Spending spree

The new Squad Cost Ratio is incentivising clubs to make big signings – and driving up inequality

By DAVID WEBBER

Amid a record-breaking glut of summer spending, one in which Premier League clubs paid out more than £3.5 billion, there was a significant eight per cent uplift in trading between England’s top-flight sides compared to 12 months ago. Of the 20 players signed by its clubs for £50 million or more this summer, only four joined from clubs outside of England, suggesting that the traditional “English premium” appears to have been extended to include those that have already made their mark in the PL, regardless of nationality.

Aside from the pursuit of proven PL quality, one obvious explanation for this trend is the now extraordinary wealth of England’s top division. Amassed through a central distribution model, a slew of lucrative broadcasting and commercial deals, ever-growing matchday revenues and considerable levels of private investment, these riches have created a “super league” in all but name. Indeed, such is the prosperity of the PL that even the established “middle-tier” clubs such as Bournemouth and Brighton frequently go toe-to-toe in terms of spending with major names in Italy, Portugal and the Netherlands. And with recent English success in the Europa and Conference League competitions, we are seeing the effect of the Premier League’s financial dominance on the field as well.

The transfer market itself is an important, if at times arbitrary mechanism through which the redistribution of this wealth between clubs and across leagues takes place. At the same time, however, the overriding pursuit of titles and silverware, Champions League football, or simply to remain in the world’s richest league itself, has often seen clubs spend more on transfer fees and player wages than they can actually afford. Taking its cues from UEFA’s own financial sustainability framework, ahead of this summer’s spending, the Premier League introduced its own Squad Cost Ratio (SCR) to replace its previous Profit and Sustainability Rules (PSR) as the central plank in a wider set of reforms designed to improve the sustainability and resilience of clubs.

The SCR has been calibrated to balance the revenues earned by clubs with their expenditure on player-related costs. Targeting unsustainable forms of spending, the SCR limits this spending to between 70 per cent of football-related revenue for those clubs competing in Europe (as per UEFA’s own rules) and 85 per cent for the rest of the division. Alongside this cap is a further buffer; a multi-year rolling allowance or “overdraft” of 30 per cent that allows some degree of spending ahead of revenue and/or mitigation against any unforeseen losses the club may incur in the future.

The SCR has been calibrated to balance the revenues earned by clubs with their expenditure on player-related costs

An integral component of the SCR is the amount of profit these clubs are able to generate in respect of their transfer incomings and outgoings. By its very design therefore, the SCR incentivises clubs to prioritise high-value transfers since these, in the first instance, increase the headroom for clubs to meet more comfortably the SCR requirement itself. In terms of their own performance on the pitch, by securing a higher profit average and crystallising accounting profits, clubs can use these gains to reinvest in and strengthen their playing squads.

While this makes intuitive sense from an accounting and sporting point of view, applied to the highly uneven financial landscape of European football, it remains problematic. Implicitly stacked in favour of England’s already wealthy clubs, the SCR forces those outside this elite, typically operating from a much lower revenue base, to work harder to make the numbers add up. Indeed, of the biggest transfers that took place this summer, it is perhaps of little surprise that several involved the sale of players from Everton and Nottingham Forest, both of whom were sanctioned under the previous PSR regime, and Aston Villa, Chelsea and Newcastle, all of whom have sailed close to breaching these rules in recent years.

With its emphasis upon premium deals, and few clubs beyond the Premier League able to afford the fees that its clubs will now be seeking for their players, it is likely that the SCR will continue to drive up both the volume and value of internal transfer activity. A sense of foreboding has duly descended upon the executives of Europe’s richest clubs and most widely watched leagues. The SCR has locked in the financial firepower of the Premier League. If, as expected, England’s top-flight clubs continue to spend more of their revenues among themselves, less of this cash will flow outwards onto the continent. This, in turn, will inevitably create its own inflationary pressures and entrench the structural inequalities already present in the European game. Dr David Webber is a Senior Lecturer in Sports Business and Politics at UCFB (Manchester)