Premier League clubs have unanimously agreed in principle to introduce new financial fair play regulations at a meeting in London on Thursday.
The profitability and sustainability rules (PSR) that have capped how much money clubs can spend over the last decade are set to be scrapped from the start of the 2025-26 season and replaced with a similar “squad cost control” rule to the one UEFA adopted in 2022.
The new system, which must still be fully ratified at the Premier League's annual general meeting (AGM) in June, will work as a shadow to the existing PSR regime next season.
There were actually two votes at Thursday's shareholders' meeting. The first, which received unanimous backing, was to progress discussions on the finer details of the Premier League squad cost rules, with a view to adding the new regime to the rulebook this summer. The second, which was supported by a strong majority, was on how the new regulations would be phased in.
Under the proposed new regime, clubs will only be allowed to spend a set percentage of their annual turnover on the wage bill for the first team and its coaching staff, plus the amortised costs of their transfer fees and all agents' fees.
Amortisation is how transfers are accounted for in club's financial reports, with the cost of acquiring players, including fee and salary, spread out over the length of their contracts.
The major difference between the Premier League and UEFA regulations will be that the Premier League will operate a two-tier system, with clubs playing in European competition only able to spend 70 per cent of their turnover, while clubs not competing in Europe able to spend 85 per cent.
Contrary to recent reports, clubs that breach the Premier League's rules will still be subject to points deductions.
Everton have been hit with two points deductions this season.
The current PSR guidelines — which see clubs allowed to lose a maximum of £105million over a rolling three-year accounting cycle — have seen Everton twice hit with points deductions this season with Nottingham Forest also penalised.
However, some clubs are still keen to explore the possibility of introducing financial penalties, instead of points deductions, for minor breaches of the squad cost rule.
Some clubs have suggested this could work like a US-style luxury tax, while others have preferred to talk about a “buffer zone” for less serious cases that do not merit points deductions.
This, among several other discussions about the finer details of the new rules, will all be resolved at the league's two-day AGM in Harrogate, with a final vote on the matter set for June 5.
There has still been no discussion about increasing the current PSR threshold from £105m with some clubs believing the figure, which was set a decade ago, should be raised to reflect rising wages and transfer fees.
What is UEFA's 'squad cost control' rule?
UEFA approved the squad cost ratio rule at an executive committee meeting in April 2022 as part of its new financial sustainability and club licensing regulations, which also cover 'solvency' and 'stability'.
It replaced UEFA's previous Financial Fair Play (FFP) system, which allowed clubs to make losses of up to €30m over a three-year accounting period.
The squad cost rule limits a club's spending on player and coach wages, transfers and agent fees to 70 per cent of their revenue.
UEFA is phasing its rules in over three seasons, with clubs that play in its competitions allowed to spend 90 per cent of their turnover on their squads this season, 80 per cent next season and 70 per cent in 2025-26, which is when the new Premier League rules should come into full effect, too.
What are UEFA's punishments for financial breaches?
The UEFA regulations state that breaching the squad cost ratio will see clubs hit with a financial penalty — unless it is a “significant” breach.
The extent of the financial sanction is decided based on the extent of the breach and the number of breaches over the past three seasons of the new rules.
A “significant” breach, UEFA says, comes in three forms:
In this case, UEFA says “additional disciplinary measures” can be applied alongside the financial penalty.
Under the previous FFP rules, UEFA could and did sanction clubs in a variety of ways depending on the severity of the offence.
What has the Premier League previously said about its financial rules?
Following a shareholders' meeting on March 11, the Premier League issued a statement saying its clubs had “agreed to prioritise the swift development and implementation of a new league-wide financial system”, without disclosing any further details.
It added that this new system would “provide certainty for clubs in relation to their future financial plans”.
The Premier League also said the clubs had “re-confirmed their commitment to securing a sustainably-funded financial agreement with the EFL“, although that itself remains subject to that new financial system.