The Premier League is undergoing a fundamental financial regulatory change, the impact of which will require considerable thought in the coming months. Who will the net winners be? What impact do the new rules have on the sustainability and the competitive integrity of the game? What impact will the rule changes have on Championship clubs, how does it play alongside European regulations and last but not least, how does it sit within the new regulatory framework of the Independent Football Regulator?

On November 21, 2025, Premier League member clubs voted by a narrow margin of 14 to 6 to replace the longstanding Profitability and Sustainability Rules (PSR) with a multi-layered regulatory system.

This new framework, primarily comprising the Squad Cost Ratio (SCR) and the Sustainability and Systemic Resilience (SSR) tests, shifts the governing philosophy from retrospective loss assessment toward proactive, real-time revenue and expenditure analysis. The stated objective is twofold: to ensure the long-term solvency of individual institutions while maintaining the competitive integrity and global appeal of the league.

The transition is not merely a technical adjustment but a strategic, fundamental shift that redefines the relationship between revenue generation, player trading, and on-pitch investment.   

The shift from PSR to SCR

The move toward the Squad Cost Ratio was driven by the acknowledged failures of the PSR model, which previously allowed clubs to aggregate “adjusted” losses of up to £105 million over a rolling three-year period. While PSR succeeded in curbing some excessive spending, it was criticised for its poor drafting and its inherent retrospective nature, often resulting in sporting sanctions, such as the points deductions applied to Everton and Nottingham Forest. being enforced years after the financial breaches occurred. Furthermore, the complexity of PSR combined with the poor drafting of regulations led to protracted legal disputes that undermined public confidence in the league’s governance.   

The new SCR framework attempts to address these limitations by instituting a season-by-season assessment.

This shift enables closer to real-time monitoring, with primary compliance tests conducted in March, following the closure of the winter transfer window, and final accounts confirmed in June. By aligning spending directly with annual revenue, the league aims to provide clubs with greater financial certainty and ensure that sanctions are applied in the same season a breach occurs, thereby maintaining a direct causal link between financial mismanagement and sporting consequences.   

So, what is squad cost ratio?

Squad Cost Ratio is a mathematical expression of a club’s on-pitch investment relative to its operational income. Broadly (although there are exceptions) the regulation mandates that a club’s squad-related costs must not exceed 85% of its defined revenue base for domestic-only participants, while those competing in European tournaments must adhere to a stricter 70% threshold to maintain parity with UEFA’s Financial Sustainability Regulations (FSR).   

The mathematical foundation of the ratio is defined as:

SCR= Adjusted Revenue Base divided by Squad Costs

This ratio is monitored throughout the season, utilising a tiered threshold system that categorizes clubs into different compliance zones.   

Defining the adjusted revenue base: What is football income?

The “Adjusted Revenue Base” constitutes the denominator of the SCR calculation and represents the total sustainable income a club generates from its core operations. Unlike previous accounting standards, the SCR specifically focuses on “football-related revenue, ensuring that the spending power of a club is derived from its success as a sporting and commercial entity rather than creative asset or accounting management.   

Core revenue streams

The Adjusted Revenue Base integrates several distinct income categories, each reflecting a different facet of the club’s operation.   

1. Central distributions and broadcast income: This includes the equal share payments, merit money based on final league position, and facility fees for televised matches distributed by the Premier League. It also encompasses income from domestic and international cup competitions, such as the FA Cup, EFL Cup, and UEFA tournaments.   
2. Matchday revenue: Income generated directly from stadium operations, including ticket sales, corporate hospitality, and food and beverage services during home fixtures.  It will also take into account different commercial models (for example, the outsourcing of food & beverage provision) 
3. Commercial and sponsorship revenue: This category includes kit manufacturing deals, shirt sponsorships, stadium naming rights, and various global partnership agreements. Again it will account for the different commercial models used by clubs.  
4. Non-football event profit: A significant inclusion is the net profit derived from utilising the stadium for non-soccer events, such as concerts, boxing matches, or other sporting events.

