Breaking the bank or building the game? The tightrope walk of Premier League football finance

Recent months have been eventful for those interested in English football, finance and accounting, with unprecedented developments and excitement off the field. Everton FC received a 6-point deduction in the English Premier League (“PL”)[1] for the alleged breaches of Profit and Sustainability Rules (“PSR”).[2] Everton FC and Nottingham Forest FC have been charged for breaches during the 2022/23 seasons[3] and Manchester City FC have also been charged with 115 alleged breaches of PSR.[4]  There is also an investigation into Chelsea FC’s funding under its previous ownership.[5]

All of these off-the-pitch events share a common theme: breaches, or alleged breaches, of the PSR. Despite financial regulations not being new to the PL, the spike in financial breaches is unsurprising given the ever-increasing costs for clubs to compete. Potential reasons for the increase in financial breaches include the increases in league-wide investments in squads and footballing infrastructure,[6] unchanged limits of the maximum permitted losses for over a decade,[7] and the looming government mandate for an independent regulator.[8]

In this article, the authors analyse the current Premier League PSR and suggest three amendments to the current regime to deal with issues that arise from creative accounting practices and misaligned incentives.

Outline:

• Summary of the financial regulations applicable to a PL club
• Profits on their own are not an indicator of financial health
  • How clubs use creative accounting to meet PSR to mask financial reality
  • Accounting for the amortization of a player’s contract
• The unintended consquences of financial regulations on Transfer strategies
• Regulations should be clear and resulting penalties should be predictable
• Recommendations