UEFA’s PSR regulations are a fair bit stricter than the Premier League, as the allowable losses are much smaller, even though these have been increased over the years, while clubs also have to contend with the new squad cost control ratio.
Aston Villa
In contrast to Arsenal who appear to meet the criteria, the
authoritative Swiss Ramble thinks that Villa have missed UEFA’s PSR target by a
country mile. By his reckoning, their
adjusted PSR loss for the 2-year monitoring period was a hefty £140m, using
figures provided by the club itself for allowable deductions. That would mean a
€161m PSR loss, which would be a cool €100m over the allowable target, even
though this was boosted by the €55m allowance for an equity contribution.
It very much looks like Villa have also breached the new
squad cost control limit, though the magnitude of the over-run depends on how
the 13th month in their accounts is treated.
This has been tacitly admitted by the club, as Villa
basically ignored the UEFA rules in the accounts, while acknowledging the
Premier League’s PSR.
It also seems clear that Chelsea will breach UEFA’s
financial sustainability rules, as these do not allow a club to benefit from
asset sales to other group companies.
This means that they have to exclude the exceptional £275m
gain they made from such transactions. In this way, their accounts included
£77m in 2022/23 from selling hotel buildings, followed up with £198m profit the
next season after selling their women’s football team.
Chelsea
Chelsea have effectively admitted a breach, stating that
they have “entered into discussions with UEFA regarding mitigating factors
affecting the regulatory submissions”.
The assessment for the 2025/26 season will be boosted by
returning to European competition, especially as they won the Conference
League, plus their participation in the money spinning FIFA Club World Cup.
Given their huge operating losses and UEFA’s unwillingness
to accept asset sales, it’s difficult to see Chelsea quickly complying with
their financial regulations, notwithstanding the club’s tried and trusted
ability to make a lot of money from player sales.
Liverpool
One club that has absolutely no problems with UEFA’s
financial regulations is Liverpool. For example, their £66m loss for the 2-year
monitoring period up to 2023/24 turned into a £20m profit after allowable
deductions. In fact, their 62% squad
cost control ratio was not only comfortably within the 80% target, but also a
fair way below this season’s 70% limit.
Manchester City
Somewhat ironically, given Manchester City’s numerous issues
with UEFA in the past, the Swiss Ramble reckons that they are now miles better
than target. They already posted a £154m
profit for the 2-years up to 2023/24, which was boosted by £88m allowable
deductions, giving a staggering £242m PSR profit. That is equivalent to €280m,
which was a massive €305m better than the €25m acceptable loss.
Newcastle United
As Newcastle did not play in Europe last season, their
2023/24 figures were academic, but the accounts did include an interesting
table listing the differences between the club’s figures and those to be used
in UEFA’s calculation.
The club said that it would have needed to increase reported
losses by £12m in 2022/23 and £27m in 2023/24, mainly to apply fair value to
player sales and to increase player amortisation so that registrations are
written-off over a maximum of five years.
Last season was adversely impacted by the absence of
European competition, though the club said that there would be significant
growth in commercial income, including the much more lucrative Adidas kit
supplier deal. Nevertheless, the
expectation is that Newcastle will overall struggle to comply with UEFA’s
regulations.
Nottingham Forest
Forest are in a similar situation to Newcastle, as they did
not need to submit an assessment to UEFA for 2023/24, but the Swiss Ramble’s
model suggests that they would have been within the limit by €11m.
Tottenham Hotspur
Although Tottenham only qualified for Europe after making
the most of their opportunity in the last chance saloon, aka the Europa League
final, they will absolutely cruise past UEFA’s financial regulations. Their reported loss for the 2023/24 two-year
monitoring period was a hefty £121m, but they benefited from enormous allowable
deductions of £187m, driven by £141m depreciation, giving them a £66m PSR
profit.
Football earnings rule
In summary, the Zurich-based guru thinks that the vast
majority of English qualifiers were fine for UEFA’s football earnings rule. However, it seems clear that both Chelsea
and Aston Villa missed the 2023/24 target by a long way.
Manchester United should have been OK for the 2023/24
assessment, though it would have been a close run thing.
Crystal Palace should be OK, so long as they can answer the
multi-club ownership question to UEFA’s satisfaction. However, Nottingham Forest might have a few
problems in complying, given the steep reduction in player trading profits last
season.
Make me pure, but not
yet
The most likely outcome is that Chelsea and Villa will end
up making a deal with UEFA, as many other clubs have done in the past, with a
3-year or 4-year settlement agreement. This
would effectively buy them some time, so long as they are fully compliant at
the end of the agreement.
Of course, they would also have to pay a fine, but looking
at the UEFA penalties announced in September 2022, the payments are not overly
onerous, even for clubs that were far above the maximum allowed loss,
especially as only a small amount of the settlement is paid immediately with
the remainder conditional on future compliance with targets.
As an example, Paris Saint-Germain were fined €65m, but only
had to pay €10m immediately with the remaining €55m conditional, depending on
future compliance with targets.
Chelsea and Aston Villa, who are both backed by very wealthy
owners, might consider such a penalty to simply be another cost of doing
business and very much worth paying if it allows them to build a squad capable
of challenging at the highest levels.
Looking at the differences between the financial regulations
operated by UEFA and the Premier League, the stylised facts as is said in
economics are:
- The
Premier League’s regulations are weak (as they allow all sorts of creative
accounting), but the punishment is tough (as they have applied some points
deductions).
- UEFA’s
regulations are the exact opposite, as their regulations are tough
(smaller allowable losses and exclusion of inflated profits), but the
punishment is weak (very largely in the form of settlement agreements and
small fines).
The focus of the many discussions about PSR has
understandably been on the Premier League’s regulations, but leading clubs also
have to consider UEFA’s financial sustainability framework.
This has become increasingly important with almost half of
England’s top flight competing in Europe next season.
UEFA’s regulations are similar to those applied in the
Premier League, but they are far from identical, so there will be even more
work for the accountants to balance the various requirements (cue the world’s
smallest violin).
Our estimates suggest that most English qualifiers should be
fine, but it seems reasonably clear that a few clubs will have problems.
We will know for sure very shortly, but the smart money is
on Chelsea and Aston Villa breaching the 2023/24 test, while Newcastle United
and Nottingham Forest will probably face challenges in the next assessment.
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