FootBiz newsletter #128: Finding the loopholes in the Premier League's new financial rules

You might be expecting us to tee off on Friday’s nonsense in Washington D.C. in the intro today but the reality is probably that the less we say about the World Cup draw, the better.

The one thing we’d note is how striking it was to see those who aren’t as miserably engrossed in the football business as we are being shocked and appalled by the whole circus, with the peace prize charade waking a few more people up to the professional sycophancy that has become Gianni Infantino’s entire life (Putin for 2018, Sheikhs for 2022, Trump for 2026 and now MBS for the next decade).

No, instead let’s try and keep it light by talking about financial rules in the Premier League.

Or, more accurately, how to find ways around those rules.

One of the major issues with the old Profitability and Sustainability Rules (PSR) were the unintended consequences behind the (presumably) well-intended regulatory regime. Nobody, surely, wanted Premier League clubs to be selling off their women’s teams or their academy products in order to bring in expensive foreigners on seven-year contracts but it was, ultimately, the result.

Of course, those clubs could have simply not bought that extra left-back but asking English clubs to not spend excessively appears to be like asking the wind not to blow.

Having lived through the bizarro world of MidCo and TopCo selling pieces of the same club to each other, we are now trying to get ahead of the relevant oddities of the new regime in the Premier League and anticipating the loopholes that clubs will look to exploit in the Squad Cost Ratio (SCR) regime before they begin to do so.

And with that goal in mind, FootBiz spoke to a number of different people from different parts of the game to see what they expected to happen.

SCR is defined by the Premier League as “a financial regulation that limits Premier League clubs’ on-pitch spending to 85% of their football-related revenue and net profit/loss from player sales.”

But our first loophole is obvious shortly afterwards.

“All contracted players and head coaches are included. Staff outside of the playing squad, such as administrative or commercial personnel, are excluded – as are assistant coaches and other coaching team members.”

One club executive expects coaching staffs to get bigger and more… familial.

“Carlo Ancelotti had his son on his coaching staff and you see that in American sports too, but prepare for something similar here as those salaries can become another way to remunerate managers.”

"It does incentivise spending loads of money on loads of other people,” said a different owner. “Even if it’s on a coach’s wife to help offset salaries there that are counted by SCR.”

There is a vague precedent for this.

When Derby County wanted to sign Tom Ince but didn’t have the FFP headroom, they took advantage of the fact that rules didn’t factor in academy costs and hired Ince’s mother, Claire, as an academy scout on £700,000 per year while giving the player a lower wage. Former Toulouse president Damien Comolli, now of Juventus, also hired his wife as head of football strategy in a similar move.

Squad cost calculations under SCR cover player and head coach wages, agents’ fees and amortisation or impairment of transfer fees.

So many people expect some shenanigans around agent fees as well.

“The fact that it includes agent fees, I’d suggest will send a lot of agent fees underground in theory… where they will get agents to agree to be paid via another way be that consultancy that falls outside the limits or another method,” said one friend of FootBiz.

Another noted that it may push some agents into more retainer-like relationships with clubs, falling outside of the SCR formula, to help offset deal-specific payments.

“Agents tend to be pretty flexible about how they get paid as long as they get paid. They’ll find a way.”

Additionally, an expert in football finance noted that there is “scope for manipulation of impairment losses on players to accelerate amortisation if a club has headroom in any given year.”

While there were a couple of other individual concerns flagged by different people, including profits from non-football events and concerts, the most common answer was clear.

The Premier League will no longer make any adjustment anymore for related party transactions, having done so previously. UEFA’s regulations do, however, make fair value adjustments for such deals.

That opens up a can of worms on the sponsorship front, where the Premier League and Manchester City duelled in court, but also in terms of player transfers.

“The related party stuff is completely f****d,” opined one C-suite executive.

“Newcastle and Manchester City must be licking their lips. Chelsea’s owners are so well connected that they’ll surely be able to inflate some deals… even if they haven’t got a shirt sponsor.”

Another club owner invoked the BlueCo multi-club group as an example of how the non-adjustment of transfer fees will be open to abuse.

“I would suggest that Chelsea and Strasbourg — for example — are extremely incentivised to sell a player from Chelsea to Strasbourg for an extremely unfair fee, for example a £2m player for £20m

“The Premier League will not look at that, and count it as £20m. UEFA will look at it and move it down to £2m which means it’s great business for Chelsea in terms of avoiding a luxury tax.”

In practice, of course, UEFA has also shown a willingness to settle with clubs. Which means that if clubs playing in European competitions can inflate numbers to bypass the Premier League rules, but still run afoul of UEFA’s, there’s likely a way to buy yourself out of trouble. And if you’re not playing in Europe, it’s all gravy.

Which might be why Steve Parish, the Crystal Palace chairman, didn’t even require anonymity to tell The Athletic that the south London club is looking to buy an affiliate elsewhere to get around the new SCR rules that he voted against.

“This is going to drive people to multi-club ownership. If you have one ecosystem that has to adhere to desperately difficult rules, why wouldn’t you go and get another club that lives in an ecosystem that doesn’t have any rules?

“We may look at getting a second club with these rules. It’s something that probably we’re going to have to do.

“With these new rules, selling is going to become a massive thing,” he added.

So there may be some unintended consequences we haven’t thought of, but it would appear that — unsurprisingly given the hyper-competitive nature of elite sport — that the Premier League clubs have already dedicated themselves to finding the loopholes in the new rules.

We’ll be tracking how successful they are at doing so.

As ever, thanks for subscribing, reading and replying.

Table of Contents

• Paramount vs Netflix for WBD assets

• Ipswich wangle eye-watering valuation

• World Cup ticket prices go wild

• Apollo invest in Wrexham

• Evans quits Man United role

• Spurs bring in new commercial chief

• Sala compensation hearing begins

• M&A Murmurs

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