For many years, success in football has been linked to splashing the cash in the transfer market.
Spending big on transfer fees and player wages isn’t a guarantor of on-field glory, but it certainly helps – it’s no coincidence that each of the champions in Europe’s ‘big five’ leagues in 2023/24 also happened to be amongst their flashiest spenders.
But there’s change in the air. The Profit and Sustainability Rules (PSR) governing football club finances have begun to bend and shape how the transfer market plays out each summer and winter – and in ways that couldn’t have been predicted.
So is football really tightening its belt to conform with PSR, or are clubs now simply now splashing the cash in different ways to ‘game’ the rules?
What Exactly Is PSR?
When some of English football’s most progressive thinkers decided to rebrand the old First Division as the Premier League, they opened the door to a world of commercial possibility.
Suddenly, cash was sloshing around in the beautiful game, with big businesses desperate to jump aboard the gravy train with lucrative sponsorship deals.
And the explosion in televised football meant that broadcasters were fighting tooth and nail for the media rights – the likes of Sky Sports and TNT now spend literally billions of pounds on renewing their deals each term.
Record deal, record number of matches 💰
The Premier League has agreed a £6.7bn TV deal for Sky and TNT to show 270 live games a season up to and including the 2028-29 season.
The BBC will continue to show highlights on @BBCMOTD for four more years 🙌 pic.twitter.com/hI4UK2ZdRf
— BBC Sport (@BBCSport) December 4, 2023
Much of that money gets redirected into the coffers of Premier League clubs, so how do they spend it? There’s no other more important avenue than trying to improve performances out on the pitch with better, more exorbitantly-paid players.
Soon, capitalism was rife in the Premier League, with the race to the top seemingly inextricably linked to the amount clubs were spending on players.
Unfortunately, that has created an inequality in resources that sees the same clubs, year on year, competing for silverware, with the have-nots’ sole mission being simply to avoid relegation.
That hadn’t escaped the attention of the sport’s governing bodies, who realised that football was facing a crisis of competitive inequality. To help redress the balance, the Premier League created their Profit & Sustainability Rules (PSR), which basically allows a club to lose up to £105 million during a three-year window.
There was a general feeling amongst the Premier League’s member clubs that rule breaches would be punished with a slap on the wrist, rather than anything substantial, and so a handful essentially ignored PSR altogether.
However, Premier League chiefs have begun to bare their teeth, issuing points deductions to Everton and Nottingham Forest for over-spending and playing a role in the ongoing saga involving Manchester City, who will – presumably – be punished for their financial failings in due course.
In an ironic twist, it appears as if PSR will be replaced by different financial measures in the future. Premier League clubs voted unanimously in favour of a new ‘squad cost ratio’ system similar to UEFA’s regulation, which has been given the loose name of Financial Sustainability Regulations (FSR).
Clubs agreed to trial an alternative League-wide financial system next season on a non-binding basis
The existing Profitability and Sustainability Rules will remain but clubs will trial Squad Cost Rules and Top to Bottom Anchoring Rules in shadow
More: https://t.co/XH5BtT0PJj pic.twitter.com/eUBnalh3LN
— Premier League Communications (@PLComms) June 6, 2024
Although not etched in stone, those rules would allow teams playing in a continental competition to spend up to 70% of their annual revenue on transfer fees, player wages etc. Other clubs would be allowed to spend up to 85% of their revenue – a direct bid to redress the balance between the best and the rest.
If properly policed, the FSR rules could help to restore a sense of balance in the Premier League, although measures to ‘cheat’ revenue calculations – such as club owners overpaying for sponsorship deals from their own companies – must be clamped down on.
There is another downside to these rules that install a date by which clubs must be financially compliant – it creates a new transfer deadline day, in which those running the risk of rule breaches create a ‘hyper-market’ of accelerated business.
Football’s New Transfer Deadline Day
The challenge of governing PSR, FSR or whatever other acronym is used is that there naturally has to be a deadline via which clubs must submit their accounts and be compliant by.
That has typically been June 30, and in 2024 the English summer transfer window opened on June 14 – giving clubs 16 days to get their financial house in order to comply with PSR.
