The Premier League’s Profit and Sustainability Rules (PSR) are having a massive impact on its clubs’ activity in this summer’s transfer market but what are they and how do they affect Manchester City?
Adapted from the initial Financial Fair Play rules, PSR was introduced to the Premier League in 2013 in an attempt to prevent clubs from spending beyond their means in the pursuit of glory.
The rules are enforced in the name of competitive balance but have done little to stop Manchester City’s dominance after they became the first side ever to win the English top division four times in succession last season.
Instead, PSR has come in for heavy criticism from fans and pundits alike for having the exact opposite effect and forcing smaller clubs to sell their star assets to avoid breaching them.
That critique often ignores the fact those smaller clubs also spend millions upon millions on transfers but frustrations remain when clubs like Chelsea can seemingly spend what they want without issue.
PSR can often be an absolute minefield to navigate but MCN have got in touch with TBR Football’s finance expert Adam Williams to explain it all, including how it could impact City.
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What are the Premier League’s PSR rules?
Adam: “The Premier League currently allows clubs to post financial losses of £105m over a rolling three-year period.
“The one caveat here is that the bulk of the losses need to be covered by an owner, which obviously isn’t an issue for City.”
When is the Premier League’s PSR deadline?
Adam: “The Premier League’s PSR deadline runs for the three years up until the end of a club’s financial year.
“For Man City, this is 30th June, just as it was for Villa, Everton Newcastle etc when they were scrambling to get within the loss limit before the assessment period rolled over.”
Which clubs have broken PSR rules?
Adam: “So far, Nottingham Forest and Everton are the only clubs definitively found to have broken PSR rules.
“Leicester City meanwhile have been charged over an alleged breach in 2022-23, while Chelsea are being investigated over alleged FFP-related offences that pre-date the Todd Boehly era.
“Seven of City’s 115 charges related to the raw financial aspects of PSR. The remaining charges are to do with failing to provide accurate financial information and co-operate with the investigation.”
What is the punishment for breaking PSR rules?
Adam: “As far as we can tell, the punishment for breaching PSR isn’t an exact science.
“From the cases of Everton and Forest, we know that a points deduction and fine is de rigeur.
“But while the severity of the punishment will correspond with the scale of the breach, there are other less quantifiable factors that come into play too, such as co-operation with the investigation.
“Then there’s the appeals process, which, as we’ve seen at Everton, can soften the blow if not eliminate it entirely.”
How will PSR impact Man City?
Adam: “Leaving aside the Premier League case for a moment, there are barely any teams who are as comfortable under PSR as City.
“PSR headroom is tied to revenue. And Man City generated £712m in revenue at the last count, the highest in Premier League history.
“Most analysis I’ve seen shows that City have PSR capacity of about £300m. That essentially means they could afford to post a loss of £300m next season and still comply with PSR.”
Have Manchester City broken PSR as part of the 115 charges?
Adam: “At the risk of sitting on the fence, we simply cannot say at the moment.
“The Premier League claims that City breached Premier League PSR from 2015-16 to 2017-18 and UEFA FFP rules from 2013-14 to 2017-18.
“City insist this isn’t the case.
“But until we have the independent commission’s verdict, which incidentally will cover far more than the numerical PSR compliance, we can’t say either way.”
Which costs aren’t involved in PSR?
Adam: “There are a number of costs that are exempt from PSR, most of which related to infrastructure and good causes.
“Investment in the training ground or stadium facilities, such as City’s £300m expansion project at the Etihad, is exempt.
“Giving to charity or community projects is PSR-deductible too, which for a club like City will easily run into the seven-figure bracket.
“You can also take off a few million in expenditure on the women’s team, which is also exempt.”
What is amortisation?
Adam: “Amortisation is an accounting term for writing off the value of an intangible asset over a set period.
“In football terms, an intangible asset is a player. The set period of time is their contract. The value of the asset is their transfer fee.
“If you sign player X for £100m on a five-year deal, their value in the books will show up as £100m in year one, £80m in year two, £60m in year three and so on.
“Why is this relevant for PSR? Because profit on player sales is calculated based on a player’s book value.
“So if you sell player X for £100m in year three of his contract, when his book value is £60m, that will show up in your PSR calculation as a £40m profit.”
UEFA financial rules
Adam: “Uefa’s financial rules are a little different to the Premier League’s.
“Their new system imposes a loss limit of €60m over a three-year period, with an additional allowance of €30m if a club is adjudged to be in a robust financial state.
“Man City certainly meet that threshold, so their allowable loss limit is €90m over a rolling three-year period.
“There is also a new squad cost rule that will eventually limit clubs to spending 70 per cent of their turnover on wages, transfers and agent fees.
“That system is being phased in and the threshold is currently at 80 per cent. It will be 70 per cent from 2025-26.
“There are also controls around overdue payments to creditors and solvency. But again, City’s financial position means this doesn’t really concern them.”
Premier League squad cost control
Adam: “From 2024-25, the Premier League are trialling a squad cost control ratio similar to UEFA’s system on a shadow basis.
“Essentially, this means the rule is not being enforced but rather the Premier League are trying it on for size.
“It could then be introduced on a binding basis from 2025-26, although this has not yet been confirmed.
“The system is essentially the same as UEFA’s cap, except the limit stands at 85 per cent of turnover rather than 70 per cent.
“City are comfortably within both the Premier League and UEFA’s threshold based on the figures in their most recent set of accounts.”
