Trevor Watkins, global head of sport at Pinsent Masons and Former director and chairman of AFC Bournemouth, discusses why changes in Premier League football’s financing rules cannot afford to ruin the sport
With the Christmas period behind us, the traditional festive season of football fixtures – once a full list on Boxing Day but now almost a fortnight of top games – allows us all to put turkey and pudding to one side, and enjoy this tradition. Yet 2025 may well be looked back on as simply a prelude to further seismic changes within the game that will impact on the results of the teams we follow much more so than ever before.
The advent of the new Independent Football Regulator is gathering considerable momentum. It has recently set out how owners and senior executives will be vetted, monitored and penalised, should they break the rules the regulator will be putting in place for the better sustainable operations.
In anticipation, leagues within English football have been making their own changes to their rules ahead of what the IFR may tell them to do. One of the most significant developments has been the introduction of new Premier League rules, voted on by clubs last month with 14 in favour. They are tests relating to finance nattily entitled the Squad Cost Ratio (“SCR”) and Sustainability and Systemic Resilience (“SSR”) tests.
Squad Cost Ratio vs SSR
The two elements address different aspects. The SCR is concerned with on-pitch finances; it states a club will be limited to incurring on-pitch costs of no more than 85 per cent of their football related revenue adjusted to take into account net profits or loss from player sales. Costs include player wages and also those of the head coach and payments made to agents. Other apparent “football” costs such as payments to other coaches, for administrative or commercial personnel are not included.
“Football related revenue” basically includes all monies received by a club relating to football, whether from league led deals on media rights or other income generated by the clubs such as sponsorship, ticketing or from smart use of their stadium. The more successful a club is at generating revenue the greater the sum it can spend, without sanction on football related costs. Something, for example, that would be significantly impacted by the payments now being made pursuant to the Fifa Club World Cup and the boost it gives any competing side.
The SCR regime is not interested in what clubs do with their revenues or how they spend them elsewhere – other than on-pitch “football” costs, nothing else is taken into account. In introducing this, the Premier League did not converge with a similar Uefa rule which limits spending by any club in European competition to only 70 per cent of a club’s total revenue.
Test for Premier League
Designed to bring in greater financial responsibility, sanctions can be applied if a club breaches the 85 per cent threshold. Rather than have a hard cut off, clubs will be allowed to go above the threshold by up to 30 per cent (as in 115 per cent of football revenues) without immediate fear of sporting sanction. It is likely that a fine would arise at 85 per cent to 115 per cent and potential points deductions for breaches above this.
Alongside this, the SSR regime tests how clubs are projecting short, medium and long-term financial sustainability. It involves a working capital test for short-term cash resourcing across a season, liquidity test which considers two seasons and also the ability to handle any financial shocks that may arise (for example if the club were to plummet in form), and maintain long-term financial health.
If the Premier League is concerned with a club’s financial projections it can address non-compliance by, “…voluntary spending limitations, cash injections, or the rebalancing of their debt/equity position. Where a club does not proactively take action to remedy its financial position and/or it has a consistent track record of unsustainable activities, the Premier League will intervene through enhanced monitoring, and other sanctions (unless the Premier League Board considers that exceptional circumstances apply).”
Premier League change
Given developments in other leagues where media rights have collapsed, for example in France, or where issues have arisen with key sponsorship agreements then these tests are likely to be highly relevant to how adept owners are at managing club financing. I am seeing a huge increase in our work in advising on the buying, selling and financing of teams, particularly from access to waves of private capital across sport. These changes make that only likely to increase.
So, who will win, draw or lose from these new rules? One might point to lawyers – I’d never have expected 25 years ago that many firms, including my own, would be immersed in handling challenges to, and defending charges brought against, the rules of football; cases that arguably impact on where a club finishes in any given season rather than simply results on the field of play. It’s not the first time that changes have been made, something that I’ve experienced throughout my 25 years-plus having owned AFC Bournemouth on behalf of the town and operated it for five years working subsequently across a very wide range of transactions for owners and funders alike across all leagues. We were one of six clubs choosing to vote against the new rules.
The new rules arguably favour larger teams that can attract significant crowds and drive global commercial revenues. As the revenues increase, for example with the Fifa Club World Cup, then those clubs that do not have such opportunities but have relied more heavily on developing extensive scouting and talent identification processes may find themselves slipping behind. There again, having money does not necessarily mean that success will follow.
The reality
With Uefa and now the Premier League also preventing the selling of assets between the companies within a group, clubs will be under greater scrutiny. Chelsea and Aston Villa were both found to be in breach of Uefa cost controls and received substantial financial penalties.
Considering the SCR system, clearly the largest clubs will be best placed to demonstrate that their revenues are sufficient. Given the gap between the top four and other teams, those falling outside of that group will arguably struggle to make up that gap.
Ultimately however positions in the league will be determined by results on the pitch.
Having seen one of the most epic games in the Premier League in December where Manchester United tied 4-4 with AFC Bournemouth, this competition continues to be outstanding. The rule changes notwithstanding, the game will still provide huge entertainment and surprise, upset and memories.
Football is a huge business. It attracts significant investors and funders. As one of the world’s largest sectors sport and associated entertainment and those owning or financing will likely welcome increasing restrictions. The acid test of their success, however, will be in ensuring they do not diminish the element of surprise and preserve the expectation and hope that we all have not just during this period, but any day of the year for the teams we support.