As the summer transfer window heats up, the exorbitant fees being paid in the Premier League for new players continue to make headlines. Arsenal is on the verge of making Declan Rice the most expensive English addition in the league with a reported £105m move. While other clubs like Manchester United and Newcastle United have also made substantial investments in player acquisitions.
The Premier League’s profit and sustainability (P&S) regulations play a significant role in determining how much clubs can spend without facing sanctions. These rules allow clubs to incur losses of up to £5m per year or £35m over a three-year period. Provided they have secure funding. Failure to comply with these regulations can lead to fines or even points deductions.
Due to the financial impact of the COVID-19 pandemic, the Premier League allowed clubs to combine the 2019/20 and 2020/21 financial periods and assess them as an average of the two.
Chelsea’s substantial transfer spend over the past two transfer windows resulted in the need for significant cost-cutting measures this summer. Players such as Mason Mount, Ruben Loftus-Cheek, Mateo Kovacic, Edouard Mendy, Kalidou Koulibaly, and Kai Havertz have departed Stamford Bridge. Some of these deals were accounted for before the June 30 financial year-end. While others will be reflected in the 2023/24 accounting period. Consequently, scrutiny is expected regarding Chelsea’s spending. Even though some deals were amortized over up to nine years—an avenue now closed by UEFA.
Liverpool looking to spend more on acquiring Talent
Liverpool has already made significant investments this summer, with the arrivals of Alexis Mac Allister (£35m from Brighton & Hove Albion) and Dominik Szoboszlai (£60m from RB Leipzig), taking their committed spending to £95m. It is possible that their total expenditure will approach or exceed £150m by the start of the new season.
For Liverpool, the focus has not been on avoiding scrutiny from the P&S regulations. But rather on managing the impact of deals on their financial position. The club boasts one of the strongest balance sheets in European football, thanks to their prudent financial approach compared to some rivals. However, how much room does Liverpool have to spend without triggering unwanted attention from the P&S watchdogs?
Exact P&S positions of Premier League clubs are difficult to ascertain as they are now in new financial cycles for 2023/24. And the accounts for 2022/23 will not be publicly available until late 2023 or early 2024. Nonetheless, examining the 2021/22 accounts provides a reasonable indication of their financial situation heading into this summer.
Football finance expert Swiss Ramble’s analysis shows that over the three-year reporting period, Liverpool incurred an operating loss of £75m. While this figure appears significant, only Brentford, Burnley, Wolves, and Tottenham Hotspur fared better. With Chelsea recording the highest operating loss at £552m.
However, Chelsea managed to recover £269m in profit from player sales, significantly improving their position. Liverpool ranked sixth in terms of profit from player sales, generating £106m during the reporting period.
More Analysis
The analysis further considered net interest payable, which includes interest paid on loans and bond refinancing. Liverpool ranked 11th on that list, with net interest payable of £10m. In terms of deductions, Liverpool had the seventh highest allowable deductions for infrastructure investment, women’s football, youth development, community investment, and depreciation of tangible fixed assets, amounting to £73m.
Taking all these factors into account, along with any profits from property sales. Only four Premier League clubs turned a profit before tax over the three-year reporting period. Brentford performed best at £45m, followed by Burnley at £40m, Wolves at £26m, and Liverpool at £24m. Everton recorded the worst performance, with a loss of £287m. Among the so-called ‘big six,’ three clubs (Manchester United, Arsenal, and Chelsea) ranked in the bottom five.
Considering all these elements and factoring in COVID-related losses, the analysis by Swiss Ramble revealed that nine Premier League clubs complied with P&S regulations. This provides an indication of the headroom these clubs had heading into the new season. Clubs like Arsenal, which incurred a £7m loss, will benefit from the return of lucrative Champions League football and cost-saving measures implemented in the previous financial year.
Liverpool, in particular, has little to worry about in terms of potentially breaching P&S rules this summer. Even if they continue to spend heavily. Based on financial information from the reporting period up to May 2022, Liverpool’s P&S allowance for losses amounts to £15m (£156m headroom when added and assessed within the regulations). This is because the club has not made any irrevocable commitments. Or received significant owner funding, as required by the regulations. Similar allowances apply to Manchester United, Arsenal, and Manchester City.
Conclusion
In conclusion, Liverpool’s financial position provides them with ample room to maneuver in the transfer market without triggering concerns about P&S regulations. While they may continue to make significant investments before the new season. The number-crunching is likely to pose more challenges for some of their rivals.
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