Financial sustainability and squad cost ratios: a new regulatory framework for football

The introduction of a new two-pillar framework relating to squad cost ratio and sustainability and systemic resilience represents a significant shift in football finance. The new rules link spending directly to revenue, impose stricter limits on leverage, prioritise liquidity and financial resilience. For clubs, this means more disciplined financial planning and greater reliance on equity funding. For lenders, it requires closer monitoring and more structured lending terms aligned with the regulatory framework.

From the 2026/27 season onwards, the Premier League (the PL) will replace its Profitability and Sustainability Rules (PSR) with a two‑pillar framework:

1. the Squad Cost Ratio (SCR); and
2. Sustainability & Systemic Resilience (SSR).[1]

About SCR

• SCR will limit on‑pitch expenditure to 85% of a PL club’s ‘football-related revenue and net-profit/loss from player sales’[2] across a season. This financial road-mapping is intended to dovetail with UEFA’s Financial Sustainability regime whose “Squad Cost Rule” use a similarly calculated cap of 70%[3] and the UK Government’s new Independent Football Regulator (the IFR) framework.[4] PL clubs will be able to exceed the 85% threshold to account for real-time changes to pre-budgeted calculations to football-related revenue, e.g. additional sponsorship deals in-season, or unexpected progression in a European competition, which contributes to additional revenue. Costs related to youth academies and women’s teams will be excluded, to promote continued incentives to invest in these areas.
• “Football-related revenue” will include matchday, broadcasting and sponsorship revenue. Given the inclusion of sponsorship and many commercial revenues in direct connection with squad spending, it will be interesting to observe whether the “Fair Market Value Assessment”[5], under the PSR regime, which is used by the PL to assess such transactions, will be scrutinised and policed more heavily.

About SSR

• SSR will also introduce forecasted working‑capital, liquidity and balance‑sheet tests assessed on a short to long-term basis to monitor financial stability. The change is not merely technical: it re‑prioritises club finance away from loss‑based monitoring and towards ratio‑based cost control and financial resilience to unforeseeable, monetary impacts on clubs. As SCR’s expenditure limits are like that of the UEFA threshold, it should not only help clubs to manage their finances when qualifying for UEFA competitions, or falling out of them, but also ease the burden of dual reporting for clubs in the PL and UEFA competitions in the same season.

Structure of SCR and SSR

SCR is monitored during the season against pre agreed revenue forecasts. Clubs are allowed limited flexibility through a headroom buffer above the 85% threshold, but breaches may result in financial penalties or points deductions, depending on severity.

SSR (Financial Resilience)[6] introduces three key financial tests:

1. 1. Working Capital Test (short term): clubs must hold at least £12.5m in readily available funds, including cash or accessible credit.
   2. Liquidity Test (medium term): assesses whether a club can remain financially viable over a two‑season period, including stress scenarios such as relegation.
   3. Positive Equity Test (long term): caps a club’s total liabilities relative to its assets, tightening over time to strengthen balance sheets.

Together, these tests aim to ensure clubs can withstand financial shocks while maintaining sustainable operations.

Impact on Debt Financing

The new framework significantly affects how clubs raise and structure debt:

• Reduced debt capacity: Borrowing is now constrained by regulatory ratios rather than solely by lender appetite.
• Treatment of shareholder loans: These are counted as liabilities, limiting their effectiveness as a flexible funding tool.
• Shift toward equity funding: Clubs may need to rely more on equity injections to remain compliant.
• Lender behaviour: Lenders are likely to prioritise predictable revenue streams (e.g. broadcasting income) and impose tighter covenant controls.

Liquidity and In‑Season Cash Management

• The SSR framework places greater emphasis on maintaining liquidity throughout the season. Clubs must demonstrate continuous access to sufficient funds, which has several practical implications:[7]
  • tighter loan terms and monitoring requirements;
  • restrictions on transfer spending and wage increases;
  • increased use of transfer income to manage debt levels; and
  • Financial discipline becomes critical, as regulatory breaches may lead not only to sanctions but also to lost revenue, for example through points deductions affecting league performance.

Insolvency Risk and Financial Stability

• One of the key aims of the new framework is to reduce the likelihood of financial distress.[8] By enforcing: minimum liquidity buffers, limits on leverage and stronger balance sheet requirements. SSR promotes earlier intervention and more stable financing structures. However, non‑compliance could still trigger lender intervention or restructuring, particularly where financial covenants are linked to regulatory metrics.

Key Takeaways

• Debt capacity now hinges on SCR/SSR compliance, meaning both parties must model funding and squad‑spend decisions within tighter ratio‑based constraints.
• Positive Equity Test limits leverage, pushing borrowers toward equity funding and requiring lenders to reassess traditional shareholder‑loan structures.
• Liquidity and Working Capital Tests elevate cash‑buffer expectations, so borrowers must maintain stronger operational resilience and lenders gain earlier visibility on stress indicators. Clubs are also pushed to have available debt facilities.
• SCR enforces seasonal discipline, requiring borrowers to pre‑budget transfer and wage spending; lenders must align facility availability and covenants to these test dates.
• Documentation must be regulatory‑aware, with lenders embedding compliance undertakings, monitoring rights and reporting aligned to Premier League timelines.
• Equity cures and early forecasting become essential, helping borrowers preserve covenant flexibility and valuation, while giving lenders a clearer path to remediation within the season.

Please get in touch with Philip Scott or Cameron Mairs  if you need to know more about these regulations or any other aspects of football finance.

[1] New Premier League financial system explained

[2] New Premier League financial system explained

[3] J Dzido ‘UEFA introduces 70% squad cost rule as part of new financial regulations’ (Uefa introduces 70% squad cost rule as part of new financial regulations – The Publisher Online) (published 8 April 2022)

[4] C Mairs and P Scott ‘How the Football Governance Act 2025 will affect debt financing in English football’ (How the Football Governance Act 2025 will affect debt financing in English football – LawInSport) (published 19 September 2025)

[5] Premier League, Premier League Handbook 2025-26 (Premier League, 2025) rule A.1.102

[6] New Premier League financial system explained

[7] New Premier League financial system explained

[8] N. Mashiter ‘What a difference a year makes’ (Nottingham Forest: One year on from PSR points deduction – BBC Sport) (published 18 March 2025)