Premier League profit and sustainability regulations and UEFA profit and sustainability Rules explained with clubs wary of staying within limits in January; why Chelsea have been able to spend £1bn, Man Utd could see budget boosted and Arsenal may need outgoings to fund arrivals
Thursday 18 January 2024 16:35, UK
PSR, also known as profit and sustainability rules for the well-versed, can be an enigma. A mystery. A good way of avoiding questions about your transfer plans.
The one thing we all know is there are some hefty spreadsheets involved, and in recent times more than a few run-ins with the authorities.
You may be more familiar with the term FFP, or Financial Fair Play, since rules were first introduced by the Premier league in 2013 - and this is the same thing, just with a different hat on. Both the Premier League and UEFA have stopped using the term FFP, and both now go by the 'PSR' moniker instead.
Everton were docked 10 points in November for falling foul of the Premier League's financial regulations - and alongside Nottingham Forest have now been charged with further excess spending - while Manchester City have been under investigation by the league for nearly a year regarding more than 100 alleged breaches spanning almost a decade.
So what is it in the rules stopping Arsenal putting down big money on a new striker in January, or Todd Boehly adding another £1bn onto his wishlist at Chelsea - and could Manchester United receive a surprise winter war chest if Sir Jim Ratcliffe's investment is ratified in time?
In the simplest terms, when every Premier League team tots up their annual accounts, they can have made a loss no greater than £105m across the previous three seasons.
Sounds straightforward, but do not worry - this would be a very short article if it were that easy. There are a fair few caveats and subclauses to get through before any club can find itself in the clear, or not...
For a start, not all losses are created equal.
Clubs can only lose £15m of their own money across those three years. So that's no more than £15m extra on outgoings like transfer fees, player wages and, in a lot of clubs' cases, paying off former managers compared to their income from TV payments, season tickets, selling players and so on.
Anything above that, up to the £105m barrier, must be guaranteed by their owners buying up shares, known as 'secure funding', and essentially means bankrolling the club.
In those circumstances, the Premier League require clubs to submit plans to explain their financial plans for the next two seasons.
If any club owner is not feeling particularly flashy, or cannot find the best part of £100m down the back of the sofa, that does not leave much wiggle room. Some Premier League clubs have expensive tastes.
Only Chelsea, Everton and Leicester utilised that full amount in the most recent published accounts (for the 2021/22 season) - with nine clubs, including Arsenal, Liverpool and Manchester United receiving no equity injection at all.
Oh, and for sides who have spent any of the last three seasons in the EFL, owners can only put in £8m of secure funding for those years, leaving an overall maximum annual loss of £13m for the campaigns in question.
Talking of expensive tastes, let's start off with transfer fees. Premier League clubs spent almost £2.4bn in the 2023 summer transfer window, an average of £120m each. But those signings will not all come out of their budgets at once.
Using a process called amortisation, clubs are able to treat players as 'assets' in a financial sense rather than one big outgoing - even if they do pay the whole cost up front.
If you sign a £50m player on a five-year contract, they are 'worth' £50m at the start and £0 at the end in your accounts, so can be put down as a £10m loss every year.
That's exactly why we have seen Chelsea and other clubs signing players on contracts as long as eight years, and why Premier League clubs voted in December to limit spreading those transfer fees over a maximum of five years from now on.
Beyond the creative accounting, there are a number of expenses which do not count towards PSR whatsoever. These are not set in stone, but are generally accepted as being costs which are incurred 'in the general interests of football' such as a club's infrastructure, any associated women's team and the cost of running their academy.
There was also some added leeway granted for the unforeseen income drop caused by Covid-19. Losses across 2019/20 and 2020/21 were averaged, and clubs were allowed to exclude any drop in income which could be directly attributed to Covid - though this will drop out of the three-year accounting period for the current season.
Those two regulations play a major part in the Premier League's decision to hand down a 10-point deduction to Everton.
When they first sent the Premier League their PSR calculations for 2021/22, they claimed their losses after allowable exclusions only amounted to £87.1m.