Regulatory exclusion of asset sales

A key element of the revenue definition is the exclusion of profits derived from the sale of fixed or non-football assets to related parties. Under the PSR era, clubs utilised a capital asset sale loophole to balance their books, selling hotels, training facilities, or women’s teams to parent companies or commonly owned organisations. Chelsea’s sale of two hotels for £76.5 million and Aston Villa’s divestment of its women’s team were prominent examples of this practice.   

Under the SCR framework, such transactions are no longer recognised for the purpose of calculating the spending ceiling. While clubs retain the right to sell these assets, the resulting profits do not increase the allowable squad expenditure. This reform is designed to ensure that spending limits are tied to genuine operational revenue, preventing clubs from circumventing cost controls through internal asset shuffling.   

Incentivised investment areas

The revenue base definition also includes a unique structural incentive for investing in the wider footballing ecosystem. Income generated by a club’s women’s team and youth academy is included in the Adjusted Revenue Base.

However, as discussed in the costs section below, the operational expenses for these departments are excluded from the squad cost calculation. This effectively means that every pound generated by the academy or women’s team increases the club’s first-team spending capacity without being offset by the costs of running those departments, structurally rewarding clubs for holistic development.   

Identifying regulated expenditure

The numerator of the SCR, “Squad Costs,” focuses strictly on expenditures that directly influence on-pitch performance. This definition is narrower than the total operating expenses of a club, allowing for unrestricted investment in off-pitch areas such as stadium infrastructure, training ground development, and community initiatives.   

Four primary expenditure types constitute the regulated squad costs.   

1. Wages and salaries: This encompasses the total gross compensation, including base salary, performance bonuses, and image rights payments, for all contracted first-team players and the head coach. Notably, the salaries of assistant coaches, medical staff, and administrative personnel are excluded.   
2. Amortisation of transfer fees: In line with standard football accounting, the cost of acquiring a player is not recognised as a lump sum in the year of purchase. Instead, the transfer fee is amortised, spread equally, over the length of the player’s contract, up to a maximum period of five years.
3. Agent and intermediary fees: All commissions and fees paid to player representatives during contract negotiations or transfer transactions are included in the annual squad cost calculation.   
4. Impairment losses: If the book value of a player’s registration decreases significantly due to factors such as long-term injury, permanent performance decline, or the club’s relegation, the resulting impairment loss must be factored into the squad costs for that period.

Five-year amortisation cap

A significant refinement in cost accounting is the universal adoption of a five-year cap on the amortisation period. This rule was introduced to close a loophole, popularized by clubs such as Chelsea, whereby players were signed to ultra-long-term contracts (e.g., eight or nine years) to minimise the annual amortisation charge on the balance sheet. By capping the period at five years, the Premier League ensures that the annual squad cost more accurately reflects the economic impact of the transfer fee.

Averaging and homegrown Advantage

Player trading is the most volatile and strategically significant component of the SCR calculation, as it simultaneously affects both the numerator (costs) and the denominator (revenue). Effective trading is no longer just an accounting necessity for year-end compliance; it is a live operational lever used to expand or maintain spending capacity throughout the season.   

Three-year rolling profit averaging

To prevent extreme annual fluctuations in spending capacity, the SCR framework utilises a three-year rolling average for player trading profits. While squad costs (the numerator) are assessed based on current-season wages and amortisation, the revenue benefit from player sales (and/or losses) is smoothed over a 36-month period.

For example, if a club generates a £90 million profit from player sales in a single summer, they do not receive the full £90 million boost to their revenue base for that specific season. Instead, £30 million is added to the Adjusted Revenue Base for the current season, and the remaining £60 million is credited in equal installments over the subsequent two years. (This is of course a non-cash consideration, it’s purely regulatory). This mechanism ensures that a one-off fire sale cannot be used to fund an unsustainable surge in wages that the club cannot afford in future years once the profit is exhausted from the calculation.

