The Premier League and EFL have announced that a new financial system will replace the current Profit and Sustainability rules, but how does it affect the Football League.
The current financial rules this week gave Leicester City a six point deduction but the changes in English football now bring their rules closer to those applied by UEFA.
That left the Foxes level on points with Blackburn Rovers, who are in the relegation zone, after they were charged for their accounts published in the 2023/24 season.
However, while new Squad Cost Ratio rules would still see the Foxes being sanctioned, there are clear benefits to bigger sides with the rules being applied in the EFL.
What is Squad Cost Ratio?
The new rules would allow sides to spend 85 per cent of their total revenue on the squad including transfer fees and wages of both players and staff.
That would mean that Lincoln City would be able to spend £6.8 million on their playing squad and staff after making £8 million across their 2024/25 accounts.
They are being introduced in order to secure financial sustainability of clubs while also promoting long term investment and protecting competitive balance.
And because the rules focus purely on finances affecting the playing side, it allows clubs to spend freely away from the pitch on things such as stadium redevelopment and fan experiences.
How are clubs punished?
There are now two spending thresholds set that gives teams some extra headroom if they were to break the rules and that now makes it clearer when these limits have been breached.
Clubs are now checked on an annual basis after agreeing to an estimated revenue at the start of each season, which is then what sets the threshold.
It’s then that a red threshold and a green threshold is applied based off estimated revenue, not the sides actual revenue.
The green threshold is the basic 85 per cent spending limit but the red threshold allows for an extra 30% above the original limit.
That is because if a team was to fall in between the green threshold and the red threshold then they wouldn’t be immediately punished.
Instead, they would be subject to an Accounts Confirmation test which would determine whether their actual revenue would leave them under the threshold and it was simply a misestimation.
That would take place at the end of the season after the initial SCR test takes place on March 1.
However, if they were found to be in breach of the red threshold at that point they would face an immediate “sporting sanction” that is yet to be confirmed by either the EFL or the Premier League.
While a test and a revenue estimation is carried out each season, the system still works on a multi-year basis like the current PSR rules.
Although, that is only if the side is found to breach the green threshold in which case their red threshold is decreased for the following season by the same amount as the breach.