Under pressure to align with UEFA’s rulebook and with the UK government breathing down its neck, the Premier League summoned its clubs to a meeting in a London hotel and told them ‘we are not getting out of this room until we have voted on new financial rules that will stop you lot from blowing your brains out every season’.
Needing a two-thirds majority to get the measures through, the vote was on a knife-edge. In the days preceding the meeting, it had even been suggested that the league would pull the vote, as anything less than the usual unanimous show of hands would reveal just how divided the clubs had become.
But, thanks to an impassioned plea or two to consider the greater good, the vote passed: 13 votes for, six against and one abstention. It was the closest possible positive result and the tightest vote in league history.
That was February 7, 2013, and new measures were called the profit and sustainability rules, PSR to their friends.
The league, under new management, was back in front of its clubs on Friday. A different hotel but the backdrop was the same: UEFA has changed its rules again and the government’s concerns about the game’s ability to run itself have led to the creation of an independent football regulator.
And to complete the sense of deja vu, at least half of the clubs in the room had already told league CEO Richard Masters that they hate one of his ideas and are not that keen on his main plan for delivering sustainability.
But just as his predecessor Richard Scudamore managed to round up enough votes 12 years ago, Masters sacrificed one idea to save the other. Just.
Premier League chief executive officer Richard Masters (Nick Potts/Getty Images)
So, from the start of next season, PSR and its “good” spending carve-outs, rolling accounting periods and upper loss thresholds are dead; long live the squad cost ratio (SCR) and its green and red thresholds, accounts confirmation tests and feedback loops.
Confused? Don’t worry, you are a long way from being the only one and we probably have another decade to get as familiar with SCR’s loopholes, quirks and unintended consequences as we are now with PSR’s.
In a nutshell, instead of trying to stop clubs from losing too much money every season, the league will now try to limit how much money they can spend on the product they put out on the pitch. This means clubs will be encouraged to spend only 85 per cent of their football-related revenues (money generated by their broadcast, commercial, matchday and player-trading activities) on the wages of their first-team coaches and players, amortised transfer costs and agents fees.
Confusingly, they will actually be allowed to spend up to 115 per cent on this stuff in a single season but it will cost them a luxury tax-style levy, which will be calculated according to how far over 85 per cent they go and then shared equally among those clubs that stay below the lower threshold. If they bust 115 per cent, it will cost them points.
I suspect some of you have a few questions. Can I suggest you take a look at this piece by our resident BookKeeper Chris Weatherspoon and then hurry back because this piece is about the how, who and why, as opposed to the what.
Back in 2013, the PSR rebels were Aston Villa, Fulham, Manchester City, Southampton, Swansea and West Bromwich Albion, with Reading abstaining.
Villa were coming off a then-record loss and were three years away from the ill-fated Tony Xia era, Fulham had just been bought by American businessman Shahid Khan and have gone on to lose more than £400million of his money, Southampton have changed hands, lost money and yo-yoed between the divisions, as have Swansea and West Brom. While Reading, struggling to keep the lights on in League One, were rescued from their disastrous Chinese owner earlier this year by another American takeover. Forget profitability, sustainability would have been nice.
Manchester City? They’ve been absolutely fine and there is nothing at all to see here.
Friday’s SCR refuseniks were Bournemouth, Brentford, Brighton & Hove Albion, Crystal Palace, Fulham and Leeds United. Fulham clearly do not like being told how much money they can lose but you might be wondering why the rest of them were so opposed to a rule that should restrain wage-inflation and theoretically, at least, stop the sovereign-wealth-backed clubs from spending whatever it takes to diversify an economy/get a population healthy/rebrand a nation (delete as you see fit).
For the three Bs, who are normally the league’s star pupils, it is a simple case of them preferring PSR.
As three of the league’s smaller “brands”, they have all lent heavily on smart recruitment and good coaching to make enough money on player-trading to avoid PSR bother. But that competitive advantage is now levelled out by SCR, which favours clubs with big stadiums and large commercial operations.
For example, player-trading profits are averaged out over a three-year period under SCR, and that will reduce this trio’s spending power next summer. OK, you could argue it’s a bit short-term of them to get upset about that and they will still be rewarded for being good at selling players over the medium term, but SCR will allow bigger, more indebted clubs to put better teams on the pitch than PSR did. That is a double whammy in terms of competitive edges.
Crystal Palace are not usually bracketed with the league’s data nerds but they have a small stadium, not much debt and an Eberechi Eze-sized shopping voucher to spend. They prefer PSR, too.
Steve Parish, co-owner and chairman of Crystal Palace (Zac Goodwin/Getty Images)
Leeds’ opposition to the rule is harder to fathom, as PSR has traditionally hurt newly-promoted teams because they are only allowed to lose £13million, not £35m, for any season spent in the EFL in the last three years. They are also in the process of expanding their stadium and see themselves as a commercial power in the Premier League. This is why all the other clubs, and the league, had them in the “undecided” camp going into the vote. Well, they decided and one day they may explain why they opted for PSR.
