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Thursday, February 22, 2024

What is PSR and why do Premier League rules only allow clubs to lose £105m?

Everton could face a second points deduction this season after being charged with another breach of the Premier League’s profitability and sustainability rules (PSR).

Nottingham Forest were also charged, meaning both clubs have been referred to an independent commission after reporting losses that exceed the allowed amount over a three-year cycle.

Everton are already appealing against a 10-point deduction for breaches relating to the 2021-22 campaign.

Previously measures like these have often been referred to as FFP — Financial Fair Play — but the Premier League now refers to them as PSR, though the intention is the same: to police how much money clubs are allowed to lose over a given period of time.

Under the Premier League’s PSR rules, clubs are entitled to lose a maximum of £105million ($133m) over three seasons, although certain costs can be deducted, such as infrastructure, women’s football, investment in youth and community work.

But how did England’s top flight agree on the £105million figure and is there an argument that it should be increased in line with inflation?


Why is it £105m?

The simple answer is that the Premier League followed UEFA’s financial fair play (FFP) rules, which European football’s governing body established in 2009 and introduced at the start of the 2011-12 season.

Clubs that had qualified for UEFA competitions were assessed against breakeven requirements over three-year periods. Teams could only spend €5million (£4.3m; $5.4m) more than the sum they earned across three years.

That limit, however, could go up to €30m if it is covered by a direct payment from the club owner or a related party. UEFA’s rules, however, have since changed. A club’s total expenditure on transfers, wages and agent fees now cannot exceed 70 per cent of its revenue.

In February 2013, the Premier League announced new financial rules that would not allow clubs to lose more than £105million over a three-year cycle, which works out at £35m a season.

“If people break the £105m we will look for the top-end ultimate sanction range — a points deduction,” Richard Scudamore, the former Premier League chief executive, said at the time.

The Premier League increased the losses permitted when compared to UEFA’s FFP rules to allow clubs not involved in European competition to invest more in their squads to compete.

How is the £105m calculated? 

Premier League teams can make a £15million loss over a three-year monitoring period, with losses of up to £105m permitted, but only if the £90m difference is covered by secure funding from a club’s owners.

That would mean buying up additional shares as opposed to giving their side a loan.

Due to the financial losses suffered across football during the 2019-20 and 2020-21 seasons when matches were played behind closed doors due to the Covid-19 pandemic, the corresponding years were combined and averaged out.

The Premier League also allowed clubs to write off losses sustained due to the pandemic.

Additional deductions can be made for the long-term benefit of the game, which includes investing in youth development, women’s football, infrastructure and community work.

Because the 20 Premier League clubs are shareholders, they are the ones who voted through the PSR rules more than a decade ago.


Everton fans protest their first points deduction (Michael Regan/Getty Images)

Is £105m high enough?

Kieran Maguire, a football finance expert and host of The Price of Football podcast, suggests there is an argument for the £105million to be increased in line with football inflation.

“The inflation issue for PSR is that there’s a case for saying that the original allowable loss of £105m should take into account changing circumstances concerning clubs’ buying power and acceptable losses,” Maguire told The Athletic.

Since the three-year figure was set in 2013, football-related prices have gone up, whether that is player wages or transfer fees.

“Inflation eats away at buying power and in taxation, this is addressed by increasing the personal allowance (the amount you can earn before you start paying tax),” Maguire adds. “Failure to do this creates ‘fiscal drag’ where more and more people are captured by tax and higher tax rates.

“I applied the same principle to Premier League PSR and took the 2013 wages and compared them to 2022 (and a few clubs for 2023). If £105m was deemed fair in 2013, then adjusted for current wages, £218m would be ‘fair’ now.”

If the allowable losses had risen in line with football inflation, then Everton and Nottingham Forest would have been well within the limit, with Newcastle United, who are majority-owned by Saudi Arabia’s Public Investment Fund, also being able to spend more freely.


Newcastle could have benefited from a higher ceiling of possible PSR losses (Alex Livesey/Getty Images)

Stay informed on the big story


Are the PSR rules about to change?

Appearing before members of parliament on the Culture, Media and Sport select committee in Westminster on Tuesday, Richard Masters, the Premier League’s chief executive, said clubs are now considering making changes to the PSR rules.

“We have some proposals out for consultation with our clubs about moving and aligning more with the UEFA system,” Masters said, before making clear that nothing has been agreed.

“UEFA has spent two years changing its financial regulations away from what used to be FFP to something that is called ‘squad cost ratio’, which is more of a wage-to-turnover calculation.

“Because, over time, we have historically aligned with UEFA because seven or eight of our clubs are in European competitions, we need to consider whether that is an appropriate move for us, how we do that, and when.

“The Premier League, with the EFL, is considering moving away from the PSR to a squad cost ratio mechanism. This would replace PSR in the future. PSR will be around this season and next as a bare minimum and may even be kept alongside it. I don’t know. All those decisions are yet to be made.”

UEFA’s new financial regulations, known as the ‘squad cost rule’, mean a club’s total expenditure on transfers, wages and agent fees cannot exceed 70 per cent of their revenue.

UEFA is, however, staggering its implementation. Clubs cannot exceed 90 per cent of their revenue this season, 80 per cent in 2024-25, then 70 per cent for the 2025-26 campaign.

(Top photo: Justin Setterfield/Getty Images)



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