The Premier League has ended its friendship with PSR. Now SCR is its new best friend.
But what the heck is SCR? Who are its friends? And to what social class does it belong?
Let’s answer those and indeed some actually relevant questions you might have about it. Hopefully if we’re lucky.
So, wait, there’s no PSR in the Premier League any more? Does that mean everyone can spend, spend spend?
Yes. And no. The old PSR (Profit and Sustainability Rules) have gone, but in their place come the shiny new Squad-Cost Ratio rules. Or SCR to its very closest friends, because everyone knows that all the best schemes and wheezes come with a Three-Letter Acronym – or TLA for short.
What’s the idea with SCR then?
Well it’s very simple, really: it’s purely and entirely designed to stop Aston Villa and Newcastle dominating the Premier League as they obviously otherwise would, and to protect the Sky Big Cartel Six like everything else the league does.
Really?
No.
So what is the idea?
The idea – and we’ll see whether it works in practice – is a fairer and more agile set of financial rules that are easier for Joe Punter to grasp and which will be more obvious when breached, easier to enforce but also less likely to create a scenario where one troubled season of financial strife becomes a millstone around a club for years after.
But how does it actually work?
SCR was trialled in the background last season before being launched fully this season. The headline figures are these: Premier League clubs are now effectively operating under a spending cap in which they can spend only a maximum of 85 per cent of their total revenues on their first-team squad.
The basic calculation is: ‘squad costs’ divided by ‘adjusted revenue’, and then multiplied by 100 to get a lovely percentage figure.
There are other important bits to note here, though. UEFA enforce a much stricter 70 per cent figure in their SCR regs, so any teams in Europe have to adhere to that. This is also one of the reasons why, this summer specifically, the craftily Euro-dodging pair of shambleclubs Spurs and Chelsea are spending like they are.
We’ve also got some terms we need to define here, haven’t we. What are ‘squad costs’ for a start?
In essence, the cost of running the first team. So things that count under squad costs include very obvious things like wages and transfer fees (which are, of course, almost always amortised across contract length as everyone now knows, and treated as such by the rules, so a £100m fee amortised across five years counts as £20m in the current season’s sums).
But it also includes payments made to agents and what are called ‘impairments’; write-downs on player values as a result of injury or under-performance.
Just as important – especially in some cases – are what don’t count. Spending on youth academies, women’s teams, stadium infrastructure and the wages of all non-playing staff are excluded from the sums.
The understandable reasoning behind this is to encourage and reward healthy ongoing development of clubs. To stop them seeking short-term gains that could be made by neglecting their academies or stadiums to plough more money into the first team in a particular year.
But there’s no denying certain clubs benefit massively here from that stadium rule in particular. For the purpose of these rules, there is no limit on what clubs can spend on their ground, but the money that can subsequently generate is included under ‘adjusted revenue’. You already know where we’re going with this, but Spurs are a huge winner here.
Which also brings us neatly to the next and obvious question, doesn’t it? What in the name of Barclays is ‘adjusted revenue’ when it’s at home?
It’s basically all the money that pours into a club’s coffers from the core business of being a football club with a football stadium. So again there’s the obvious stuff – matchday income, broadcast income, any profits from player-trading.
But also income from anything else you do with your stadium like hosting concerts or other sporting events. We can argue forever over whether they were incredibly clever and saw it all coming or have pulled an all-time Homer, but whether by accident or design Spurs have played a blinder here. Sorry if that offends, Villa and Newcastle.
So yeah, that’s essentially it. You take the first very large number and divide it by the (hopefully, fingers crossed, touch wood etc) even larger number and multiply it by 100, and then hope to crikey it comes out below 85 per cent.
It’s that strict, then? Go over 85 per cent and out comes the big points-deduction stick to administer a brutal beating?
Absolutely not. These are Premier League financial rules. Of course they’re not that simple. But also, let’s be fair, with quite good reason.
All Premier League clubs have started this first season of SCR with the actual ability to spend 115 per cent of their total revenues on the first-team squad for the upcoming season. We wouldn’t recommend it, but it’s technically permitted.
Because everyone has a rolling 30 per cent allowance or buffer – or sort of SCR overdraft, if you will – they can dip into. This allows flexibility to account for the inevitably up-and-down nature of football club revenues, where how far you go in different tournaments – or even whether they qualify for them in the first place – or what you’re able to recoup in player sales and so forth can be wildly different from one year to the next.
Go over the 85 per cent but stay under the 115 per cent (in year one) and you’ll get a financial penalty. It’s already pretty clear that plenty of clubs are going to be very willing indeed to simply view that ‘punishment’ as a ‘tax’. As simply the price of doing business.
Once you go over the 115, though, sporting sanctions come. And if you hit, say 95 per cent in one season, you’ve used up 10 per cent of your allowance so the following season you can go only to 105 in that campaign, and so on. Go under the 85 in any season and you can start to refill that allowance up to the maximum of 30 per cent.
So let’s say Club A spends 95 per cent of its revenue in season one, but gets that figure down to 70 per cent in year two. They get a financial slap on the wrist for year one, but by being so far below the 85 per cent threshold the following year they have refilled their ‘health meter’ and are back to being able to use the full 30 per cent buffer the next.
Club B, however, spends at 95 per cent in year one and 110 per cent in year two. Across those two seasons they’ve exhausted their 30 per cent allowance and gone beyond it. They are heading for points deduction town.
It’s disgusting how the rules have clearly been designed to punish Club B. It must be a conspiracy against them.
Must be.
How will this be materially different to PSR, though?
It should be fairer, and better reflect the fact that different clubs have different revenues. PSR was far more rigid, enforcing a fixed cumulative maximum loss over a rolling three-year period.
Clubs couldn’t have losses greater than £105m over that rolling block, but that took no account of total revenue size and thus no account of how (im)possible it might be for the club to correct that course.
And meant one bad year could have dire consequences for years to come.
The new rules are season and club specific, tied (with the exception of the 30 per cent ‘allowance’) directly to that one particular season and each club’s actual revenues.
Annual and in-season checks should, in theory, keep every club in check and allow for corrective measures and swift punishments and, crucially, no need for one unfortunate season to have an impact outside that specific season.
Will it work then?
No, it’s clearly biased against your club.