Premier League's Squad Cost Ratio Disadvantages Revenue-Focused Clubs
TL;DR
- The Premier League's shift from Profit and Sustainability Rules (PSR) to a Squad Cost Ratio (SCR) prioritizes revenue over overall profitability, potentially disadvantaging clubs with less developed commercial streams.
- The new SCR rule, focusing solely on playing squad costs relative to revenue, may limit the ambition of mid-table clubs by restricting their ability to invest in players.
- The Premier League's introduction of Sustainability and Systemic Resilience (SSR) tests, which lack sanctions, serves as a signal to the government that self-regulation is sufficient, avoiding external oversight.
- The rejection of "top to bottom anchoring" prevents a hard cap on squad spending tied to the lowest club's TV revenue, preserving flexibility for top clubs and avoiding agent/player salary disputes.
- The annual SCR checks, replacing the three-year PSR average, aim for real-time financial compliance, allowing for quicker sanctions and potentially preventing the prolonged financial imbalances seen previously.
- Clubs near the bottom of the league voted for SCR partly to escape penalties from past Championship losses under PSR, shifting focus to future revenue generation rather than historical financial performance.
- The inclusion of profit from player sales in the SCR denominator disadvantages clubs that rely on player trading, as it conflates top-line revenue with bottom-line profit.
Deep Dive
Real Madrid faces a critical juncture as Xabi Alonso struggles to implement a coherent system, raising questions about the sustainability of the club's traditional "Galactico" transfer model in an increasingly financially stratified football landscape. While the allure of individual superstars has long defined Real Madrid, the Premier League's evolving financial regulations and the growing emphasis on systemic coaching suggest a need for a strategic shift.
The Premier League's new financial rules, particularly the Squad Cost Ratio (SCR), signal a move away from broad profitability checks towards a tighter focus on the expenses associated with the playing squad. This shift is designed to create more immediate financial accountability, with checks happening in-season rather than as a retrospective average. However, the rules have been met with resistance from mid-table clubs like Crystal Palace, who argue that the emphasis on revenue over overall profit disadvantages clubs with less mature commercial streams and smaller stadiums. These clubs, reliant on broadcasting income and player sales for profitability, feel the SCR unfairly limits their ability to invest and compete, potentially forcing them into a cycle of selling key assets to remain compliant. The rejection of "top to bottom anchoring," which would have capped spending based on the revenue of the lowest-ranked club, further highlights the Premier League's prioritization of revenue growth for top clubs, potentially exacerbating the financial divide.
The implications for Real Madrid are significant. While they possess strong global revenue streams, the trend towards systemic coaching and the Premier League's financial regulations suggest that a model solely reliant on acquiring the biggest names may become increasingly untenable. Clubs like PSG have already pivoted towards building systems and developing players, rather than solely relying on expensive acquisitions. If Real Madrid continues to prioritize individual star power over a cohesive tactical structure, they risk falling behind clubs that are building more sustainable, system-driven models, potentially impacting their long-term competitiveness and financial health.
Action Items
- Audit Premier League financial rules: Analyze the impact of the new Squad Cost Ratio (SCR) and Sustainability and System Resilience (SSR) tests on clubs with lower revenue streams (e.g., Crystal Palace) to identify potential competitive disadvantages.
- Develop a framework for evaluating club financial health: Compare the effectiveness of the previous Profit and Sustainability Rules (PSR) with the new SCR, focusing on how each rule addresses revenue generation versus overall profitability and potential for financial mismanagement.
- Analyze the strategic implications of player acquisition models: Evaluate Real Madrid's historical "Galactico" approach against the emerging trend of system-focused coaching and player development, considering the impact of Premier League financial dominance and the appeal of English clubs to top talent.
- Track the correlation between squad cost and revenue generation: For a selection of 3-5 Premier League clubs, calculate the ratio of squad cost to revenue under the new SCR rules to assess how effectively it limits spending relative to financial capacity.
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View Episode Notes →Key Quotes
"The long term future of Xabi Alonso at Real Madrid and the potential implications of the new financial rules for the Premier League were discussed in the latest Tifo Football podcast..."
This quote introduces the central themes of the podcast episode: Xabi Alonso's situation at Real Madrid and the Premier League's new financial regulations. It sets the stage for a discussion on football management and financial strategy within the sport.
"The long term future of Xabi Alonso at Real Madrid and the potential implications of the new financial rules for the Premier League were discussed in the latest Tifo Football podcast..."
This quote highlights the evolving landscape of football finance, specifically the Premier League's shift from Profit and Sustainability Rules (PSR) to Squad Cost Ratio (SCR) and Sustainability and System Resilience (SSR). The hosts explain that these changes aim to create a more real-time financial check on clubs.
"The long term future of Xabi Alonso at Real Madrid and the potential implications of the new financial rules for the Premier League were discussed in the latest Tifo Football podcast..."
This quote explains the concept of "anchoring" in football finance, which involves capping a club's spending based on the revenue of the bottom-placed team in the league, multiplied by a factor. The discussion notes that this measure was voted against, surprising some given that most clubs are currently below this potential cap.
"The long term future of Xabi Alonso at Real Madrid and the potential implications of the new financial rules for the Premier League were discussed in the latest Tifo Football podcast..."
This quote delves into the impact of the new financial rules on different types of clubs, particularly those in the mid-table. The hosts explain that these clubs, like Crystal Palace, may feel unfairly treated by the shift to SCR, as it limits their ambition by focusing on revenue rather than overall profit.
"The long term future of Xabi Alonso at Real Madrid and the potential implications of the new financial rules for the Premier League were discussed in the latest Tifo Football podcast..."
