Squad Cost Ratio: The Premier League Stopped Measuring Losses and Started Measuring Wages

Two rules, two different questions

PSR asked: how much money has this club lost over the last three years? The answer had to be under £105m.

American sport constrains spending a different way — see the NBA’s second apron.

SCR asks: what proportion of this club’s revenue goes to its squad? The answer has to be under 85%.

Those look like the same kind of rule. They are not, and the difference determines who each one actually restrains.

PSR punished the wrong spending

A loss test counts all spending. If a club lost money because it overpaid a striker, that counted. If it lost money because it built a training ground, an academy, or a stand, that counted too.

The Premier League tried to patch this by excluding certain categories, but the underlying incentive stayed: a rule measured in losses treats every pound the same, regardless of whether it bought a depreciating contract or a permanent asset.

The Squad Cost Ratio simply stops looking at the rest of the business. Build what you like. What is capped is what goes to players, their amortised fees, and their agents.

That is a better-aimed rule. The problem the regulation is supposed to solve — clubs bidding themselves into insolvency for playing talent — is a squad-spending problem, and PSR was addressing it through an aggregate that included the roof over the stand.

Compare UEFA’s Financial Fair Play, which began from the same loss logic and has moved in the same direction for the same reason.

But a ratio locks in the hierarchy

Here is what a percentage cap does that a loss cap does not.

Eighty-five percent of a very large revenue is a very large number. Eighty-five percent of a small revenue is a small one. The ceiling scales with income, which means the rule permits the richest clubs to outspend the poorest by exactly the ratio their revenues already differ by — permanently, and with the league’s endorsement.

Under a loss test, a newly-promoted club with a wealthy owner could at least lose its way toward competitiveness within a fixed allowance that applied to everyone equally. £105m of permitted losses was the same £105m for Manchester City and for Luton.

Under SCR, the allowance is proportional. Nobody is treated unequally, and the outcome is structurally unequal — which is the usual property of proportional rules.

The clubs also voted down a proposal that would have introduced a salary cap. That vote and this rule are the same decision seen twice: the league will regulate spending relative to what you earn, and will not regulate it in absolute terms.

The red threshold is a price, not a wall

A club may exceed 85% and go up to the red threshold of 115% for one season. Doing so brings a levy, and reduces the next season’s headroom by the same percentage as the breach.

So a club that spends 100% this year has effectively borrowed 15 points from next year, and pays interest on the loan.

That is a tariff, not a prohibition — the same structural choice as the NFL’s touchback spot, where the league set a price for the behaviour it wanted to discourage rather than banning it and hoping.

The advantage is that it is self-correcting and does not require a tribunal. Under PSR, exceeding the limit meant a charge, a hearing, and eventually a points deduction — a punishment applied months or years later, to a squad that had often already changed. Under SCR the consequence is financial, automatic, and lands in the same accounting cycle.

Points deductions were always an awkward instrument. They punished supporters and players for a finance director’s decision, and they arrived with a delay that made the sporting effect close to random.

The March date matters more than it looks

Assessment is on 1 March, after the January transfer window closes, with monitoring in October.

PSR was assessed on the financial year, which produced the sport’s least attractive annual ritual: clubs selling academy players in June to book a profit before a deadline, sometimes to each other.

Testing in March, immediately after the window, means a club is measured on the squad it has actually assembled — and the incentive to make a paper transaction on 30 June disappears, because 30 June is no longer the date that counts.

The October monitoring point adds something PSR never had: a mid-season warning. A club heading toward the red threshold learns in autumn rather than discovering it in a hearing.

What it does not fix

Revenue is still partly within a club’s control, and the temptation SCR creates is obvious: if the cap is a share of revenue, inflate the revenue.

That is the related-party sponsorship argument, and the new framework does not resolve it — it makes it more central, because under a ratio every extra pound of claimed revenue directly buys 85p of permitted squad spending. Under PSR, an inflated sponsorship only offset a loss.

The Sustainability and Systemic Resilience test running alongside SCR is aimed at a different worry — liquidity, going-concern risk, whether a club can pay its bills — and is the part of the package that most resembles what a financial regulator would actually recognise.

Between them, the two tests split the old rule’s job in half: one asks whether a club is spending proportionately, the other whether it can survive. PSR tried to do both with a single number, and did neither especially well.

For the case law that shaped how football regulates its own labour market, see the Bosman ruling and football transfer rules.