Business With Blain: Anchoring
The Premier League's latest PSR changes were voted on this week.
In a recent edition of this column — The Losses Keep Coming — I wrote about the Premier League’s Profitability & Sustainability Rules (PSR-2013) and its impending replacement.
“The 14 clubs most at risk of these rules, and even more so under the likely squad cost ratio-based replacement would be wise to avoid being rushed into something that suits the six far more than it does them and instead ask for a high price to be paid for their implementation.”
Since then, Premier League clubs have voted in favour of new financial guidelines (PSR-2025), which from the 2025-26 season, will replace the PSR-2013 regime.
This means that the current and much maligned PSR will remain in place for next season, with the new approach ‘shadowing’ the old so that clubs will be able to see how they would fare in the future.
In simple terms the clubs have agreed that the new PSR-2025 will move away from a focus on minimising losses and measuring Profit & Loss (P&L) performance, and instead it will focus on restricting the amount spent on player costs, these being defined as expenditure on salaries, transfer fees and agent fees, to 85% of total revenue.
The squad-cost model has been voted through. But earlier this week, there was a further vote, with 16 of the 20 clubs voting in favour of the Premier League conducting the relevant financial and legal analysis around to bring in a hard salary cap that will work in conjunction with the squad-cost model.
It is not clear why four clubs — Manchester City, Manchester United, Aston Villa and Chelsea (by abstention) — did not vote in favour of the changes, but with a further vote due in June at the Premier League’s AGM, when 14 votes will be needed to assure agreement, there is time for these clubs to explain their objection and either turn some of their decisions or help shape the final proposal.
Crystal Palace Chair, Steve Parish, said of the proposals: “UEFA’s squad-cost cap is one idea. Maybe something that is a bit more rigid than that, with a hard cap at the top, which does not take turnover into account [would be better].”
As feared in my previous article, there is risk in this proposed cap being calculated as a percentage of revenue, as that will perpetuate the current status quo with those clubs with the highest revenues being able to continually outspend the others.
Parish is also concerned that state-owned clubs could raise expenditure to unprecedented levels if they are not constrained, and by implication, he is indirectly expressing concern that those clubs have the wherewithal to artificially inflate their revenues.
With the focus on player costs, their union — the PFA — has commented, and unsurprisingly said: “We have always been clear that we would oppose any measure that would place a ‘hard cap’ on players wages.”
Not all these people are going to agree all the time, and this matter has the potential to bring owners and players into conflict.
What has been proposed so far is a simpler mechanism for restricting the biggest recurring cost that clubs have, those associated with the players, but it is not a hard cap on individual wages. Instead, it is a spending cap on the total expenditure.
Parish, who is seemingly emerging as something of a leader of the 14, has challenged the clubs to “be bold” and implement measures that will improve competitiveness in the league, suggesting “there are really positive conversations going on about it”, and it seems that an alternative approach for calculating the cap could gain traction.
An “anchoring” approach is what has been put forward. Instead of the cap being defined as a percentage of individual club turnover, it would instead be calculated as a multiple of the income of the club that received the least from the broadcast income distributed to clubs by the Premier League from its central pool.
In 2023, that was the £103.6m received by Southampton, and with a multiplier of five the cap for 2023 would have been £518m, a number exceeded by only Chelsea.
Such an approach might appeal to many, as it seems clear that few clubs would have the resources — or the super-rich owners — to spend this amount anyway, and maybe after their own annus horribilis, the Premier League would enjoy a return to the days when clubs did not breach their version of FFP rules.
However, a word or two of caution. Back in February, in another edition of this column (Making Up The Numbers), I pointed out the potential pitfalls of following UEFA’s lead with a revenue-based cap.
“The ‘big clubs’ get bigger and stay at the top; the ‘small clubs’ – Richard Masters’ turn of phrase, not mine – become more sustainable, but are never able to truly challenge.’”
The anchoring approach would level the field with regards to what can be spent on players and overtime could very well result in a more competitive competition that delivers on the hopes of Parish and the rest of the English football pyramid.
But, and this is a big but, it would also allow many clubs to spend way beyond their means without fear of breaching the rules.
Premier League clubs, or members, as they are called, will have a big decision to make come the June AGM.
Do they vote in favour of new rules that perpetuate the advantage of the haves, or do they trust in themselves to learn from the mistakes of the past and adopt rules that increase their chances of living the dream in a division where those with the deepest pockets do not always win?
By JohnB
Good discussion. An anchoring approach will ensure the state led clubs will dominate as while other aspiring clubs such as Liverpool, Manchester Utd, Arsenal will not be able to compete financially. Having the ability to spend £.0.5bn every year, irrespective of their true financial position, will turn the EPL into Spain or Scotland. Some may try to compete, and occasionally may win something, but we are talking few and far between opportunities. To maintain competitiveness, any multiplier needs to be nearer 2 or 3 than 5. Any clubs flush with excess cash could improve their infrastructure, etc, or maybe even reduce season ticket prices !