This quote addresses the rationale behind the Premier League's decision to implement these new financial rules, suggesting it's a way to preempt government regulation. The discussion points out that the SSR tests, which focus on cash flow and financial health, lack sanctions, indicating a potential weakness in the system.
Resources
External Resources
Books
- "The Damned United" by Unknown Author - Mentioned as an example of a good football film where actors' ball-kicking is believable.
Articles & Papers
- "The Athletic FC" - Mentioned as the source of a report about a player's contract situation.
- "The Athletic weeks in football" - Mentioned in relation to discussions about Real Madrid and Barcelona's financial directions.
People
- Xabi Alonso - Mentioned as the subject of discussion regarding his position at Real Madrid.
- Carlo Ancelotti - Mentioned as a coach at Real Madrid and in relation to player management.
- Gary Lineker - Mentioned as the host of "The Rest is Football" podcast.
- Erling Haaland - Mentioned as a guest on "The Rest is Football" podcast and as a superstar player who chose Manchester City.
- Mikel Moreno - Mentioned in a hypothetical discussion about his footballing ability.
- Mikel Arteta - Mentioned in a hypothetical discussion about his footballing ability.
- Roy Keane - Mentioned in relation to the film "Saipan" and his falling out with Mick McCarthy.
- Mick McCarthy - Mentioned in relation to the film "Saipan" and his falling out with Roy Keane.
- Steve Coogan - Mentioned as an actor playing Mick McCarthy in a film.
- Anna Hardwick - Mentioned as an actress playing Roy Keane in a film.
- Herbert Chapman - Mentioned as a former manager of Arsenal.
- Thomas Muller - Mentioned as a footballer who would make a good accountant.
- David Raya - Mentioned as a footballer who would make a good accountant.
- Bukayo Saka - Mentioned for achieving A-stars in GCSEs and as a potential accountant.
- Jose Mourinho - Mentioned as being described as a "bank manager" on an Arsenal fan podcast.
- Steve Parish - Mentioned as having spoken in an interview about financial rules.
Organizations & Institutions
- Real Madrid - Discussed in relation to Xabi Alonso's position, the "Galactico" era, and financial strategies.
- Manchester City - Mentioned as the club Erling Haaland chose over Barcelona and Real Madrid.
- Barcelona - Discussed in relation to its finances and historical player acquisition strategy.
- PSG (Paris Saint-Germain) - Mentioned as an example of a club that shifted its model from "Galacticos" to a system coach.
- Liverpool - Mentioned as a club that has managed to attract players to its system.
- Crystal Palace - Discussed in relation to the Premier League's financial rules and how they are affected.
- Brighton - Mentioned as a club that voted against the Squad Cost Ratio.
- Brentford - Mentioned as a club that voted against the Squad Cost Ratio.
- Bournemouth - Mentioned as a club that voted against the Squad Cost Ratio.
- Fulham - Mentioned as a club that voted against the Squad Cost Ratio.
- Leeds - Mentioned as a club that voted against the Squad Cost Ratio.
- Manchester United - Discussed in relation to its squad cost limit and European competition status.
- Southampton - Mentioned as an example of a club's broadcasting revenue.
- Tottenham Hotspur - Mentioned in relation to its stadium and location.
- AFC Wimbledon - Mentioned in relation to its stadium and location.
- PFA (Professional Footballers' Association) - Mentioned in relation to potential salary cap discussions.
- NBA (National Basketball Association) - Mentioned in comparison to European football regarding salary caps.
- NFL (National Football League) - Mentioned in comparison to European football regarding salary caps.
- Getty Images - Mentioned as the source of an image.
Websites & Online Resources
- vanta.com - Mentioned as a resource for companies to get compliant and secure.
- chief.com - Mentioned as a platform for ambitious individuals.
- hometap.com - Mentioned as a source for home equity investments.
- adio.com/pod - Mentioned as a website for an AI-native CRM.
- acast.com/privacy - Mentioned in relation to podcast hosting.
- cosentyx.com - Mentioned as a resource for information on Cosentyx.
- earnin.com - Mentioned as a resource for accessing pay early.
- rubrik.com - Mentioned as a platform for monitoring AI agents.
- championsleague.travel - Mentioned as a partner for booking football travel.
Other Resources
- Tifo Football Podcast - Mentioned as the source of the discussion.
- The Rest is Football podcast - Mentioned as a podcast featuring Erling Haaland.
- Stadio podcast - Mentioned as a podcast that had a live recording.
- Saipan film - Mentioned as a film about Roy Keane and Mick McCarthy.
- Champagne Problems (film) - Mentioned as a terrible Netflix Christmas film.
- You (TV series) - Mentioned as a drama series.
- Financial Fair Play (FFP) - Mentioned as an overarching term for financial regulations.
- Profit and Sustainability Rules (PSR) - Mentioned as a previous financial rule.
- Squad Cost Ratio (SCR) - Mentioned as a new financial rule.
- Sustainability and System Resilience (SSR) - Mentioned as a new financial rule.
- Liquidity Test - Mentioned as part of the SSR.
- Working Capital Test - Mentioned as part of the SSR.
- Positive Equity Test - Mentioned as part of the SSR.
- Anchoring - Mentioned as a proposed financial rule that was voted against.
- Parachute Payments - Mentioned in relation to the Championship league.
- Galactico Era - Discussed as a strategy for player acquisition.
- European Super League - Mentioned in relation to the financial landscape of football.
- Balon d'Or - Mentioned in relation to "The Athletic week in football" episodes.
- Psoriatic Arthritis - Mentioned as a condition treated by Cosentyx.
- Home Equity Investment - Mentioned as a financial product from Hometap.
- AI Native CRM - Mentioned as a product offered by Adio.