Academy advantage under averaging

The SCR framework provides a significant regulatory advantage to clubs with productive academies. Because homegrown players carry a book value of zero, the entirety of their sale price is recorded as pure profit. Under the three-year averaging rule, a £60 million sale of an academy graduate provides a guaranteed £20 million annual boost to the club’s Adjusted Revenue Base for three consecutive years. This provides long-term headroom for the club to invest in new contracts with the certainty that their revenue base is structurally bolstered for a multi-year period.   

In-season compliance and real-time adjustments

While the baseline player trading profit figure is set at the start of the season based on the average of previous years, the SCR spending limit is adjusted “live” as new trading activity occurs during the campaign. The primary Compliance Test on March 1st incorporates the results of the January transfer window. If a club sells a player in January, one-third of that profit is immediately added to the current season’s revenue base, potentially moving a club from the “Amber Zone” (fine) back into the “Green Zone” (compliance) before the final season assessment. 

The January window will become the key moderating opportunity for clubs to adjust financial performance if necessary.  

Sustainability and systemic resilience (SSR): 

While the SCR focuses on regulating annual expenditure, the Sustainability and Systemic Resilience (SSR) rules act as the league’s governance backbone, ensuring that clubs maintain the liquid capital and equity structure necessary to survive unforeseen economic shocks. The SSR framework  attempts to address the risk of systemic contagion, where the insolvency of one club could lead to unpaid debts to other clubs, employees, and tax authorities.   

The SSR consists of three distinct quantitative tests, each targeting a different temporal aspect of a club’s financial health.   

1. Working capital test (short-term solvency)

The Working Capital Test monitors whether clubs can meet their day-to-day operational obligations without interruption.   

• Requirement: Clubs must demonstrate that for every calendar month of the season, the sum of their projected cash balances and qualifying working capital facilities (such as bank lines of credit) is at least £12.5 million.   
• Implication: This £12.5 million floor ensures that even if a major sponsor is late with a payment or matchday receipts dip, the club has sufficient liquidity to cover its payroll and other immediate liabilities.   

2. Liquidity test (medium-term stress resilience)

The Liquidity Test is designed to stress test a club’s ability to navigate the volatility of professional sports, specifically the financial impact of poor sporting performance.

• Requirement: Clubs must maintain a non-negative “liquidity headroom” for the current and subsequent season after absorbing an £85 million “stress test”.
• Scenario modeling: The £85 million buffer is engineered to represent the sudden loss of revenue associated with relegation, the loss of a major commercial partner, or the failure to qualify for the lucrative UEFA Champions League.   
• Player registration value: Uniquely, for the purpose of this test, clubs can count 40% of the market value of their player registrations as a liquid asset. This acknowledges that, in a crisis, selling players is a primary mechanism through which football clubs generate emergency cash.

3. Positive equity test (long-term structural stability)

The positive equity test targets the overall leverage and debt sustainability of the club, seeking to prevent owners from loading institutions with unmanageable levels of borrowing.

• Metric: The “positive equity ratio,” defined as total liabilities divided by adjusted assets.
• Threshold progression: The league has mandated a tightening of this ratio over a three-year implementation period.

In this calculation, liabilities include all forms of debt, including shareholder loans. Assets are adjusted to include the full market value of the squad (or higher book value), providing a more realistic picture of the club’s economic worth than traditional historic cost accounting.

Funding future losses: Luxury tax and feedback loop

The SCR framework replaces the hard loss limits of PSR with a luxury tax system that allows for managed overspending while penalizing recurring financial indiscipline.   

The 30% allowance and financial levies

Clubs are granted a multi-year allowance of 30% above the base 85% threshold, effectively creating a “Red Threshold” at 115% of revenue. If a club’s SCR falls between 85% and 115%, it is liable for a financial levy rather than sporting sanctions.   

