Premier League clubs urged to act ahead of new financial regulations

Late last week, the clubs voted to move away from the current ‘profit and sustainability rules’ (PSR) to a new framework of financial controls built around two core mechanisms – the squad cost ratio (SCR) rule, and the sustainability and systemic resilience (SSR) tests.

Sports law expert Julian Diaz-Rainey of Pinsent Masons said: “The PSR system sometimes prioritised short-term gains over sustainable, strategic growth, leaving clubs vulnerable to financial instability if their forecasts did not materialise as planned. This lack of long-term planning meant clubs were unable to absorb external, unprecedented events – such as the Covid-19 pandemic – with resilience. SCR and SSR introduce real-time controls and health checks, reducing the risk of financial crises and should help reduce volatility.”

Under the current PSR regime, clubs are permitted to run up losses of up to £105 million over a rolling three-year period. PSR has been the subject of high-profile legal battles for the likes of Everton, Nottingham Forest and Leicester in recent years.

Under the new SCR rule, the amount that Premier League clubs can spend on player-related costs, relative to their football revenue and net profit from player sales, will be capped. From the 2026/27 season, clubs must ensure these costs do not exceed 85% of their relevant income, with a limited additional allowance of 30% for multi-year commitments subject to levy.

The concept of player-related costs covers wages, transfer fees, and agent commissions, as well as amortisation or impairment of transfer fees, and applies to both contracted players and head coaches – costs associated with administrative staff, assistant coaches or commercial personnel are excluded.

Breaches beyond the set thresholds will trigger financial levies and, in severe cases, sporting sanctions such as points deductions. The mechanism will work by estimating football revenue at the start of the season, to set what the ‘green’ and ‘red’ thresholders for each club will be. The green threshold will be set at 85% of estimated revenue and the red threshold will represent an “absolute spending limit” and be set at up to 30% above the green threshold, so up to a maximum of 115% of the estimated football revenues.

Compliance with the SCR rule will be assessed annually, on 1 March. If clubs are assessed as having breached the green threshold but fall below red, they will be subject to an accounts confirmation test at the end of the season – if they fail that test, they will pay a levy. If clubs are assessed as having breached the red threshold, there will be immediate sanctions –a deduction of six points, plus one additional point for every £6.5m spent over the red threshold. Each club has a multi-year allowance to exceed the green threshold before facing sporting sanctions.

A similar rule to the SCR is already in effect for clubs – including Premier League clubs – that operate in the European club competitions run by UEFA. In that case, the cap is set at 70% of revenue.

Diaz-Rainey said: “For those clubs in the top half of the table who already play across Europe, this change will likely have little impact on them as they have to meet UEFA’s stricter 70% threshold. However, those clubs in the bottom half of the table will likely find this a new adjustment onerous, particularly recently promoted clubs, given the granularity of financial data they will be required to submit to the Premier League.”

Another key concern for clubs will be the sanctions imposed for breach, ith a possible immediate points deduction for falling within the red threshold, or potential financial penalty at the end of the season. Both would have a financial impact on those clubs that are already struggling,” he said.

The SSR tests comprise of a series of financial health checks designed to safeguard the long-term stability of clubs. These include tests for working capital, liquidity, and positive equity, ensuring clubs can meet short-term obligations and maintain a sound financial base. Unlike SCR, which targets annual spending, SSR looks at structural resilience and risk management, requiring clubs to demonstrate they can withstand financial shocks and avoid systemic risk to the league. Compliance will be monitored regularly, and failure to meet these standards could lead to restrictions on transfer activity or other regulatory interventions.

The working capital test checks the monthly cash headroom during the season to cover outgoings and unexpected shocks. The liquidity test assesses liquidity over two seasons, factoring in player market value and an £85 million stress test. The positive equity test looks at the long-term strength of the finances, focusing on the balance sheet to debt ratio. Clubs will be assessed in the July each year with potential further ‘call-in events’ during the season.

Gabrielle Armstrong of Pinsent Masons said: “The SSR tests are designed to help clubs manage their finances from a long-term perspective compared to PSR.”

“The liquidity stress test of £85m is likely to squeeze clubs that are already struggling financially. However, the policies are broadly aligned to those set to be introduced by the Independent Football Regulator (IFR), so the changes will likely future-proof clubs ahead of the introduction of the IFR’s licensing regime,” she said.

Armstrong and Diaz-Rainey said the introduction of SCR and SSR marks a fundamental shift in how financial compliance will operate in English football. They said clubs should review financial models and player wage structures immediately; align compliance processes with in-season monitoring requirements; prepare for dual compliance with UEFA’s 70% cap for European competitions as well as for future compliance with the IFR’s current financial threshold policy; and engage legal and finance teams to stress-test SSR requirements and update governance frameworks.

“By focusing on squad costs rather than overall profitability, SCR gives clubs greater freedom to invest off the pitch while imposing clear annual limits on player-related expenditure,” Armstrong said. “However, the penalties for breaching the red threshold, including points deductions and levies, mean clubs must adopt robust forecasting and governance processes now and ensure they adhere to them. SSR adds another layer of scrutiny, requiring clubs to demonstrate resilience against financial shocks and maintain positive equity.”

Diaz-Rainey added: “For senior members of clubs, it is important that they get to grips with the new policy early. Failure to adapt could lead to severe sporting and reputational consequences. Clubs should act early, review contractual commitments, and ensure alignment with UEFA’s 70% cap to avoid dual breaches, and also to help future-proof their clubs, particularly with the IFR’s new policies appear over the horizon.”