Premier League Clubs Close Self-Transaction Loophole

Key Changes to Financial Regulations

Starting next season, Premier League teams will be prohibited from offloading assets, such as hotels and women’s teams, to themselves as a means of navigating financial regulations. This decision follows a recent narrow vote favoring new financial oversight rules, specifically a revamped Financial Fair Play (FFP) system based on the costs associated with squad management.

During a meeting held in London, clubs assessed three alternative frameworks to replace the existing Profit and Sustainability Rules (PSR). The Squad Cost Ratio (SCR) was endorsed with 14 votes, surpassing the six opposing. This tally meets the minimum threshold necessary to implement regulatory changes.

From the 2026-27 season onwards, overall squad expenses must not exceed 85% of a club’s revenue; however, teams participating in European competitions will need to comply with UEFA’s capped rate of 70%. Costs counted under squad expenses include wages for players and managers, transfer fees, and agent commissions.

Most notably, the new rules mean clubs cannot utilize capital asset sales as a means to enhance their financial standing under the SCR, specifically starting from the 2026-27 season.

Last year, Chelsea sold two hotels adjacent to Stamford Bridge to a related entity for £76.5 million to remain compliant with PSR. Meanwhile, Everton similarly transferred their women’s team to their parent organization, and Aston Villa is reportedly preparing to follow suit.

The assessment for compliance will strictly focus on a club’s earnings generated from football operations.

Additionally, unanimously passed sustainability regulations will require clubs to outline financial spending plans that span the medium to long term. In contrast, a proposed anchoring approach—which aimed to cap spending based on the bottom club’s income—was rejected, receiving only seven affirmative votes against twelve dissenters.

A statement from the Premier League emphasized that the newly established SCR regulations aim to foster opportunities for all clubs, promoting fair competition while aligning the league’s financial framework with existing UEFA standards. Noteworthy features of the new system involve transparent monitoring throughout the season, protection against underperforming teams, allowances for pre-revenue spending, and simplification by limiting the focus to football-related costs.

Understanding Squad Cost Ratio (SCR) and Its Impact

The previous PSR structure was centered around a club’s comprehensive revenue over a three-year period, in contrast to the new SCR which focuses solely on annual team expenses. An innovative dual system will now govern the rules, mandating clubs in continental competitions to adhere to UEFA’s stricter 70% SCR limit, potentially leaving Premier League regulations open to further discrepancies.

The rationale for the higher limit is to safeguard the competitive balance within the Premier League, especially due to the amplified income received by European participants. Notably, both Chelsea and Aston Villa faced significant penalties from UEFA for exceeding their budgets during the 2024-25 season when their European limit was set at 80%.

The Premier League has also introduced a flexible allowance permitting clubs to exceed the SCR threshold by 30%, thus allowing investments in advance of expected revenues or accommodating for performance-related variances. Each March, an evaluation of these allowances will inform any corresponding sporting sanctions necessary during that season.

The established 85% benchmark, dubbed the ‘Green Threshold’, applies financial penalties when surpassed, although these will generally be less severe than those imposed by UEFA. Conversely, exceeding the ‘Red Threshold’—85% plus the allowance—will incur a predetermined six-point penalty which escalates by one point for every £6.5 million overspent.

To put it into perspective, all clubs will launch next season with the flexibility to operate up to 115%, accounting for the 30% allowance. Clubs exceeding the 85% threshold will face fines, although only those surpassing the adjusted 115% will risk point deductions.

Clubs Influenced by New Regulations

A handful of clubs, buoyed by robust financial health, were proponents of the earlier PSR and preferred maintaining the status quo. However, the SCR will likely pose challenges for smaller clubs less accustomed to high wages relative to their revenues.

Clubs including Bournemouth, Brentford, Brighton, Crystal Palace, Fulham, and Leeds voted against the SCR due to these concerns. Bournemouth faces struggles with their stadium capacity of just over 11,000 while needing to pay Premier League-level wages, similar to Fulham’s situation.

Clever management of transfers will be essential for these clubs; Bournemouth, for instance, avoided turmoil this season thanks to a successful transfer window last summer. The SCR’s 85% cap, along with the supplementary buffer, provides all teams some leeway and time to adjust their financial approaches.

Aston Villa and Newcastle expressed frustration with PSR limitations that curtailed their squad investments. However, they must navigate through UEFA’s more stringent 70% cap, despite the transition to SCR.

The Rejection of Anchoring

Despite being discussed, the anchoring proposition did not gain adequate support, with only seven votes in favor. Key clubs were divided on its implications. For instance, Manchester City and Manchester United expressed concern over potentially breaching the anchoring limit with their growing revenues, while Arsenal and Liverpool supported its implementation.

The proposed “top-to-bottom anchoring” strategy aimed to limit total spending across clubs to five times the television earnings of the bottom-placed team. This year, the last place team is projected to generate roughly £120 million, setting a theoretical ceiling of £600 million across the league. However, introducing SCR would mean no club’s spending would actually reach this limit.

The intended goal was to prevent the top clubs from widening their financial advantage. Nonetheless, some stakeholders worried about the potential loss of competitiveness for players when contending against elite teams like Real Madrid.

The Professional Footballers’ Association (PFA) had earlier cautioned that such spending restrictions might trigger a decrease in player salaries, potentially leading to legal ramifications. Concerns were also raised about future broadcasting deals diminishing revenues, thereby lowering spending caps further.

Easing into Sustainability Regulations

The passage of sustainability rules occurred smoothly for the Premier League clubs, as they anticipate adhering to financial projections over varying timeframes, including short-, medium-, and long-term planning.

This will become mandatory under the forthcoming Independent Football Regulator (IFR), which will take effect later this season. Clubs must provide detailed forecasts concerning their fiscal strategies and capability to sustain club operations.

The emphasis will be on monitoring compliance and implementing measures to restore compliance when breaches occur, which could include spending restrictions or adjustments to existing debts.

CLARIFICATION: Previously, it was noted that clubs can still sell capital assets to themselves, though not within the SCR framework, a detail which is vital under the new regulations.