The levy is calculated as the overspend amount multiplied by the percentage of the breach. For example, if a club overspends by £250,000 and its ratio is 89% (4% over), the fine would be £10,000 (£250,000 x 0.04). These fines are aggregated and distributed to the clubs that remained compliant, creating a direct wealth transfer from the over-spenders to the financially disciplined.   

Feedback loop mechanism

To prevent clubs from permanently operating at 115% of revenue, the league introduced a “Feedback Loop”.   

• Negative feedback loop: If a club utilises its allowance in Season 1, its Red Threshold for Season 2 is reduced by the same margin. A club that records a 105% SCR in its first year will see its allowance for the following season drop from 30% to 10% (as it used 20% of its buffer).
• Positive feedback loop: Clubs can earn back their allowance in 10% increments for every season they return to full compliance (spending ≤85%), up to the 30% maximum.

Comparative analysis: Premier League SCR vs. UEFA FSR

The alignment with UEFA’s Financial Sustainability Regulations (FSR) was a primary driver for the reform, yet significant points of divergence remain.

Operational friction arises from the mismatch in reporting periods. The Premier League assesses compliance on a seasonal basis to align with club budgets, while UEFA utilises the calendar year. Additionally, clubs qualifying for the Europa or Conference League face the strict 70% cap while receiving significantly lower revenues than Champions League participants, creating a potential competitive disadvantage relative to domestic-only peers operating at an 85% cap.

The impact on the Football League: The Championship perspective

The introduction of SCR and SSR in the Premier League has seismic implications for the Championship. The EFL is currently trialing its own version of SCR in shadow to determine how the second tier should adapt.   

Research evidence suggests a direct mirroring of the Premier League’s 85% SCR would be almost impossible for Championship clubs wishing to compete for promotion.   

1. Compliance reality: Analysis found only 27% of Championship clubs would have complied with a 70% SCR threshold in recent seasons.   
2. Spending gap: The average allowable squad spend for a Championship club under an 85% SCR would be less than one third of a club’s spending requirement to potentially avoid Premier League relegation.   
3. The glass ceiling: Without revenue growth, SCR risks “crystallising” positions, making it harder for promoted teams to build competitive squads without immediately breaching SCR and SSR tests.   

Parachute payment distortion

Relegated clubs receive parachute payments on a reducing scale over three years (55% of a Premier League equal share in Year 1, then 45% and 20%). The SCR framework effectively formalises this advantage, as the “Adjusted Revenue Base” for relegated clubs is significantly higher, allowing for higher absolute spending within the same 85% limit compared to peers relying on organic Championship revenue.

Navigating the dual compliance era: PSR legacy and European entry

During the transition period (2025/26), Premier League clubs must still adhere to legacy PSR for European eligibility.

PSR requirements for UEFA participation

UEFA continues to enforce its “Stability” rulings (football earnings), permitting a maximum loss of €60 million over three years, provided it is covered by owner equity. This creates a conflict in asset recognition: while the Premier League’s old PSR allowed related-party asset sales (like hotels) to count toward compliance, UEFA’s FSR forbids the inclusion of non-football asset sales in football earnings. A club could thus be compliant domestically but find itself excluded from European competition by UEFA.

For the 2025/26 season, the PSR remains the binding regulation. The SCR and SSR are being trialed “in shadow” to allow clubs to restructure wage bills and transfer amortisation schedules before the new rules become fully enforceable in the 2026/27 campaign.

The long-term impact on the Premier League model

The transition to the Squad Cost Ratio and Sustainability and Systemic Resilience framework represents a fundamental shift in football governance. By decoupling off-pitch investment from squad-cost regulation, the system encourages infrastructure and academy development while attempting to cap the “arms race” for first-team talent.

The success of the SCR will be measured by its ability to provide a predictable enforcement architecture that ensures sanctions are applied in real-time. However, the framework inherently favours revenue giants with global commercial reach. For others, the three-year averaging of player profits and the structural rewards for academy productivity will be the primary levers for maintaining competitiveness in this new era of  (one hopes) financial transparency.