Impact of PSR on ownership

What is PSR?

Essentially, the PSR ensure that Premier League clubs can have made a loss of no greater than £105m across the previous three seasons.¹ Clubs can technically only lose £15m of their own money (with anything above that up to the £105m figure being guaranteed by “Secure Funding” from its owner (as such term is defined in the Premier League Rules)).² The £105m figure is also subject to a reduction of £22m for each season in the last three seasons that the club in question was not competing in the PL.³

In June this year, however, Premier League clubs agreed to trial an alternative league-wide financial system next season alongside the existing PSR framework. This consists of squad cost rules (SCR) and top to bottom anchoring rules (TBA). SCR will regulate on-pitch spend to a proportion (85 per cent) of a club’s revenue and net profit/loss on player sales and TBA is a league-level anchor linked to football costs based on a multiple of the forecast lowest central distribution for that season. The SCR mirrors the approach introduced by UEFA in 2022, which restricts clubs’ spending on player and coach wages, transfers and agent fees to 70 per cent of club revenues⁴ (although the gradual implementation will see the percentage decrease from 90 per cent in 2023/24 and 80 per cent in 2024/25 to 70 per cent from 2025/26 onwards).

Cost capping is becoming increasingly common across numerous other sports, too.  We have previously analysed how the F1 cost cap operates in practice following the Fédération Internationale de l'Automobile’s finding that Oracle Red Bull Racing had breached the applicable regulations in 2022. Equally, salary cap restrictions are commonplace in US sports, particularly in the NBA, NHL and the MLS.⁵

How have Premier League owners reacted?

Despite achieving broad support from Premier League clubs, there has also been opposition to the PSR and in particular the introduction of the SCR and TBA. It was reported in April, for instance, that Manchester United would push back against the TBA in particular, believing that such a model limits the ability of clubs at the top of the division to grow. The Premier League, however, indicated its view that the TBA is “designed to be a pre-emptive measure to protect the competitive balance of the Premier League” and that “it is intended not to have an impact unless significant revenue divergence of clubs occurs”. It can be argued that the competitive balance of the Premier League is a key driver behind its success, especially when compared to other big European leagues, where the bigger clubs have traditionally received a greater proportion of television revenue than in England. 

More recently, it has been reported that one of the Aston Villa owners, Nassef Sawiris, is contemplating bringing a formal complaint against the PSR on the basis that it is “anti-competitive”. In June, Aston Villa reportedly attempted to increase the maximum losses allowed over a three-year period from £105m to £135m and their opposition to the existing framework seemingly stems from the fact that the PSR arguably restricts upward mobility and investment into clubs and has the perverse effect of cementing the status quo, rather than making the league more competitive.

What does it mean for ownership?

The increasing focus on financial sustainability within football, coupled with the severity of the punishments being handed out by the Premier League for lack of compliance, will undoubtedly have an impact on the ownership landscape within Premier League.

Given the restrictions imposed and the fact that new owners no longer have unfettered power to spend their money improving the playing squad, we may see a reduction in “trophy asset” ownership across the Premier League and more commercial buyers entering the playing field.

It could also provide an explanation as to why a data-driven approach from owners has become more popular in recent years as success in football may increasingly depend not on how much money is spent in the transfer window but rather on how wisely that money is spent. 

Whilst there are arguments on either side about both the fairness of the PSR and whether it achieves its intended consequence of elevating the competitiveness of the competition, it is clear that the PSR promotes financial sustainability, which in turn should generally increase the chances of a club being profitable. This would be a welcome benefit for owners of football clubs, who have typically absorbed the losses that their football clubs make, and may lead to higher valuations of football clubs going forward as they become more profitable.

This trend has already been seen within F1, where valuations of teams have risen dramatically in the past few years. Indeed, a study conducted by Forbes in November 2023 estimated that the ten F1 teams were worth an average of US$1.88bn, which is a 276 per cent increase from the US$500m average when Forbes last conducted its valuation in 2019. Toto Wolff, who holds a stake in Mercedes F1, told the Financial Times that F1 is “not a trophy investment anymore” and that there is now “economic and financial rationale for sponsors, investors and team owners”. We may see a similar trend within football as clubs change their approach to spending to comply with the PSR.