In that limited window of time, 12 transfer deals were completed by Premier League clubs – some, evidently, to ensure that the books were balanced ahead of the PSR deadline.
A few of those deals were particularly noteworthy. In the space of 24 hours, Aston Villa signed Ian Maatsen from Chelsea for £35 million, before the Blues concluded a £19 million switch for Omari Kellyman from the Villains.
Aston Villa is delighted to announce the signing of Ian Maatsen from Chelsea. ✅
— Aston Villa (@AVFCOfficial) June 28, 2024
The deal was considered to be mutually beneficial for two clubs thought to be on the cusp of breaching PSR, with Kellyman’s fee – £19 million for a player that has featured just twice in Villa’s first team – described as ‘inflated’ by many within the game.
A similarly friendly deal saw the Villains sell Tim Iroegbunam to Everton for £9 million, before the Toffees’ Lewis Dobbin headed south to Villa Park.
Although doing nothing wrong, the clubs involved here are clearly gaming PSR. Players that are raised through a club’s academy are considered to be ‘homegrown’ – a status that ensures that all of a transfer fee received goes onto the balance sheet as pure profit.
But in terms of signing players and adhering to PSR, the transfer fee of a player is spread out evenly across the length of their contract in a process known as amortisation.
So, a club could sign a player for £50 million on a five-year deal, which means that their amortised value per season is £10 million. If the same club then sells an academy youngster for £15 million, they have effectively made a £5 million profit on those two deals as far as PSR is concerned – despite actually netting a loss of £35 million in real terms.
In that sense, two clubs seeking to benefit mutually can inflate or deflate the prices of their players currently – the transfer market is considered to be a ‘free market’, in which each of the actors, i.e. the clubs, determine asset values. And so concerned are the Premier League by that, they wrote a lengthy letter to their members in the summer of 2024, concluding:
“If the board concludes that the transfer is not at fair market value, it will require that the value be restated.”
Meaning, the selling club would have to return the excess amount to the buyer if the EPL’s investigations revealed an inflated fee had been paid.
As football finance expert Kieran Maguire explains, two clubs can put ridiculous values on unknown youngsters to bolster their profit & loss accounts.
“If a swap deal is made, there is nothing to stop the ‘official’ price to be £28m and £30m,” he said, even if those values are evidently inflated.
“This way there is still a cash settlement of £2m, but the profits in the accounts are £28m and £30m – fantastic for PSR. The additional cost of signing both players is then spread using amortisation, so is effectively kicked down the road.”
In the pursuit of better and more expensive players, academy graduates and homegrown stars are becoming pawns and sacrificial lambs in a game of financial chess that the smartest – and the richest – continue to win.
Once the PSR deadline has passed, clubs can then commence their spending for the next season. However, the Premier League is currently operating in a bubble of radio silence as the medium and long-term ramifications of rule breaches hits home….
All Quiet on the Transfer Front
An unintended consequence of PSR compliance is that clubs are very much tightening their belts on the transfer front.
One anonymous club official told the Independent newspaper that even clubs with ‘plenty of PSR headroom’ are becoming more conservative, with the lack of activity ‘deflating’ the market.
“All your assumptions basically change, which is fine if you’re a middling club but if you’ve shown a bit of ambition you could be in trouble,” the source continued.
“My club and a few others suggested some creative ways of solving the liquidity problem, but no-one was really listening. So what we have is a pretty dead market with some clubs desperate to sell.”
So that’s the view of one Premier League insider, but does the pervading opinion match the reality of the situation?
Here’s a look at the Premier League’s transfer net spend over the past decade. To preface the visual, it should be noted that the EPL has delivered a total net loss every season in our time window – so the amounts shown are all in the red.
This season-by-season chart should, in theory, show a gentle upward curve in transfer spending over the years:
While there’s a general feeling that the transfer market is in decline, what this graph shows is that the spending in 2023/24 was still higher than the average over the past decade or so.
But what the chart clearly illustrates is the mammoth overspending of 2022/23, when the net loss of all Premier League clubs combined totalled a ridiculous minus £2 billion.
