Football clubs ‘buying success’ has long been a topic of conversation. It started to become an issue in the 2000s and football clubs were even getting themselves into financially perilous situations as passionate owners self-funded or borrowed to achieve silverware.
Financial Fair Play (FFP) rules were first discussed by UEFA in 2009 as a way to combat this, and came into effect at the start of the 2011/2012 season.
Basically, the system was set up to prevent clubs from spending more than they earned and force them to balance their books.
Then, the Premier League brought in their own version of FFP which they called the Profit and Sustainability Rules (PSR). This was largely off the back of Portsmouth going bust in 2010 and the embarrassment that caused for ‘the best league in the world’. These only came into effect at the start of the 2013/2014 season.
However, with both sets of rules having similar aims and both being introduced around the same time, much confusion ensued as to what they were, how they differed, and who was in charge of them.
That’s where this article comes in.
How Financial Fair Play Works
Financial Fair Play rules are governed by UEFA and apply to every club in the Champion’s League, the Europa League, and the Europa Conference League. Of course, we don’t know which clubs qualify for these competitions until the end of the season, so they have to think ahead.
Initially the rules were all about making sure clubs broke even, but they were re-worked in 2022 to be less punitive and have a more developmental framework. This meant they took a more flexible approach with a focus on long-term financial stability.
The new rules are based on 3 pillars: Solvency, Stability, Cost Control.
The main rules are:
- Financial losses: Clubs are now allowed to incur losses of €60 million over a three-year period provided the excess is covered by owners.
- Squad cost ratio: A spending cap on wages, transfers, and agents’ fees was phased in, stopping in 2009 at 70% of club revenue.
- Solvency requirement: Clubs must settle overdue payables within specified timeframes, particularly to tax authorities, other clubs, and employees.
- Fair value transactions: All transactions must be conducted at fair value, not just those with related parties. This means all deals must be at a realistic market rate, so a club can’t deliberately artificially inflate their revenues or undervalue their expenses using ‘special deals’ with companies that perhaps the club owner also owns.
To help clubs develop without those costs holding them back in terms of FFP, expenses such as investments in infrastructure, youth development and women’s football are not included for FFP purposes. This allows clubs to keep their stadiums up to date and invest in areas of the game that are important for growth with no accounting issues.
Sanctions
Clubs found to be in breach of the Financial Fair Play rules can find themselves in some very hot water.
We all know how important European football is for club finances, so the more serious punishments can be devastating if they are ever dished out.
In order of severity, potential sanctions include:
- Formal warning
- Fines Points deductions
- Withholding of prize money
- Refusal to register players for UEFA competitions
- Reducing a club’s permitted squad size for UEFA competitions
- Disqualification from ongoing competitions
- Exclusion from future competitions
- Transfer bans
UEFA can and do issue these sanctions as they see fit, including issuing more than one type of sanction as part of the same punishment.
However, the sanctions issued will be proportional to the offence committed.
How Profit and Sustainability Rules Work
The Profit and Sustainability rules apply only to clubs in the Premier League and EFL, and the specifics are different for each league. This is because applying the same financial rules to a League 2 club as a Premier League club would be pointless.
It runs in a continuous 3 year cycle so that a club’s financial health can be monitored more effectively. The Premier League Board are the people running it.
The main rules clubs need to abide by for PSR are:
- Financial losses: Premier League clubs are allowed to lose up to £105 million over a three-year period. However, only £15 million of that can be the club’s own money. Up to an additional £90 million can be lost within the rules, but only if covered by the owners, and only if they cover it through ‘secure funding’, which basically means by buying more shares. In other words, an owner cannot borrow money in order to ‘self fund’ losses.
- Reporting requirements: By March 31 each year, clubs must submit their estimated profit and loss account and balance sheet for the current year, as well as annual accounts for the preceding year.
- Adjusted Earnings Before Tax: The Premier League assesses compliance based on a club’s PSR calculation, which is the aggregate of its adjusted earnings before tax for the relevant assessment period. In layman’s terms, the Premier League checks if clubs are following financial rules by adding up their profits or losses over three years, with some specific costs excluded. This total, called the PSR Calculation, helps determine if a club is spending within its means.
The same exceptions apply to PSR as FFP, such as infrastructure, youth football, community projects, etc.
The amounts are different for EFL clubs, but are actually tighter for clubs who have been recently promoted from the EFL to the Premier League. Owners are allowed to cover much less debt reducing their overall loss to £13 million per season. This is because so many clubs overspend after being promoted and quickly end up in financial turmoil.
Further changes have been agreed in principle to bring the PSR model closer to that of FFP. This would see a squad-cost ratio introduced, allowing clubs to spend up to a maximum of 85% of revenue on player signings, wages, and agent fees.
Sanctions
Just like with Financial Fair Play, the Profit and Sustainability Rules allow for sanctions if clubs operate outside of the rules. These can be crushing for clubs, as Everton almost found out to their peril when they had points deducted in 2024, almost causing them to be relegated.
Sanctions include:
- Fines
- Points deductions
- Transfer bans
- Suspension from the league
- Expulsion from the league
Expulsion would be an extreme decision, and highly unlikely, but the threat is there.
Again, the severity of the offence will dictate the severity of the punishment, and all sanctions are decided by an independent commission who are given all of the evidence before they make a decision.
The Chelsea Loophole
If you pay attention to the comings and goings of players in the Premier League outside of your own team, you might be reading this and wondering how Chelsea managed to buy so many big money players without breaking the PSR rules.
It’s actually not that complicated, they just used some accounting trickery.
Amortisation is when you reduce the initial cost of something on paper by spreading it over a longer period of time in instalments. So something that costs £100 can be explained as costing £20 a year for 5 years. You do it if you buy a new sofa and spread the cost, except you don’t need to account for it in the same way.
This is what Chelsea did.
They reduced the cost of expensive players like Enzo Fernandez (£105 million) and Moises Caicedo (£115 million) by giving them 8 year long contracts. This allowed Chelsea to spread the purchase cost over a very long time period, making Fernandez cost £13 million a year and Caicedo £14 million. If the players moved on before then it didn’t matter as there would be a transfer fee to cancel out what they cost.
This loophole was closed from the 2025/26 season onwards though, with clubs having a 5 year limit in which to pay transfer fees off, so Chelsea may have shot themselves in the foot.