Premier League clubs are pushing ahead with plans to introduce new financial regulations starting from the 2025/26 season with a vote planned for June’s AGM.
Current regulations that impose a maximum limit on club losses have been under pressure this season with Everton and Nottingham Forest both receiving points deductions for exceeding the maximum loss threshold in previous seasons and other clubs rumoured to be at risk for their losses in the current season.
The proposed new regulatory framework will be defined by:
- A squad cost rule that will limit a club’s spending on the first team and its coaching staff’s wages, transfer fee amortisation, and agents fees to 70% of revenue (reported to include profit on player sales) for clubs competing in UEFA competition and 85% for those clubs not competing in UEFA competition
- Anchoring, which will limit a club’s squad spend to a multiple (between 4x and 6x) of the amount the lowest earning side received in central payments from the Premier League, acting as a backstop to the squad cost rule
The key impacts of the proposed financial regulatory system are intended to be:
- Stopping clubs from spending above what their current revenue can sustain, improving club financial sustainability, and reducing annual funding requirements for club owners
- Ensuring elite clubs’ squad spending does not become too great compared to other teams in the league, maintaining competitive balance across the Premier League
Oakwell analysis suggests that in the 2022/23 season: (1)
- 10 clubs (Chelsea, West Ham, Leicester, Aston Villa, Everton, Leeds, Nottingham Forest, Newcastle, Wolves, Southampton) would not have been operating within their relevant squad cost limit
- Leicester, Aston Villa, and Everton were spending more than 100% of their revenue on squad costs
- Chelsea would have been the only club at risk of breaching the anchoring cap if set at 5x the lowest central payment. Manchester City and Manchester United would also be at risk of a breach if set at 4x.
The implementation of any new regulation must come with consideration of its impacts on the wider football ecosystem, including but not limited to:
- Cementing the competitive status quo by restricting the ability of ambitious, smaller clubs to invest beyond the limit that their current revenues allow through owner investment. Aston Villa, who would fall into this category, voted against the new regulations
- Reducing Premier League clubs’ ability to compete in the global player transfer market, although this is likely to be of limited concern due to the significant financial advantage English clubs enjoy over all clubs except a few leading European clubs (e.g. Real Madrid, Bayern Munich, PSG) and other European clubs also being subject to UEFA’s financial regulation
- The new squad cost rule will be aligned to UEFA’s squad cost ratio regulation which limits squad spending to 90% of revenue in 2023/24, 80% in 2024/25, and 70% in 2025/26. Although the regulations will differ in their detail, this should in theory make it easier for Premier League clubs to comply with the dual-regulatory system
- Premier League clubs that qualify for UEFA competitions will benefit from an uplift in revenue but will see their squad spending limit reduced to 70%. Qualification could therefore make compliance more difficult, especially for clubs qualifying for the Conference League, which does not bring a step-change in revenue for Premier League clubs
- Sanctions for serious breaches are reported to still include points deductions. Points deductions can act as an effective deterrent but also can be argued to have damaged the sporting integrity of the Premier League and its image in the 2023/24 season. La Liga has managed to avoid points deductions for financial breaches by restricting the registration of players for clubs in breach of its rules
- Players, who are mounting a legal challenge through the Professional Footballers’ Association (PFA) citing concerns about their earning potential under a hard cap. The PFA successfully lobbied against a hard salary cap in the EFL in 2021
- European competition law potentially taking the view that implementing salary caps amounts to price fixing by clubs with respect to the costs of player services
- The new regulations present an opportunity for clubs that can recruit players efficiently to keep their squad costs relatively low and sell players effectively to increase their spending limit through generating profit on player sales, as Brighton has done in recent years. Clubs that regularly produce players from their academies and sell these players on can also benefit as academy players can be booked as straight profit in clubs' accounts, topping up core revenues
- The role of the new independent regulator, with the Premier League currently particularly keen to show its willingness and ability to self-regulate
- The Championship would be left as only one of England’s top four divisions operating without squad cost regulation, with League One and League Two clubs operating under Salary Cost Management Protocol (SCMP). The existence of promotion and relegation means that it makes sense for regulations to align across divisions, but the Championship has its own problems to address including club financial sustainability and parachute payments which complicate matters.
The new regulations are clear in their intention to improve financial sustainability and ensure that competitive balance is maintained in the Premier League. Oakwell believes that these changes will be attractive to prospective investors in English football clubs overall and have the potential to generate value in clubs across the Premier League, whilst recognising the full impacts of any regulation will not be known until it is implemented and stakeholders have had time to adapt their strategies in response.
