The Premier League and accountants

In decades past, accountancy was a sleeping partner to the football industry. But that has all changed. We discover below how accountancy and the Premier League have come to meet in a brave new world.

Now the Premier League is up and running again, it is apparent that the financial background to the game has taken on new shades of importance. It was briefly started by Derby County aiming, but ultimately failing, to introduce their own amortisation policy in respect of player’s contracts (essentially spreading the cost of the contract over a defined period), this would have enabled them to keep their annual costs down when faced with losses allowable under Financial Fair Play. Not long after this, Chelsea aimed to exploit a loophole by giving new players extended contracts, cue six, seven, and eight year contracts which allowed carrying value (i.e. the contract value) to be amortised across that period; step in UEFA who having seen it decreed that from the summer of 2023 the maximum amortisation period, regardless of contract length, was five years, quickly ratified by the Premier League in December 2023.

Following this, Financial Fair Play was remodelled into what is now referred to as Profit and Sustainability Rules (PSR), but essentially still restricting Premier League clubs to rolling losses of £105 million over three years, being £5 million in trading losses rising to £35 million (each year) with owners’ new investment (typically through equity injection). Of the current Premier League teams only Chelsea and Everton have needed to avail themselves of the maximum new owner investment. We have seen closer attention paid to PSR by Premier League officials, who now routinely want to see each club’s budget, for meeting PSR, for the next two seasons. And bear in mind any moans and groans about the impact of exceptional COVID-19 related costs will have fallen away by the end of season 2024-25.

In season 2023-24 matters began to come to a head, with Everton arguing rolling losses of £87 million but the Premier League instead ruling that adjusted losses were actually closer to £124 million, breaking the golden £105 million rule. A ten-point deduction followed, reduced to six points on appeal, itself followed by a separate further two-point deduction for spending for the three years to the end of the 2022/23 season. This effectively cost the club three league places, or roughly £9 million in merit payments. A similar fate befell Nottingham Forest, who suffered a four-point deduction but luckily no impact on their final league standing.

These points deductions have heralded in a new brave world, where every Premier League club now closely monitors their spending habits for fear of points deductions and potential impact on either qualifying for European competitions or dropping into the relegation zone (and the massive financial repercussions of falling into the Championship). Hence, we have seen forced sales such as Douglas Luiz from Villa (to Juventus), and Mason Mount and Connor Gallagher (both from Chelsea to Man Utd and Atletico Madrid respectively). As Chelsea academy prospects, the latter pair’s sales were able to be recorded in Chelsea’s accounts as pure profit against one accounting period - Chelsea made £112 million in 2021-22 alone just from selling academy players. In the transfer merry-go-round, it is common for clubs to now declare that it cannot buy before it has sold players, with owners no longer prepared, or able under PSR, to bankroll the club at any cost.

Coupled with this are new spending restrictions being trialled in 2024-25 which were approved by Premier League members in June with the only dissenting voices being the two Manchester clubs and Aston Villa. It is of course high-profile news that Manchester City are currently defending themselves against 115 charges, including alleged disguised payments to former managers and players, excessive related party payments dressed up as legitimate commercial income (between 2009 and 2018) plus an alleged failure to co-operate with the Premier League’s investigations, all charges rigorously denied and defended by the club.

But the landscape has been redrawn, and the door has opened on a new era of running clubs – and whisper it quietly, accountants are now almost as important off the pitch as the players on it. It will now be the norm for clubs - especially given the forecast plateauing of Sky broadcasting revenues over the next decade - to look to balance the books each season, and each transfer window, to avoid falling foul of the PSR and spending guidelines.

For more information, contact Martin Chapman or your usual Crowe contact.