Sports law: Premier League to bring in new financial rules

Following a Premier League shareholders' meeting on 11 March, clubs agreed to prioritise the swift development and implementation of a new league-wide financial system.

In a media statement, the Premier League stated that "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."

Additionally, Premier League clubs reaffirmed their commitment to securing a sustainably funded financial agreement with the EFL, subject to clubs formally approving the new financial system.

Financial Fair Play (FFP) in the spotlight

UEFA and the Premier League's attempts to enforce these regulations have made headlines in recent years, but what exactly are Financial Fair Play rules, and why are they so important? 

UEFA's FFP rules were introduced in the 2011/12 season to promote the financial stability of European football clubs. Put simply, FFP seeks to limit the financial losses a club can report to a minimum of a £60 million loss over a three-year rolling period. UEFA also plans to cap expenditure on wages, transfers and agent fees at 70% of club revenue in 2025. 

The Premier League's Profit and Sustainability Rules (PSR) were adopted in 2013 and based on UEFA's FFP. By comparison, the Premier League allows clubs to take losses of up to £105 million over a three-year rolling period without incurring any penalty. £15 million of this amount may be club losses, while the remaining £90 million should be covered by the owner. 

The rationale is to promote a level playing field across the league by preventing clubs from living beyond their means, ensuring their output on transfer fees and wages is relative to the revenue they receive. Clubs must also provide detailed yearly reports reflecting their financial status to the relevant governing body, be it UEFA or the Premier League. 

UEFA and the Premier League have set penalties for breaches to encourage compliance. Sanctions include point deductions, transfer bans, fines and even competition bans for clubs that break FFP/PSR. 

Everton FC

A recent case was that of Everton FC, who referred themselves to an independent commission over losses of £124.5 million, which exceeded the Premier League's permitted £105 million threshold. This breach of PSR resulted in a ten-point deduction (dropping them into the relegation zone). The deduction was then reduced on appeal and amended to a penalty of 6 points in late February 2024.

Nottingham Forest FC

In March 2024, Nottingham Forest became the second Premier League club to be deducted points for PSR breaches. This was due to their aggressive transfer strategy since promotion to the Premier League in 2022 and the timing of the sale of Brennan Jonhson to Tottenham. If they appeal, the club risks a more significant points deduction from the Premier League.

Chelsea FC

Under Todd Boehly's ownership, Chelsea has spent over one billion pounds and has been unconventional in its business, drafting its agreements to exploit the now-amended UEFA rules on amortisation in the 2022/23 and 2023/24 seasons. 

By spreading the cost of players over the period of their contracts in their accounts, the club was able to operate within FFP and PSR. For example, Mykhailo Mudryk (£88 million) and Enzo Fernandez (£106.7 million) were given 8.5-year-long contracts with the club. This works out to an annual expenditure of £10.4 million and £12.5 million on each player, respectively. 

Amortisation has allowed Chelsea to sign players such as Moises Caicedo (£115 million), Wesley Fofana (£72 million) and Raheem Sterling (£50 million), all while staying within the £105 million PSR threshold.

Following UEFA and the Premier League's FFP and PSR changes, clubs are now capped at spreading player costs over five years. This change will not be backdated but will force Chelsea to re-evaluate their future transfer policies to comply with regulations. 

As the end of their financial year approaches, Chelsea has released a statement to confirm that despite their losses, they remain compliant with UEFA and the Premier League's financial rules. 

Manchester City FC

UEFA charged Manchester City FC with a breach of Financial Fair Play rules in 2019, imposing a two-year ban from the Champions League and a £30 million fine. This was later overturned on appeal by the Court of Arbitration for Sport one year later. 

Separate from their UEFA case, Manchester City were charged in 2023 with over 100 breaches of PSR rules between 2009 and 2018. The Premier League confirmed in 2023 that they were referred to a Commission, but a date for the review has not yet been publicly announced. 

If they are found guilty, the decision could send shockwaves through the entire footballing pyramid, though Manchester City are expected to lodge a vociferous defence.

In summary, UEFA's Financial Fair Play and the Premier League's Profit and Stability rules are set out to preserve the integrity of competitions and promote financial stability across each respective league. Sanctions such as point deductions or even relegations demonstrate the severity by which the game's governing bodies are willing to treat flagrant breaches of financial regulations.

Changing the regulatory landscape

It remains to be seen what the new rules will entail for Premier League clubs. According to reports, the £105m limit is set to be scrapped altogether and replaced by a squad cost ratio, in line with UEFA's financial sustainability rules (FSR), the successor to FFP. The Premier League reportedly aims for an 85 per cent squad cost ratio, meaning clubs must have their wage budget and amortisation costs below 85 per cent of their revenue.

Any changes would not impact the current charges against City, Everton or Nottingham Forest, who will still be tried under the current regulations.

The changing landscape of football finance is also closely tied to other factors—including the flow of funds from the elite leagues to the lower divisions and grassroots football. There is increased pressure for reform due to financial disparity across the pyramid and the government's bill to incorporate an independent football regulator.

Despite the global success of the Premier League and English football, more than 60 clubs have been put into administration since 1992.

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