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This article was co-authored Tom Fennelly, Trainee Solicitor.
The 2024/25 Premier League season continued with a host of unanswered questions regarding financial controls and breaches. Supporters expect to hear about decisions and rulings on breaches of the current regime ‘Profit and Sustainability Rules’ (“PSR”) for Manchester City, and Chelsea FC, as well as in respect of the further breaches by Everton FC. You can find our previous articles reporting on PSR breaches under the related items section below.
As explained in our previous article, the decision making process in respect of sanctions for breaches of PSR has been a point of contention for clubs and supporters alike. This has not gone unnoticed by the Premier League’s decision makers. On 11 March 2024 ‘clubs agreed to prioritise the swift development and implementation of a new League-wide financial system’. What followed was an agreement at the Premier League’s Annual General Meeting on 6 June 2024 by clubs to trial, behind the scenes, ‘Squad Cost Rules’ (“SCR”) and ‘Top to Bottom Anchoring Rules’ (“TBA”) on a non-binding basis for 2024/25.
Explaining SCR using UEFA setup
The proposed adoption of SCR is not an entirely new concept, and it follows on from UEFA introducing the initiative in the 2023/24 season. UEFA use SCR to ensure that there is ‘better control over player wages and transfer costs’.
Under Article 93 of the UEFA’s club licensing and financial sustainability regulations, the calculation for such ruling is based on the squad cost ratio of the club namely the:
- Wages of players and head coaches
- Player amortisation and impairment
- Termination payments for players and head coaches
- Agents’ fees and cost of other intermediaries
Divided by the sum of:
- Operating revenue (adjusted for fair value, if required)
- Profit from player sales
- Other transfer income/expenses
Using this calculation, a club’s spending is capped to 70% of the money it earns from a pre-defined category of activities. For example, if a club’s total earnings are £500m, its spending cap for the relevant expenses identified is £350m.
UEFA are working towards a 70% parameter being in place for the 2025/2026 season, with a transitional period year on year meaning that during the 2023/24 season this was 90% and for the current 2024/2025 season it will be 80%.
Sanctions for breach
One of the benefits of the UEFA SCR system is that ‘breaches will result in predefined financial penalties as well as sporting measures’. This is defined in Annex L (Implications of breaches of the squad cost rule) of the UEFA Club Licensing and Financial Sustainability Regulations. It is expected that the Premier League would work to a similar model.
Annex L.3.1 states that ‘if a licensee’s (club’s) squad cost ratio is in excess of the defined threshold, then the licensee will be subject to a financial disciplinary measure, to be calculated as a proportion of the squad cost ratio excess, as set out below:
|
Squad cost ratio % points above defined limit |
First time in breach |
Second time in breach |
Third time in breach |
Fourth time in breach |
|
>0 -≤ 10 |
10% - 25% |
25% - 50% |
50% - 75% |
75% - 100% |
|
>10 - ≤ 20 |
25% - 50% |
50% - 75% |
75% - 100% |
|
|
>20 - ≤ 30 |
50% - 75% |
75% - 100% |
|
|
|
>30 |
75% - 100% |
|
|
|
Domestic adoption by the EPL
The prospective use of the SCR in the English Premier League is expected to see the league set an 85% ratio. If the proposed ratios were maintained (where English teams competing in UEFA competitions would have to comply with a 70% squad cost ratio, the rest of the league would only need to meet the Premier League’s 85% ratio), those teams not playing in UEFA competitions would be able to spend a higher portion of their revenue. The Premier League have noted that this trial period will allow them to ‘evaluate the system, including the operation of UEFA’s equivalent new financial regulations’. There is, however, an argument to be made that this end result balances the playing field on account of the vast extra revenue those UEFA competing clubs stand to earn by virtue of their participation in European competitions.
The proposed TBA is a ‘league level anchor linked to football costs, based on a multiple of the forecast lowest central distribution for that season’. This essentially means that the amount any club can spend will be capped as a multiple (suspected to be 5x) of the income earned by the league’s bottom club through prize money and TV revenue. The TBA will only come into effect should a significant revenue divergence between clubs occur, and it is designed to be a pre-emptive measure to protect the competitive balance of the Premier League.
Essentially, TBA or ‘Anchoring’ as it is commonly referred to, would work with the aim of tackling the competitive imbalance in the Premier League. In the 2022/2023 season, each team who competed in the Premier League was guaranteed £79m in prize money, but the variance on top of that is alarming – with Manchester City earning a total £176.2m, compared to Southampton’s £103.6m. This figure becomes even more distorted when factoring in the prize money and further commercial rights earnings that England’s top clubs generate from participating in European competition.
Comment
While paying consideration to the fact that the SCR are in an early trial and developmental stage, there are still a number of intangibles that will need to be clearly defined and answered in order for the scheme to be effective, such as:
- Will sporting sanctions be pre-determined and adopted on a ‘proportionate to financial breaches’ basis in the same way financial sanctions are in the UEFA model?
- Will the SCR & TBA align with the ideals and approaches of a newly proposed Independent Football Regulator and Football Governance Bill?
- Will the players, and subsequently the Professional Footballers’ Association, have a claim to make against the Premier League for essentially capping what they could be entitled to earn, due to their clubs being restricted?
- Will these tight controls see clubs forced to sell key assets to comply with financial regulations, and will the SCR create an even larger hurdle for clubs to grow and compete with the highest earners in the Premier League?
The Premier League will no doubt be hoping that any new financial regulations will be more stringent, enforceable and can co-habit with regulations in the Championship (which currently uses PSR) and The Football League (which currently uses a Salary Cost Management Protocol system with a 60% and 50% ratio for League 1 and League 2, respectively). This will be particularly pertinent following news that Leicester City FC managed to avoid punishment for alleged breaches of PSR following a decision by an independent Appeal Board, who described the PSR rules as being, ‘in relevant parts, far from well drafted’.
Leicester City FC were successful on the basis that they challenged the Independent Commission’s authority to hear their case on jurisdictional grounds, whereby changing their accounting period for the relevant PSR period meant that Leicester City FC were not ‘a member of the league’. The Premier League said in an official statement that ‘if the Appeal Board is correct, its decision will have created a situation where any club exceeding the PSR threshold could avoid accountability in these specific circumstances. This is clearly not the intention of the rules’.
The Premier League confirmed in February 2025 that PSR was here to stay. Following a meeting of all clubs, it was agreed that PSR will remain in place as the governing regulation for financial spend of Premier League clubs in the 2025/26 season. It was confirmed that SCR will be ready to come into force the following 2026/27 season and will continue to be tested and trialled as a shadow framework in the meantime.
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