The authorities disagreed on what could be left out of PSR and said Everton's losses had amounted to £124.5m, almost £20m above the allowable total.
That dispute looks to have plenty more legs in it, with Everton appealing the decision in December. An appeal board will be appointed to hear their case, though a date has yet to be set.
If you are following so far I am afraid UEFA's own, somewhat different set of rules are about to complicate matters further.
For a start, since the start of this season they have dropped the 'Financial Fair Play' moniker as the heads of European football have said their new rules are not designed to create a level playing field, but rather force clubs to live within their means.
In the same style as the Premier League, clubs are permitted to make three-year losses of €60m (£51.8m), with €55m (£21.5m) of that through 'secure funding' from owners.
But for anyone feeling the pinch from those lower numbers, there's also the added cushion of an additional €30m (£25.9m) loss allowed for clubs who UEFA deems in good financial standing, for a total of €90m (£77.7m) over the previous three years.
That's still lower than the Premier League - but it is an improvement on the €30m three-season loss UEFA would permit before this season.
There's also a catch. Starting this season and tightening over the next two years, clubs will be increasingly bound by 'squad cost' limits - in essence, the amount they spend on wages, transfer fees (in amortisation form) and compensation as a proportion of their income.
That figure currently stands at 90 per cent, but will tighten to 70 per cent in 2025/26.
Football finance blog Swiss Ramble recently crunched the numbers on these figures, and found that out of the Premier League's 'big six', Arsenal (79 per cent), Chelsea (90) and Manchester United (86) would be in breach of those requirements on their current spending when the rules become more stringent.
Well funny you should ask, actually. Premier League chief Richard Masters said this week the competition is looking at whether it might move to a system more in tune with the European set-up, and specifically in line with the squad cost ratio.
Masters told a Parliamentary Select Committee that given up to 35 per cent of the league's clubs play continental football every season, and already have to abide by those UEFA laws, there would be considerations made as to whether the wider league might follow suit.
That would reflect what happened when the Premier League's original PSR regulations were drawn up, a year after UEFA's first FFP rules were introduced.
"We have some proposals out for consultation with our [Premier League] clubs about moving and aligning more with the UEFA system," he said.
"UEFA have spent two years changing its financial regulations away from FFP to the squad cost ratio.
"Over time we have historically aligned with UEFA, because seven or eight of our clubs play in European competition. We need to consider whether that is an appropriate move for us, how we do that and when."
Any new regulations, much like UEFA's squad cost ratio, would most likely be phased in over time, and may still be some way off altogether to allow clubs to prepare and adjust their financial plans.
Nottingham Forest and Everton both told the Premier League they were in breach of the regulations when they submitted their most recent accounts, ending at the conclusion of the 2022/23 season - meaning they had lost more than £105m across the previous three seasons.
On January 15, a Premier League statement confirmed the league was conducting further investigations, and said it would be appointing two separate independent commissions to decide what punishment to hand down to each club.
Sky Sports News chief reporter Kaveh Solhekol said: "They are going to act pretty quickly because these rules are new and streamlined.
"This is all part of a fast-track process because the Premier League want to make sure that if there are any fines or any points deductions, they are in season.
"How fast will the process be? Can the clubs appeal? The commission will hear the case and it will last between one and five days, but we should have a decision within 12 weeks so early April.
"The clubs will have the chance to appeal if they want to. It has to be heard and concluded and have the final decision by May 24, which is five days after the season has ended."
Everton have hit out at they see as a "clear deficiency" in Premier League rules, given they have already had that 10-point punishment for a timespan covering most of the same period for which they have now been charged.
Forest's response was more conciliatory and said: "The club intends to continue to cooperate fully with the Premier League on this matter and are confident of a speedy and fair resolution."
So with 800 words' worth of measures across England and Europe to adhere to, how have Chelsea been able to spend £1bn on transfer fees across the first 12 months of the Boehly era?
It's worth noting they are currently being investigated by the Premier League and FA over payments received during Roman Abramovich's ownership - but let's look at the current state of play.