So 2023/24 was undoubtedly a sort of market correction, as well as a nod to the point deductions of Everton and Forest – nobody else can afford to be sanctioned in a similar fashion.
And as if to prove how transfer mindsets have changed, in the 16 days between June 14 and 30, 2024 – the opening of the transfer window and the PSR accounts deadline – a whopping £245 million was spent on players by Premier League clubs.
For context, that’s nearly three times as much as they spent in the entirety of the January transfer window (£96.2 million).
There’s no doubt that the point deductions handed out to the two clubs has shaken the rest of the Premier League – maybe they didn’t expect that the authorities would genuinely clamp down on any rule breaches?
Either way, the transfer spending in the January transfer window, season by season, is revealing:
As you can see, that January 2024 transfer window was the second least active of the past decade – and that’s largely because, if you cast your mind back to January 2021, nobody really knew what was going on due to the health crisis.
Based on the image above, we can certainly come to a stout conclusion: the points deductions suffered by Everton and Nottingham Forest have, evidently, impacted the transfer market – and things may never be the same while financial fair play rules are strongly enacted by the authorities.
The European Way
It’s hard to say what impact the ‘squad cost ratio’ rules will have on Premier League spending when they’re introduced in the near future.
UEFA rolled out their model to clubs competing in their sanctioned tournaments in June 2023, so there’s not a great deal of data yet to confirm whether or not teams on the continent have tightened their belts or not.
The idea, according to the governing body, is to ‘….ensure that all clubs will have to be stable, solvent, and keep their costs under control,’ requiring that a club’s revenue stream is greater than their spending on transfer fees, player wages, agent costs and so on.
Some critics of the squad cost rule believe that it’s a salary cap in all but name, while others claim that it’s the most commercially viable clubs – ironically, they also tend to be the best on the pitch too – that will benefit the most. After all, higher revenues means a greater spending threshold on players.
UEFA, sensing kickback, has also legislated for a phased implementation of the squad cost rule:
- 90% of revenue could be spent on player costs in 2023/24
- 80% of revenue can be spent on player costs in 2024/25
- 70% of revenue can be spent on player costs in 2025/26
As well as the outlay on transfers, the termination of a head coach’s contract also falls under the remit of the squad cost ratio – fear of breaching the rules may see clubs give their managers more time to turn things around, as opposed to forking out on expensive compensation payments that eat into the available ratio margin.
So did the introduction of the squad cost ratio rule make any difference to the transfer spending of clubs in Europe’s four other big leagues? Let’s take a look at their collective net spend over the past decade or so:
This rather scruffy graph confirms what we suspected: since football’s governing bodies have gotten tough on overspending, the net transfer spend of clubs in Europe’s big leagues has shrunk.
In Spain’s La Liga, the introduction of the squad cost ratio rules ahead of the 2023/24 season coincided with just the second time that clubs had recorded a combined net gain on their transfer spending in a decade. And the anomaly came during the heart of the pandemic, when clubs were evidently uncertain of their immediate money-making future.
In the German Bundesliga, annual net gains on transfer spending are not uncommon for clubs that deploy sounder financial principles than many of their counterpart leagues.
But even so, the 2023/24 campaign – the first to coincide with squad cost ratio rules – saw Bundesliga clubs make a net transfer gain of €215.7 million (£181 million); that’s the highest positive return in a decade.
The same was true in Italy’s Serie A: the net transfer gain of €124.3 million (£105 million) in 2023/24 was only the second time that their clubs had collectively posted a positive number, and it was more than 400% higher than the last time in 2022/23.
The only anomaly came in France, where Ligue 1 sides threw caution to the wind in posting a net loss of €164.6 million (£138.3 million) – their most egregious spending of the past decade, and one of only three occasions in which they have recorded a net loss on transfer spending in the past three years. Maybe they didn’t get UEFA’s email….
The takeaway point is that stricter spending rules have coincided with much less in the way of transfer activity. Whether by accident or design, the Premier League and UEFA have changed the face of the transfer market as we know it.