owners.
But for anyone feeling the pinch from those lower numbers, there's also the added cushion of an additional €30m (£25.9m) loss allowed for clubs who UEFA deems in good financial standing, for a total of €90m (£77.7m) over the previous three years.
That's still lower than the Premier League - but it is an improvement on the €30m three-season loss UEFA would permit before this season.
There's also a catch. Starting this season and tightening over the next two years, clubs will be increasingly bound by 'squad cost' limits - in essence, the amount they spend on wages, transfer fees (in amortisation form) and compensation as a proportion of their income.
That figure currently stands at 90 per cent, but will tighten to 70 per cent in 2025/26.
Football finance blog Swiss Ramble recently crunched the numbers on these figures, and found that out of the Premier League's 'big six', Arsenal (79 per cent), Chelsea (90) and Manchester United (86) would be in breach of those requirements on their current spending when the rules become more stringent.
Funny you should ask. The Premier League look set to ditch their rules and move closer to the UEFA reforms, potentially as soon as this summer.
The Premier League's new proposals are not quite as harsh, but could include a model enabling clubs to spend up to 85 per cent of revenue on squad cost, with a sliding scale of penalties in place where clubs exceed that ratio.
However, there is no guarantee that the new financial model will even be signed off at the league's annual general meeting in June.
If approved, the new rules will not affect the ongoing cases regarding Everton, Nottingham Forest and Manchester City, who will all continue to be judged on existing financial models.
A Premier League statement read: "At a Premier League Shareholders' meeting, clubs agreed to prioritise the swift development and implementation of a new League-wide financial system.
"This will provide certainty for clubs in relation to their future financial plans and will ensure the Premier League is able to retain its existing world-leading investment to all levels of the game.
"Alongside this, Premier League clubs also re-confirmed their commitment to securing a sustainably-funded financial agreement with the EFL, subject to the new financial system being formally approved by clubs.
"The League and clubs also reaffirmed their ongoing and longstanding commitment to the wider game which includes £1.6bn distributed to all levels of football across the current three-year cycle.
"The Premier League's significant funding contributions cover all EFL clubs and National League clubs, as well as women and girls' football, and the grassroots of the game."
