Business With Blain: Making up the Numbers
Switching to a slightly different model of PSR will ultimately just bring about similar results.
The Premier League’s Profitability and Sustainability Rules (PSR) have been in place since 2013 (under their previous name of Financial Fair Play), and until March 2023 had not been used in anger.
Since then, there have been four referrals (two for Everton, one for Manchester City —albeit that includes 115 charges and is not just limited to alleged breaches of PSR — and one for Nottingham Forest) for alleged breaches, and at the time of writing, Everton are awaiting the outcome of their appeal against a sanction — a 10-point deduction — that they described as “disproportionate and unjust.”
The noise around the Everton case has split opinion across football, between those who listen to Premier League propaganda and those who have done their own research. There is a consensus, though, around the need for controlling the potential for excess spending through rules and regulations. Furthermore, over time, the rules have been tweaked to limit the likelihood of a state-owned club having unlimited funds and directly compromising the sporting integrity of the game.
Curiously though, and over the 11 months since Everton were referred, there has been extraordinarily little debate about where the breach line is drawn and the lack of transparency around the sanctions.
Specifically, Everton argued in their hearing of October 2023, that a points deduction for a financial breach is inappropriate. The Premier League executive board disagrees, but they have no mechanism whatsoever for determining exactly what a sanction should be.
I think it is fair to say that, over the last year, it has become apparent to all stakeholders — i.e. the 20 Premier League clubs and the executive board — that the current PSR regime is no longer fit for purpose and needs to be replaced by something that levels the field, protects sporting integrity, and stops clubs spending beyond their means and potentially go out of business whilst being objectively transparent.
The Premier League is at best slow-moving; indeed, they sometimes make UEFA seem fleet of foot. UEFA has already designed its next-generation regulation, which it started to implement on a phased basis at the start of this season, with the defined limit on spending set at 90% of income, reducing to 80% in 2024-25 and then 70% from 2025-26.
UEFA’s new Financial Sustainability Regulations (FSR) is a step change in how the governing body regulates spending and is underpinned by what it calls the ‘Squad Cost Ratio’, which provides for a transparent approach to monitoring compliance with FSR.
In simple terms, what a club spends on players — in wages, transfer fees and agent fees — should not exceed a percentage of what it earns.
Additionally, and in a move away from extended reporting periods (three years for the Premier League) the assessment of compliance is done annually against the defined limit of 70%. Breaching this limit will result in a financial penalty that increases with the size of the breach and the frequency which the club has breached the regulation.
Example
If a club’s income is £200m, then their cap at 70% would £140m.
If the club spent £170m, then their ratio would be 85%, exceeding the defined limit by 15%.
For a first-time breach, the club would incur a fine of between 25% and 50% of the amount they exceeded the target.
In this case £30m, so a fine of between £7.5m and £15m.
As can be seen from the above example, UEFA is applying a financial penalty (a fine) to a financial offence. With the Premier League expected to align their PSR with something akin to the one already implemented by UEFA, we may expect point deductions to become a thing of the past very quickly.
What UEFA has done here is implement what in effect is a salary cap, with the aim of reining in runaway wages and player-associated costs, which the older FFP rules only had a negligible impact upon. The Premier League may very well go the same way, if only for what they may perceive as a necessity to be aligned with UEFA.
However, moving the chairs around on the deck in this way will not fundamentally address one of the key issues facing the competitive landscape, and it may make the cost of entry into the elite levels of the sport almost impossible for those clubs who are not already at the top table.
A club’s income would determine how much they could spend on players; there would be no shortcut to joining the elite but rather a long and tortuous road of seeking to grow a club organically. However, sustained growth would ensure a club had solid and sustainable foundations. But it could become a never-ending journey.
Newcastle United fans, with apparently the richest owners in world football, may find it sobering that with a turnover of around £250m per annum, their compliant spend on players would be limited to £175m in total. Meanwhile, Man City, with a turnover that is almost triple, could spend just short of £500m on players all told.
“Just pay the fines,” I hear you say.
But, persistent breaches with UEFA, and subsequently one assumes at the Premier League, bring into play other disciplinary rules, and one cannot help thinking that caps linked to income like this, while they may differ from the old FFP and PSR, will ultimately just deliver the same outcome.
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, and must instead perpetually satisfy what, in the eyes of the Premier League and UEFA, appears to be their primary function of making up the numbers.
By JohnB
Well explained. State funded / owned football clubs have eroded fair competition and until the elephant in the room is addressed nothing will change. Even club's with high turnover will become plucky little x or y as they fail to match State funded club's wealth.
At first pass this reminds me of the "luxury tax" Major League Baseball instituted a while back to limit the advantage of the big spenders. It will be interesting to see how this affects the balance between EPL and the other European leagues. Always love B-W-B