Profit and Sustainability Rules I You Did Ask!

In response to – amongst many – John Ayris’ request (so blame him if you get bored mid way through the first paragraph)- here is a beginner’s guide to The Premier League’s Profit and Sustainability Rules.

PSR -Profit and Sustainability Rules’ are the Premier League’s financial regulations (see section E in the PL handbook linked for full details) that were previously referred to as FFP. The rules aim to limit how much money each Premier League club is allowed to lose over a specific period and thus prevent a new ‘Angel’ investor coming and simply throwing billions into player funding. This will be the reason why Newcastle – owned by one of the richest owners on the Planet – can’t simply chuck endless billions at acquiring every player out there.

Premier League rules mean currently clubs can only  lose a maximum of £105 million over a rolling three season period (or £35 million per season).  It is important to note that things such as academy costs, infrastructure and women’s team investment aren’t include in this £105 million. Importantly, £90 million of this £105 million loss loss must be covered by secure funding from the owners – for example, by buying up shares, instead of just giving the club a loan.

The Premier League followed UEFA’s ‘Financial Fair Play’ rules (FFP) rules and introduced them ahead of the 2011/12 season. No allowance since 2011/12 has been made for inflation so twelve  years on, this figure is MUCH harder to stick within. The bottom line is: After owners buying up secure investment such as shares, clubs can only lose £15 million over the three-season period.

Clear so far?

Now for the complications: Amortisation – the process of marking down a player’s value over the term of his contract – can spread income over several years. For example, if a club buys a player for £60 million on a six-year contract, the player is worth £60 million at the point of purchase and £0 at the end of the club’s accounts. This could, prior to 2023, then be marked as a £10 million loss every year.  PL clubs voted in December 2023 that a club could only spread the cost of transfer fees over a maximum of five years. So some of the seven year contracts now being signed (Max Kilman)  hold no value for PSR purposes.

Still with me?

Pure profit can all be banked and offset. So, players who cost nothing such as academy players can be sold and banked to offset 100%  against PSR. Hence the rumoured ‘exchanges’ between PL clubs for academy players at inflated figures to bring down their ‘book’ losses. If academy players are valued at £30 million and swapped for another club’s academy player at a similar figure, each club could in theory stick £30 million down on their profit column. Expect the Premier League to investigate these player exchanges if the player values seem high.

Importantly – many player purchases are structured over several years. The whole amount is rarely paid up front but spread over four, five years or more: Many clubs still have a backlog of hundreds of millions of pounds of expenditure due out for players they’ve bought: A ticking PSR time bomb as these losses have yet to be entered into the accounts.

PSR then explains why some clubs have to sell players on whom they make a profit: Brighton for example, have sold Marc Cucurella, Moises Caicedo and Alexis MacAllister for big profits all of which help to keep them easily inside this £105 million loss threshold. Larger clubs such as Chelsea and Manchester City might have a harder time keeping within the threshold having had such enormous transfer budgets in recent years.

An important point to flag up as far as West Ham’s situaton: Money earned from share sales CAN be used to finance the club’s activities and to offset the relatively meagre money received from season ticket sales. Hence the regular trips by Karren Brady to seek additional investment (from share sales ) as these incoming amounts can offset operating losses and keep the club inside PSR regulations.

Eyes glazing over yet? Mine too. I haven’t looked at wages v salary caps as I suspect very few will actually have read this far without yawning. There are new regulations proposed and being ‘shadowed’ this year to limit on-pitch-spend to a percentage of income too-( the soon to become well known SCR and TBA regs).

I don’t profess to be an expert but I hope this provides a useful ‘simples’ guide to a very complicated subject. Suffice to say West Ham don’t appear in a dire situation thanks to income from three European cup runs – several millions each time – and the Declan Rice transfer income which will have been amortised over several years. Expect the search to go on for a buyer for WHU shares though.

I’m off for a beer and a lie down. Don’t all rush to correct me. It’s just a guide.