This is a thread for all amateur football accountants out there, or people with a passive interest in the transfer window and how the new rules will affect Liverpool football club.
From this summer the Premier Leagues’s PSR will be replaced with a new Squad Cost Ratio (SCR). The new system hopes to be fairer for all clubs, encourage clubs to increase non-first team related spending, and limit what counts towards a clubs first team income.
Note: I am not an accountant and may have made some slight mistakes, this is merely to help people understand in layman’s terms what the differences are. TLDR is included down the bottom.
The old rules
Under the previous rules (PSR) , clubs were limited to losses to £105 million over a rolling three-year period. These were put in place to ensure clubs operated fairly, and weren't going to put themselves under financial pressure. The loses included all club spending, but unfortunately allowed some clubs to use dodgy financial techniques get around the rules through methods like selling off club assets like hotels and women’s teams to themselves to free up funds (Chelsea).
Previous clubs to have broken these rules, and were punished include.
- Everton 6pt deduction (first breach)
- Everton 2pt deduction (second breach)
- Nottingham Forest 4pt deduction
- Leicester 0pt deduction (Reduced from -2 when they were relegated the same season)
Starting from this summer, the PSR will cease to exist, and all clubs will be ‘free’ from the danger of breaching its rules. So what’s changing and how does it affect Liverpool and the rest of the league?
The new Squad Cost Ratio rules
There are many factors that go into these rules, but I will try make them as simple as possible to understand.
Under the new rules Premier League clubs can spend up to 85% of their overall club revenue on their first team squad each season including transfers and wages. The key change here is that it focuses on how much money the club generates, rather than how much money the club spends/loses.
Because this only involves first team spending as a percentage of revenue it means that factors such as investing in team stadiums, women’s teams, building new stores or training grounds, isn’t included. Clubs can now spend money more freely in hopes of increasing new or existing revenue streams as long as it isn’t for the first team. Investment is now encouraged, not punished.
Note: Clubs can also on occasion go above this limit to as much as 100% or even 115%, but even then won't be docked points, only facing financial sanctions. Above the 115% limit and they will be docked a mimimum of 6pts.
The new rules also stop clubs from being able to sell off assets such as women’s teams and hotels to help fund transfers or increase wages.
How Liverpool benefitted at the end of PSR
The move away from PSR meant that Liverpool, having barely spent in Arne Slot’s first season, had a burning hole in their pocket. At the beginning of the current season, Liverpool had massive PSR headroom and knew they wouldn’t be able to account for previous season’s spending going forward. Essentially, we had a ‘use it or lose it’ situation in which this was the last season where money saved from previous windows could be used to justify increased spending. From now on, spending will be calculated based on how much you generated in one year prior to spending only. No more spending last season’s money.
This could explain the dramatic shift in spending from Liverpool last season, where even despite sales, we still spent over 200m net, a vast change from our usual spending habits. It could also be a key factor why we bought Jacquet 6 month’s early.
What does it mean going forward?
Also already discussed, the new rules will mean we can spend up to 85% of the club’s revenue on the first team each season.
As Liverpool are one of the highest earning club’s in the world, this actually means we have more headroom (spending ability) than we did under the PSR. In fact, most of the top clubs (United, City, Arsenal, Spurs) now have more head room as well.
However… Liverpool have traditionally operated on a model where we only spend money that we make, so this alone should mean very little to how we spend. We have always been comfortably within the PSR limits and should remain comfortably under SCR limits as well. The change to the regulations does not mean Liverpool will have more money to spend, it just means they can spend more even more money before they are penalised.
Note: As previously stated, no clubs will be getting points deductions for breaking the rules up to 115%, but can face financial penalties. beyond that threshold and they will face a minimum 6pt deduction.
What about selling homegrown players and amortisation?
Nothing really changes in this regard. Under the old rules, the funds raised from selling players could be used to immediately increase PSR headroom. This differs from buying players where the cost is spread out over multiple seasons (A rule was introduced two seasons ago, once again because of Chelsea, that limits amortisation to up to 6 years of a contract).
Players who were homegrown, were brought on free transfers or had already played at a club for longer than their original contract were especially valuable as sellable assists because 100% of their sale could be used to boost their immediate spending power.
The new rules do not change this. Selling homegrown or amortised players will still give clubs the same benefit it did previously.
When it comes to Liverpool however, because we have been making record revenue the last few years, there is no real reason Liverpool would need to sell homegrown players in order to comply with either PSR or Squad Cost Ratio with the way we usually operate. Discussions around ‘pure profit’ affect us less because the vast majority of windows see us spend in a very similar manner and we traditionally have not been at risk of breeching these rules.
How do European rules differ?
This is where things get a little more interesting. The new Premier League SCR rules are very similar to UEFA’s rules, except UEFA’s are actually much stricter.
Under UEFA’s existing rules, teams competing in European competitions can only spend 70% of their club revenue on their first team, giving Premier Clubs less to spend (as a percentage) if they are in European competition. So why are these teams able to spend less than Premier League teams who aren’t in Europe? Well, they aren’t.
These clubs receive tens of millions of pounds from UEFA for competing in these competition, which already helps them boost their spending power. The Premier League wants to avoid a scenario where the teams in Europe become much more powerful than those outside it.
By allowing clubs outside of Europe to spend 85% of club revenue, instead of 70%, they can help make the league more competitive, knowing that if a club does reach Europe, they will also have to abide by these rules next season (hence why it works on a season-by-season basis, instead of a three-year cycle).
Similarly when clubs drop out of Europe, they will be given a grace period where they can spend more money for a year without punishment, accounting for the unexpected loss of income.
Conclusion/TLDR: The new rules are largely the same except:
- You can no longer ‘carry over’ money saved from the previous seasons to the new transfer window.
- Non first team spending (infrastructure, hotels, women’s teams, club shops etc) aren’t included. This will encourage more teams to grow.
- There are no points deductions for breaching the new rules.
- Clubs outside of Europe have more headroom to try close the gap on those above them.
EDIT: It has been pointed out to me that if anyone goes beyond 115% that can face a minimum 6pt deduction. I have included this in the post.