Navigating the Premier League’s profit and sustainability rules — new loopholes explained

The financial landscape of English football has evolved significantly since the introduction of UEFA’s Financial Fair Play Regulations in 2011 and their subsequent Premier League descendants — the Profit & Sustainability Rules (PSR). Since then, clubs have been under intense pressure to not only compete for the highest honours but also ensure that their books balance in the process. 

Here, Anthony Grogan and Eleanor Green from our sports team explain how PSR actually works and explore the most recent means of navigating it, including new loopholes like ‘swap’ deals that took place between some Premier League clubs before the 30 June accounting deadline.

What is PSR?

In its simplest sense, the PSR aims to limit the losses that clubs can incur over a given period and (more broadly) ensure the financial sustainability of competitions, leagues and clubs. UEFA and the Premier League enforce these rules through a strict regime of financial monitoring and (where necessary) sanctions.   

The PSR can be found in Section E of the Premier League Handbook. Similar guidance for the rest of the English Football League (EFL) can be found at Appendix 5 of the EFL Handbook. 

Premier League clubs under PSR must — by 31 March each year — hand over their P&L account and Balance Sheet. Each club has a ‘PSR Calculation’ which, in its simplest terms, is its adjusted earnings before tax, amalgamated over a rolling three-year period. 

We say ‘adjusted’ as clubs are allowed to deduct from their PSR Calculations any costs which relate to: 

• The depreciation of tangible fixed assets or amortisation/impairment of intangible assets.
• Women’s football expenditure.
• Youth development expenditure.
• Community development expenditure.

If this calculation results in a loss, there are varying levels of intervention that the Premier League can exercise. If the loss is under £15m, it will often simply make sure that a club can meet its debts. For losses over £15m, the Premier League will require a club to cover its loss with ‘secure funding’, which must be an equity investment, rather than an owner’s loan. The Premier League may also further scrutinise a club’s accounts, seeking future projections. 

The breaking point for losses under the PSR is £105m. Any calculation over this will be held to be a breach of the rules. Offending clubs will be referred to an independent commission for a hearing and potential sanction. In theory, there are few limits to these sanctions, which can range from an unlimited fine to a points deduction or even expulsion from the league.

 

Associated party transactions and amortisation

It’s therefore in every club’s interest to avoid the scrutiny of the Premier League and/or any independent commissions. To achieve this, clubs have developed innovative accounting practices to limit the losses in their yearly calculations. 

Perhaps the most notable of these is ‘Associated Party Transactions’ (APTs). This is where clubs engage in deals with organisations that share the same ownership. The transaction could involve a lucrative sponsorship deal or — if the related party is another club — even a player transfer. 

Clubs have also been known to take advantage of the Premier League’s amortisation allowances for PSR calculations. A unique quality of football clubs — and most sports franchises in general — is that their employees (or, more specifically, the values of incoming players) are seen as assets on their balance sheets. These values are then amortised over the length of the players’ contracts. This has often led clubs to sign players on unusually long contracts — sometimes up to eight years — thereby extending amortisation periods and reducing the annual impact of transfer fees and the value of contracts on financial statements.

The Premier League, to its credit, has demonstrated an ability to respond to these developments. In 2021, rules aiming to curb APTs were introduced, requiring all clubs to prove that their commercial dealings represent fair market value. Further tightening of these rules was agreed on by a majority of clubs in February 2024 (which has led to a recent legal challenge by Manchester City). Similarly, in December 2023, the Premier League cracked down on clubs’ amortisation tactics, capping the period over which a player’s transfer fee can be spread in clubs’ accounts to a maximum of five years.

Academy player ‘swap deals’ — a new loophole

Since youth development expenditure is deductible from a club’s PSR calculation, the sale of academy players has become especially advantageous to clubs as they generate ‘pure profit’ on their balance sheet (from which no preceding transfer fees are required to be deducted). However, this practice has drawn significant criticism, with the PFA’s Chief Executive Maheta Molango labelling it “nonsensical”.

In recent times, this has become increasingly prevalent, with numerous transfers or ‘swaps’ of academy players occurring between a handful of Premier League clubs, particularly in June this year — just before the PSR accounting deadline. 

Aston Villa, for example, purchased Chelsea’s left-back Ian Maatsen for £37.5m with Chelsea, in exchange, acquiring Villa’s 18-year-old midfielder Omari Kellyman for £19m. 

Impact on clubs’ balance sheets

To illustrate the impact of this type of swap deal on a club’s balance sheet, consider a hypothetical scenario. 

Club A has a former academy player valued at £12m, while Club B has a former academy player valued at £16m. There’s nothing preventing these two clubs from agreeing to sell these payers to each other for £28m and £32m respectively. By doing so, both clubs can record profits of £28m and £32m on their accounts, instead of the original £12m and £16m valuations. The additional cost of acquiring these players is then spread out over the contract duration (typically five years) through amortisation.

In summary, if two clubs agree to sell players to each other — especially homegrown academy players — this could provide them with a substantial financial boost and a way to make sure that their balance sheets are compliant with PSR.

It’s therefore unsurprising that clubs are using this ‘loophole’ to generate as much profit as possible, as quickly as possible to balance their books.

Premier League reaction 

It’s understood that the Premier League has written to all 20 clubs, warning them that such transfers will be closely scrutinised. In this letter, the Premier League reportedly warned clubs that in situations where the selling club has received an inflated amount for a player in a transaction not considered to be conducted at arm’s length, the selling club would be required to return the amount in excess of the player’s fair market value back to the buying club. 

Additionally, clubs have supposedly been reminded that their officials and directors must remain alert to their wider legal and regulatory obligations regarding financial practices and the consequences of non-compliance. 

Innovative loophole or cause for concern? 

Rule B15 of the PSR states as follows: 

“In all matters and transactions relating to the league each club, official and director shall behave towards each other club, official and director and the league with the utmost good faith. For the avoidance of doubt… it shall be a breach of the duties under this rule to act dishonestly towards the league or another club; or engage in conduct that is intended to circumvent these rules or obstruct the board’s investigation of compliance with them.”

While there’s no suggestion that the actions of the clubs involved are contrary to any rules and regulations, clubs must ensure that all transfers are conducted at fair market value. Failure to do so risks invoking the Premier League’s scrutiny for acting in contravention of Rule B15 by fostering an environment that isn’t conducive to the practice of good faith. 

A key feature of these ‘swap deals’ is the inflated fees at which players are being sold. That said, the innovative thinking behind these deals suggests that clubs are taking the PSR seriously. With this in mind, perhaps these deals do little to take away from achieving the Premier League’s ultimate goal — financial stability. 

Further, given the difficulties in determining a player’s market value, these de facto ‘swap deals’ — while appearing to exploit a loophole — may not necessarily be deemed contrary to the regulations. 

The question therefore remains — are these ‘swap deals’ merely an innovative method of working within the system to limit losses? Or will the Premier League step in and take action, now that it has taken notice?

Talk to us

If you need help in navigating PSR, negotiating playing contracts and transfer deals or require guidance in relation to any other sports law related matters, our experts are here to advise. 

We’re recognised as having one of the largest and most experienced multidisciplinary legal teams in the sports industry that works with elite clubs, national governing bodies, international federations, large sports agencies and high-profile individuals.

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