Finance · 7 min read
PSR and FFP: the financial rules that decide who can spend what
Two rulebooks, one question: is the club losing more money than the system allows?
The Premier League's profitability test
Premier League clubs may lose up to £105 million over a rolling three-year period, with allowances for infrastructure, academy and community spending. Anything above that is a breach, and the sanction is decided by an independent commission rather than the league itself.
Points deductions have become the standard punishment because a fine means nothing to a club owned by a sovereign fund. Everton and Nottingham Forest both lost points in 2023-24 under the same rules.
UEFA's squad cost ratio
UEFA replaced the old break-even test with a squad cost ratio: wages, agent fees and amortised transfer costs must stay below 70% of football revenue. Clubs outside that line pay a financial settlement or face squad restrictions.
The two systems can disagree. A club can pass UEFA's 70% ratio and still fail the Premier League's loss test, because the calculations use different cost definitions and different time windows.
Why amortisation matters
A €100 million fee on a five-year contract is booked as €20 million a year. That is why clubs hand out long contracts: spreading the cost lowers the annual charge, and selling a homegrown player for pure profit fixes the balance sheet in one line.
It also explains the "pure profit" trade in academy players. Selling a graduate for €40 million is €40 million of profit, while selling a €40 million signing for the same price may produce no profit at all.
Quick answers
Can a club be relegated for breaching PSR?
In theory yes; in practice the sanctions have been points deductions and transfer restrictions.
Do owner loans count as revenue?
No. Related-party transactions must be at fair market value, which is why sponsorship deals with owner-linked companies are scrutinised.
What is a settling agreement?
A negotiated payment to UEFA instead of a sporting sanction, usually for clubs just outside the ratio.