The Premier League is one of the UK’s most successful exports. But when it comes to actually
making money, its clubs are less so.
When Chelsea played Manchester City in the Champions League final in May, the match featured
the two clubs that had made the highest pre-tax losses in Premier League history. Between
them, Chelsea and City had lost over £1.5 billion, a price worth paying if you look
in the trophy cabinet. But, according to some, such spending reduces the sustainability of
the domestic game as others play catch-up.
The present “Profitability and Sustainability” rules which most fans still refer to as financial
fair play, is a “breakeven” model. Clubs are allowed to lose £15 million pre-tax over
a rolling three-year period. However, certain costs (academy, community, women’s team,
infrastructure) are excluded, and owners are allowed to contribute via share issues a further
£90 million over the three-year period.
These rules have some merit, but one of the flaws is that they are based on historic published
financial accounts, which are not published until well after the end of the season. This
means that if the Premier League does apply any sanctions, they are always after the event
— trophies, Champions League places and relegation will have been determined already.
The alternative is some form of spending cap. A hard cap is where there is a total wage
limit that is the same for each club is unworkable in the Premier League, where the range of
the wage table is more than £250 million. Also due to the Premier League elite seeing
their competitors as the other big clubs in Europe rather than small but reasonably established
sides at home.
A cap set at, say, 20 per cent over the average Premier League wage bill would give a figure
of £193 million, which would only affect five clubs. These clubs might legitimately
claim that they were being held back on the European stage by such a policy and could
easily afford to pay more.
The alternative is a soft cap, with wages linked to revenues. The Premier League’s
revenues were distorted in 2019-20 so a look at the figures for the season before shows
that seven clubs in 2018-19 were over the line, none of whom would have been impacted
by the hard-cap limit.
However, wage caps ignore the impact of transfer fees on clubs. Players signed on Bosman deals
are usually able to command higher wages as clubs look at the total cost of recruiting
a player, which is both wages and amortisation (transfer fee spread over contract life).
Therefore, there is a case for taking transfer costs into consideration too.
In La Liga, the “Economic Cost Control” measures that operate there are forward based.
Clubs have to submit estimated figures for both their revenue (including player sales)
and costs, including player purchases. La Liga’s team of spreadsheet experts then
analyse the estimates for reasonableness, looking at transfer values in the present
market for example. La Liga then gives the clubs a total sum that they can spend during
the following season, but allows the clubs to allocate this between transfers and wages
as they see fit.
The formula used to determine the actual budget is a secret, but the main elements involve
four financial metrics:
Economic profitability (economic performance and efficiency)
Ordinary profit before tax divided by total assets
Financial profitability (profit generated by the partners and owners)
Ordinary profit before tax divided by equity General liquidity
Current assets divided by liquid liabilities Solvency
Equity divided by total assets
Where La Liga rules show their teeth is that clubs have to register their players using
an app as they are signed. If the wages and transfer fee result in the club exceeding
the allowed limit, the app flashes red. This means the club either have to reduce wages
with existing squad members and/or sell a player so that the new recruit can be registered
to play for the forthcoming season.
Would this work in the Premier League?
It would require a vote to take place and a two-thirds majority to vote in favour. Whether
clubs with ultra-high net worth owners such as Chelsea, Manchester City, Aston Villa,
Everton would be keen to have such controls is uncertain.
But, if an independent football regulator is introduced as a result of the current , then
this issue may be taken out of their hands and could be imposed.
The Athletic has looked at the accounts of the 20 clubs who will form the Premier League
in 2021-22 and has applied a much simpler version of the formula used by La Liga above
to see the potential budgets that clubs would face in the forthcoming season.
On the basis of these calculations, the Premier League spend on wages and transfers would
fall by about £430 million, compared to the most recent accounts for 2019-20.
Those clubs that have had historic good control over costs would be rewarded, and the Big
Six would still enjoy a substantial financial advantage over the other clubs. At the bottom
end of the table, the sight of Everton might initially surprise but the club has spent
a lot in recent seasons and this has resulted in high wages and amortisation fees, which
would result a tighter budget for 2021-22.
There would have to be a transition period in which clubs would adjust their spending
behaviour to avoid having to face a “cliff face” fall in spending. Such a scheme might
also be seen as a disincentive for ambitious owners such as Farhad Moshiri at Everton and
Wes Edens and Nassef Sawiris at Villa.
And a further fear among critics is that introducing such rules into the Premier League would further
entrench existing financial advantages.
It could be taken out of the league’s hands, though. If this is one of the suggested measures
of an independent football regulator, one of the recommendations of the interim fan-led
review report produced by the government, then cost controls will be a restriction the
clubs have to learn to live with.