With the summer transfer window well and truly in full swing the eye-watering sums of money being paid in the Premier League to acquire new players shows no signs of abating.
Arsenal are set to make Declan Rice the most expensive English addition in the Premier League imminently, with the West Ham United midfielder expected to complete a £105m switch across London. Elsewhere there has been considerable outlay from the likes of Manchester United who spent £60m signing Mason Mount from Chelsea, and Newcastle United splashed out £55m to bring Italian midfielder Sandro Tonali to Tyneside.
The issue of remaining under the radar of the Premier League’s profit and sustainability rules is more profound at some clubs than others. The P&S rules allow clubs to lose £5m per year or £35m if backed up by secure funding (i.e. an irrevocable commitment from owners or an equity contribution, with owner loans not sufficient). It is monitored over a three-year period meaning that the total of £105m is permitted to be lost over those three years. Failure to abide by the rules can result in a range of sanctions placed upon the club, from fines to potential points deductions.
Due to the significant financial impact of the coronavirus pandemic, the Premier League allowed for the 2019/20 and 2020/21 periods to be combined and assessed as an average of the two.
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Chelsea’s mammoth transfer spend over the first two transfer windows of the Todd Boehly/Clearlake Capital regime, where more than £600m was committed in transfer fees, means that there has had to be some serious trimming done this summer, with the likes of Mount, Ruben Loftus-Cheek, Mateo Kovacic, Edouard Mendy, Kalidou Koulibaly and Kai Havertz all heading out of the exit door at Stamford Bridge.
Some of those exits occurred in time to be accounted for ahead of the financial year end on June 30, while others won’t be seen until the 2023/24 accounting period. That means that there is likely to be some scrutiny over spend when it comes to the London side, although they will argue they are taking the appropriate steps and that some of the deals are amortised over a as much as nine years, a loophole now closed by UEFA.
For Liverpool it has been a significant summer spend already. Two midfielders have arrived in Alexis Mac Allister (£35m from Brighton & Hove Albion) and Dominik Szoboszlai (£60m from RB Leipzig) to take the committed spend to £95m already. It is possible that the spend will push close, if not go beyond, the £150m mark by the time the season starts.
For Liverpool the focus for a long time hasn’t been on whether or not they are able to avoid the scrutiny of P&S regulations but how much deals will impact the bottom line of a football club that has one of the strongest balance sheets in European football, one underpinned significantly by the financial approach that is taken in comparison to some of their rivals. But how much headroom do Liverpool have to spend without incurring any unwanted knocks on the door from the Premier League’s profit and sustainability watchdogs?
In terms of knowing the exact P&S position of Premier League clubs right now is near impossible to decipher given that the clubs are in new financial cycles for 2023/24 now and the accounts for 2022/23 won’t be made publicly available until late 2023, early 2024. However, to look at the 2021/22 accounts does give a fairly good indication of where the clubs were heading into this summer.
Figures presented by football finance expert Swiss Ramble show that over the three-year reporting period the Reds had made an operating loss of £75m. While on the face of it a significant figure, only Brentford, Burnley, Wolves and Tottenham Hotspur fared better, with Chelsea the worst performers with an operating loss of £552m.
For Chelsea, however, clawing back £269m in profit from players sales aided their recovery from that earlier bombshell figure, with Liverpool the sixth best performers with profit from players sales over the reporting period standing at £106m.
Next to be assessed was the net interest payable of Premier League clubs, the interest being paid on loans and refinancing of bonds. In that respect, where Spurs actually made a £5m operating profit over the three years, the net interest payable for the North London side stood at £106m, related to financing agreements for their stadium build. Manchester United were second on that list at £91m, that sum related to the leveraged buyout of the Old Trafford side by the Glazer family back in 2005. Liverpool’s place on that list was 11th at £10m.
Putting all the above together, as well as any profits made on the sale of property held, saw only four Premier League clubs turn a profit before tax over the three year reporting period. Brentford were the best performers at £45m, followed by Burnley at £40m, Wolves at £26m and Liverpool at £24m. The team that fared the worst are the team with the biggest P&S headaches in the Premier League at present, Everton, with the Toffees losing £287m. Of the so-called ‘big six’, three of them (Manchester United, Arsenal and Chelsea) were in the bottom five.
Despite heavy losses for some clubs, large elements of that do impact P&S regulations. The Premier League’s P&S rules allow for the deduction of investment in infrastructure, women’s football, youth development, community investment and depreciation of tangible fixed assets (physical assets such as stadiums). In the case of Spurs, their depreciation (£169m) was by far and away the largest in the Premier League due to the investment into the new stadium. Liverpool stood at £30m, around the midway point.
Liverpool’s allowable deductions for all of the above were £73m, the seventh highest in the Premier League but lowest out of all the so-called ‘big six’.
The analysis of Swiss Ramble showed that the three-year reporting period, with all factors considered, including the deduction of losses directly attributed to COVID, showed that nine clubs were profitable within the P&S regulations.
That gives an indication in terms of the headroom that clubs had heading into this new season, although some of the club’s looking at negative positions, such as Arsenal (£7m loss), will be buoyed by a return to the lucrative nature of Champions League football to positively alter their position moving forward, as well as any cost saving measures taken over the previous financial year just closed.
In Liverpool’s case, the Reds are profitable to the tune of £141m when it comes to P&S rules, the second highest in the Premier League behind only Spurs who stand at £231m, largely due to the amount that could be deductible from their position through the stadium investment being the main reason for negative financial impact.
In comparison to their other ‘big six’ rivals, Manchester United are in the black to the tune of £28m, Manchester City have lots of headroom at £109m, while Chelsea have work to do to turn around their position, the club making a £131m loss over the reporting period with regards to P&S rules. That is a position, however, that profit on player sales will aid significantly, especially given that Mount’s sale to United and Loftus-Cheek’s exit to AC Milan will be booked as pure profit due to them being academy products. In the case of the other sales, they only see the profit over and above the book value.
However, while allowed losses of up to £105m would be permitted for some clubs based on the most recent financial information available, with the likes of Everton and Chelsea among those to be afforded such wriggle room, that is due to the fact that the secure funding (irrevocable commitment from owners/equity funding).
In the case of Liverpool they would be afforded a £15m (£156m headroom when added and assessed within P&S rules) loss over that period, based on the financial information for the three-year period covered up to the financial year end in May 2022. That is because there has had to be no such commitment made by owners to prop up spending in such a manner, so it hasn’t been acted upon. That is similar for Manchester United and Arsenal (allowed £15m) and Manchester City (allowed £30m).
In conclusion, Liverpool have precious little to be concerned about when it comes to potentially breaching any P&S rules moving forward this summer, even if they do have to continue to spend heavily before the start of the new season. For some of their rivals, though, the number crunching will provide more of a headache.
