The BackPage Weekly | Premier League clubs have voted in favour of a spending cap but there is dissent in the ranks

By Kieran Mercer and Daniel Geey

Introduction

The 2023-2024 Premier League season is likely to be remembered as much for the controversy surrounding its Profit and Sustainability Rules (PSR) as for the on-pitch action. Following Everton’s 10 point deduction for breaching PSR (subsequently reduced to 6 on appeal) we queried how rival clubs may react.

At the Premier League’s AGM on 6 June, clubs voted to tie their own spending to the revenues generated by their least wealthy peer and to cap their overall spending on player transfers and wages to a proportion of their own incomes.

The 2024-2025 season will therefore see the introduction of two new cost control frameworks; the Squad Cost Rules (Squad Rules) and Top to Bottom Anchoring Rules (Anchoring Rules). The Anchoring Rules will not necessarily be a permanent fixture as they are being introduced on a non-binding, trial basis, initially.

How will the Squad Rules and Anchoring Rules work?    

The Squad Rules and Anchoring Rules will run parallel to PSR next season and if considered a success, the Squad Rules are expected to replace PSR for the start of the 2025-2026 campaign. 

Under the Squad Rules, clubs may only spend 85% of their annual ‘income’ (plus or minus the balance of their player transfer activity) on player wages, transfer fees and agent costs. ‘Income’ comprises of football-related revenue such as match day income, broadcasting, and competition prize money. But importantly, excludes funds raised from non-football related sources such as sales of physical assets.

Clubs participating in UEFA competitions also have UEFA’s Financial Sustainability Regulations (UEFA Rules) to contend with and therefore must be sure to limit their spend on player and coach wages, transfers and agent fees to 80% of their revenue for 2024-2025 (this reduces to 70% from 2025-2026 onwards). Cost controls such as the Squad Rules and PSR which are linked solely to a proportion of a club’s revenue have been criticised for consolidating the financial advantages of the wealthiest clubs and reducing competition by allowing established clubs to consistently outspend (and then outperform) their less affluent counterparts.

To address these concerns, the Anchoring Rules act as a hard cap on expenditure by dictating that the most any club can spend on its on-field costs is ‘anchored’ to a multiple of the forecasted earnings from Premier League broadcast income and prize money received by the least affluent club. It is expected that the multiple will be 5x the value of these forecasted earnings.

By way of example, in the 2022-2023 season, Southampton’s income was the lowest in the Premier League. The Saints received £103.6m of relevant revenue and if this was replicated next season, then under the Anchoring Rules, all clubs would be limited to an expenditure of £518m (being 5x Southampton’s relevant revenue) for their on-field costs. The Anchoring Rules are therefore the Premier League’s first experiment with a hard cap on transfer and salary spending.

What impact may the rule changes have on clubs’ spending?

A closer look at clubs’ recent spending patterns indicates that the cap may not be a serious concern for many. Applying the figures from the 2022-2023 season, the only club exceeding the hard cap would be Chelsea, who spent £553m. The next closest to the cap is Man City, with headroom of £50m, having spent £468m; all other clubs would have in excess of £100m available before hitting the threshold.

The rationale for the Squad Rules and Anchoring Rules

The intention of the Squad Rules is to promote and preserve clubs’ financial sustainability and to begin aligning the League’s cost controls with UEFA’s Rules.

If maintained over a prolonged period, the Anchoring Rules may improve competitive balance in the League. Presumably the idea is that the ‘dominance’ of the ‘Big 6’ can be constrained to ensure an exciting League product.

Reaction to the Squad Rules and Anchoring Rules

It has been reported that the Manchester clubs and Aston Villa voted against the rule changes and that Aston Villa are considering legal action on the grounds that the rules may be anti-competitive.

Some European clubs may be comforted by the prospect of reduced spending from English teams but then again, many rely on the transfer inflows to support their financial models.

The PFA has consistently resisted any move toward salary caps, arguing that their members’ earnings could be unfairly suppressed. A challenge to the Squad Rules and Anchoring Rules from the PFA is therefore also a possibility.

Conclusion

The introduction of the new rules may well benefit the less affluent clubs by narrowing the spending gap. However, in time for the 2024-2025 season, all Premier League clubs will have three different Premier League financial frameworks to adhere to whilst those playing in UEFA competitions will have four.

It could get a whole lot more complicated for clubs, fans and journalists alike!