In terms of the financial situation surrounding the new American bosses, outgoings play a big part in balancing the books.
The Blues have recouped almost £300m in player sales since the American's takeover, and unlike the way amortisation works on new signings, they can bank all of the money they make on outgoings at once in their accounts.
Many of the sales came from players brought through the academy - Mason Mount, Billy Gilmour, Ruben Loftus-Cheek - and can be banked as 'pure profit'.
For players like Kai Havertz, their sale price is offset against the amount their 'value' has already decreased - in his case 60 per cent of what Chelsea paid for him, the proportion of his contract he had already run down - and so the income from those players does not tally up quite as nicely.
Football finance expert Kieran Maguire has suggested Chelsea's recent signings have also come in on lower wages than those who have departed Stamford Bridge, too, while the £40m Infinite Athlete shirt sponsorship they signed in October is another boost to the balance sheet.
There is no guarantee it will be enough, and the fact Chelsea are willing to countenance parting with Conor Gallagher in January - despite starting all but one league game this season - does raise eyebrows.
Sky Sports News senior reporter Dharmesh Sheth explained all on The Transfer Show. He said: "What happened in the last transfer window, was they had this cut-off point of June 30 where there were a huge ranch of players sold who represented big, big profits for Chelsea to enable them in the next accounting year to go out and buy players again.
"We might see something similar happening this year as far as Chelsea are concerned. They will have that situation where they need to bring in more money if they want to go big again in the summer."
Armando Broja is now another player the Blues would be willing to part with in January, as the striker's hefty £50m price tag would also fall under that pure profit banner.
Trevoh Chalobah, who has been ruled out all season by a complicated hamstring injury, could also be on his way to further help sway the balance of Chelsea's PSR scale.
Chelsea's 2022/23 accounts are yet to be published publicly, but the Premier League appear to be satisfied with their spending habits as they have avoided having their name included alongside Everton and Forest's charges for breaches of the PSR regulations.
For any Manchester United fans who have made it this far, here's some reward for your patience. Let's go back to that £90m secure funding, which can balloon the losses allowed by Premier League sides.
Under the Glazers, there has perhaps unsurprisingly been no sign of that over the last three years, meaning the club could only lose an average of £5m per year.
However, new investor Sir Jim has already committed a decent little sum of £245m to be earmarked on improving the state of the club.
So long as his investment is ratified by the Premier League before the end of January, theoretically that could mean the opportunity to commit some of that money to do business in the transfer window, through secure funding.
Though speaking to the media ahead of their match with Tottenham on January 14, he said he expected the Premier League to give him the final green light in mid-to-late February - which would mean that pot of cash cannot be spent on players until the summer at the earliest.
There are more caveats here, in that unlike most clubs Manchester United publish their quarterly financial results every three months.
Those show that for the first nine months of 2022/23, the club lost £31m - which even with the maximum level of secure funding would make things very tight to stay within PSR boundaries.
How things are looking in 2023/24 though is something only Sir Jim and the club themselves know at this stage. And unless the Premier League approve his investment by the end of the month, it won't have any effect their January business either way.
Arsenal have been linked with a January move for a centre-forward some think could make or break their title hopes. More pressingly, it could also be make or break for their PSR budgets after handing Mikel Arteta a £200m war chest in the summer.
That left the Gunners' financial situation so finely balanced they have already deferred payment for David Raya from Brentford, bringing in the goalkeeper on an initial loan which will become permanent this summer, taking his transfer fee into a different accounting period.
It was not so long ago Arsenal were renowned for selling their best assets and replacing them with cheaper outlays - but a spending tally of around £510m over the last five transfer windows, a net spend of around £400m, bucks that trend significantly.
They have slashed their wage budget in that time and can use everyone's favourite accounting method to spread out the cost of their purchases - but having only returned to the Champions League for the first time in seven years this season, their revenues are still a way from catching up with their old lives as return customers at Europe's top table.
That plays some part in the Gunners' willingness to let a number of squad players depart the Emirates Stadium in January, with any potential income allowing the club to loosen the purse strings to some degree before the end of the month.
