Football News: PSR Regulations

Profit and Sustainability rules (PSR) were:

By 31st March, Premier League clubs must submit their estimated profit and loss account and balance sheet for the current year and their annual accounts for the previous year. They will have already submitted their accounts for the year before that in the previous March.

If the aggregation of the two previous years results in a loss, they must submit the calculation of pre-tax earnings for this year and the two previous years. They can exclude costs relating to:

1. The depreciation of fixed assets.
2. Women's football expenditure.
3. Youth development expenditure.
4. Community development expenditure.
5. In the seasons 2019/20, 2020/21 and 2021/22 clubs were also permitted to exclude covid related costs.

The aggregation of the adjusted pre-tax earnings is their PSR calculation. The idea is not to have losses but if you do make losses this is the "degree of latitude" that is allowed under the regs:

1. Losses of up to £15m - if the losses are less than £15m then the Premier League just looks to check that the club will be able to pay its liabilities for the next year.
2. Losses in excess of £15m - if the losses are in excess of £15m then clubs need to provide projected accounts up until the end of 2 years in the future and provide evidence of secure funding, which cannot be in the form of a loan. If they fail to provide the evidence, the Premier League has the power to force the club to submit, agree and adhere to a set budget.
3. Losses in excess of £105m - the club is treated as being in breach of PSR and the Premier League refers the breach to an independent commission.
However, clubs that were promoted during the period in question will have a reduction of £22m per year outside of the Premier League. So a team that got promoted two seasons ago has £83m losses before being termed in breach. A team that got promoted this season has £61m losses before being termed in breach.

When a club is referred to the independent commission, the Premier League sends in a written complaint, to which the club has 14 days to respond, either with an admissal or denial.

If the club admits a breach, they may include the details of mitigating circumstances to be considered by the Commission.

If the club denies the breach, it must explain its reasons for denial and attach copies of any documentation upon which it relies.

The Premier League has the burden of proving the complaint to the independent commission on the balance of probabilities.

Potential Sanctions:

If a club is found to be in breach of PSR, the commission has a number of sanctions available to impose at its discretion which include:

1. An unlimited fine.
2. Suspending the club from playing matches.
3. Deducting points.
4. Recommend that the Premier League orders a match to be replayed.
5. Recommend that the Premier League expels the club from membership.
6. It also has the discretion to order anything else it sees fit as a punishment for the guilty party.

A club has 14 days from the date of the decision to appeal.

Everton Case

The Premier League submitted a complaint in March 2023. The commission sat on 17th November 2023 and ordered an immediate deduction of 10 points. Everton's appeal was based on basis that their breach was actually £9.7m if properly calculated, rather than the £19.5m alleged by the Premier League. On appeal, which took 3 days to complete, it was reduced to 6 points. The reasoning behind a points deduction, rather than a financial penalty is due to the support of a "wealthy owner", similar to the reasoning behind Nottingham Forest's recent points deduction. The difference is, of course, that Forest's owner is genuinely wealthy, even if shady in terms of legality. Everton's owner is just a front for a Russian oligarch whose funds have been frozen, which has presented that club with severe financial difficulties of the kind that PSR, and its predecessor FFP (Financial Fair Play) were supposed to eradicate.

Worse, what has come into focus with Everton's subsequent charge this January is that there was no provision in the rules to avoid repeated prosecution for a single breach as it is calculated over 3 years.

New Fast Track PSR

After Everton's case was seen to be taking too long, and with potential cases still hanging over both Chelsea and Manchester City, the Premier League altered PSR rules to fast-track the decisions. Though, in the case of both they have already been dealt with by UEFA. Chelsea being fined €10m for their historic breaches. City managed to escape punishment for most of their breaches due to the charges being time-barred under UEFA rules, but they were not found innocent as the club often claims. Quite the opposite, they were found to be guilty but could not be punished for most of them.

Now clubs are to submit their accounts for the previous season by 31st December, rather than March. Breaches and charges are still to be confirmed 14 days later. These current accounts are related to the 2022-23 season. To help the clubs, the two seasons when the league was hit by the pandemic and played almost all matches behind closed doors have been considered as one season combined, to turn the accounting period into 4 years.

Nottingham Forest Case

Forest were handed a 4 point deduction after being referred to the independent commission in January as the Premier League tried to speed up the PSR process to complete within the same football year. The club has 7 days to appeal against the sanction. Unfortunately for all concerned, the appeal could well take place after the season ends on 19th May, with a date of 24th May pencilled in for the appeal date.

Forest admitted breaching their threshold of £61m (due to having spent 2 years of the accounting period in the Championship rather than the Premier League) by £34.5m. Under the new expedited rules, the independent commission held a 2-day hearing and the club detailed any mitigating factors. The commission found that Forest had demonstrated "exceptional cooperation" throughout the process with the Premier League.

Forest have signed over 40 players since promotion to the Premier League, but believed they had operated within allowable losses following the sale of Brennan Johnson to Tottenham Hotspur. However the sale of Johnson did not take place until 1st September, well after the accounting period ended. They argued that by waiting for then they got a higher price of £47.5m than they would have gained by selling him earlier.

Proposed PSR Changes

The future of PSR is looking to be brought in line with UEFA's Financial Sustainability Rules (FSR), which would mean the scrapping completely of the £105m limit, to be replaced by a squad cost ratio. In essence the club's first-team budget, transfer amortisation and agents' fees will be divided by its overall revenue. FSR is heading to a squad cost ratio of 70%, starting with 90% for season 2023-24 and then decreasing to 80% for 2024-25. The Premier League is currently settling on an aim of 85% squad cost ratio as its final figure.

What it means in practice is that clubs will have to keep their spending on wages, agents and transfers below 85% of their revenue.

That is the current agreed changes that the clubs have settled on, but we will have to wait until the Premier League's AGM in June to find out if they get introduced. It could still see changes to proposals being introduced or even that the Premier League stays with current PSR. Whatever happens, it will not affect current charges outstanding on Man City and Everton, plus Forest's appeal. Potential charges to Chelsea will also be under the historic rules rather than any new regulations.

Written by Tris Burke March 19 2024 06:03:22