There were two other votes on Friday and you cannot fully explain how SCR got through without referring to the votes that sandwiched the day’s big decision.
First up at The Churchill was the phoney war: a vote, that was later described to me as “performative” by a spy in the room, on top-to-bottom anchoring (TBA).
Yes, you absolutely should go back to Chris’s piece to get the full WTF on TBA, but the short version is that it was a proposal to set a hard cap on how much any club can spend on their first-team squad by limiting it to five times the amount the previous season’s last-placed club got in central broadcast and sponsorship money. Southampton had the honour of providing the benchmark last season, earning just over £109million from the league to set a TBA cap of £550million.
Now, no club would have breached that figure last season or this. But Manchester City were in the ballpark and Chelsea would have been close without their Club World Cup windfall. So, TBA did, at least, have the potential to be a restraining factor at the sharp end of the table, which is why Arsenal and Manchester United said they did not like it, either.
Their argument, like City’s, was why would we handicap ourselves like this when Bayern Munich, Paris Saint-Germain and Real Madrid will not? To do so, they said (and yes, nearly every club got to say their piece on Friday), would damage the league’s status as the world’s best, something that would not help any of them.
For those of you wondering if Bayern, PSG or Real are currently smashing our brave, self-constrained boys in terms of squad-cost spending? No, they are not. And that is because all of these big beasts, like nine Premier League clubs this season, are already subject to UEFA’s more restrictive squad cost ratio of 70 per cent, as well as their own league’s financial rules.
And yes, that does mean that Crystal Palace voted against the Premier League’s SCR limit of 85 per cent, while operating under UEFA’s 70 per cent cap this season. But I digress.
There were two other decent arguments to vote against TBA. The first is the Professional Footballers’ Association had already made it very clear that they would sue the league if it was introduced for the not unreasonable reason that nobody would be happy about a rule that caps how much they can be paid, particularly if that cap is based on some other, less successful, company’s ability to pay their staff. If the threat of a legal fight with the players was not enough to put off clubs from going for TBA, three top football agencies sent a stroppy legal letter, too.
I suspect some of you are thinking the latter might have been an argument to vote in favour for TBA, but even clubs who want to take agents (and players) down a peg or two decided certain legal action was not worth TBA’s very theoretical competitive balance benefits.
Furthermore, the very clubs most likely to benefit from a bit of anchoring in the Premier League were more worried about the prospect of the English Football League applying TBA in the Championship, therefore neutering the impact of their parachute payments. Never, ever underestimate the influence of naked self-interest when it comes to decisions about what is best for football.
The upshot of all those concerns about TBA was the biggest defeat a Premier League initiative has ever received at a shareholders’ meeting: seven for, 12 against, with one abstention.
The latter was Burnley. Arsenal, Aston Villa, Everton, Liverpool and Sunderland were among those who backed the idea, with Arsenal’s vote in favour raising a few eyebrows around the room, as they have spent the last week or so hinting that they would vote against it.
Arsenal co-chairman Josh Kroenke and managing director Richard Garlick leaving the meeting (Ben Whitley/Getty Images)
But with TBA dispatched, a bridge magically appeared for seven clubs, including the Manchester-based duo, to forget their grumbles and get behind SCR.
Having settled the two big decisions, the third vote, on a new rule with the catchy title of sustainability and systemic resilience (SSR), was a unanimous tap-in. This measure, which requires clubs to have enough cash or available credit to meet all their bills in a given season, looks a lot like the Premier League’s attempt to tell the government that it really, really does not need independent regulation.
Whatever. The regulator is going to operate a licensing system that asks clubs these same questions anyway, so Premier League clubs will be extra sustainable and systemically resilient.
If that sounds like a duplication of effort, wait until I tell you about the differences between the Premier League and UEFA SCR regimes which mean each club’s regulatory compliance teams are going to be in far more danger of burnout than their players ever will be.
The league’s reporting period is based on each season, while UEFA uses the calendar year. UEFA do not average out player-trading profits and they let clubs put all their non-football stadium revenue in the debit column, while the Premier League only lets clubs claim credit for the profits from boxing matches, concerts and rugby games. There are a few more but let us leave a little bit of room for the creative accountants to work their magic. It will give me something to write about next season, too.
All of that said, though, a win is a win. What could have been a complete humiliation for the Premier League’s senior executives, not to mention a waste of three years’ of work on these proposals, was averted. The Premier League is on a similar page to UEFA, PSR, which was a pretty blunt tool, has been retired and the democratic process has been observed.
Like SCR or loathe SCR, the clubs all know what is required of them now. After all, the system has been operating “in shadow”, behind PSR, for over a year.
Anchoring? Perhaps it was just a sprat to catch a mackerel — Masters certainly looked like an angler who had finally had a tickle as he bid the journalists waiting outside the meeting a Merry Christmas, which seems a good note on which to wrap this piece up.
