Kieran Maguire and Nick De Marco’s meeting at the House of Commons signals the growing seriousness surrounding the regulation of money in football. While Premier League clubs recently spent a record £2.4 billion in the summer transfer window, concerns persist about financial stability and governance across the sport.
Key issues highlighted include charges facing Manchester City over alleged financial breaches, and Leicester City’s recent legal victory against the Premier League, which exposed inconsistencies in the financial rules between the Premier League and the English Football League (EFL). Aston Villa has also sparked debate by justifying its high ticket prices as a necessity for complying with financial rules. Meanwhile, Chelsea’s significant transfer spending has raised eyebrows, particularly after selling two hotels near Stamford Bridge to a company under their own control, drawing concerns about financial transparency.
Efforts to introduce an independent football regulator have gained traction but faced delays due to political shifts. Labour has reintroduced the Football Governance Bill, aiming to provide a stronger regulatory framework to prevent clubs from financial collapse, protect supporters from controversial decisions like joining a breakaway super league, and address competitive imbalances in the sport.
For clubs like Stoke City and their rivals, these potential regulatory changes could have significant implications. Stricter financial controls might limit excessive spending and create a more level playing field, while an independent regulator could intervene in areas like ticket pricing, ownership structures, and the overall financial health of clubs. However, the exact nature of these changes and their timeline remain uncertain as the debate over football governance continues to unfold.
Birmingham’s possible time bomb and the current EFL regulations
Championship clubs, such as Stoke City, operate under strict financial regulations compared to their Premier League counterparts. Championship clubs are allowed to accumulate losses of up to £41.5 million over a three-year rolling period (approximately £13.8 million per season). Investments in infrastructure or academies are excluded from this calculation, allowing clubs like Stoke to fund improvements at their stadium and training facilities without breaching financial rules.
In contrast, Premier League clubs are permitted to lose up to £105 million over the same period. For clubs relegated from the Premier League to the Championship, their allowable losses are prorated, depending on how long they spent in each division. For instance, a team relegated after two years in the Premier League and one year in the Championship can incur losses up to £83.8 million.
A notable example of financial maneuvering in the EFL is Birmingham City. Despite being relegated to League One, Birmingham embarked on a £20m-£25m transfer spree. However, clubs in League One follow different financial rules, known as the Salary Cost Management Protocol (SCMP), which limits wage spending to 60% of revenue (or 75% for recently relegated teams). Crucially, SCMP rules allow owner cash injections to be counted as revenue, giving clubs more financial flexibility. This leniency disappears when clubs are promoted to the Championship, where losses are strictly capped, even if they have relied on owner equity in League One.
Birmingham City, aware of the Championship’s financial limits, has employed strategies such as amortizing transfer fees over long-term contracts to manage costs within the Profit and Sustainability (P&S) rules. They are also aiming to boost commercial revenue to compete financially with clubs receiving parachute payments.
One method to sidestep EFL regulations is to minimize the time spent in the Championship by achieving quick promotions, as Ipswich Town did or by Leicester City’s relegation and rapid return strategy. Leicester, however, is a key example of exploiting a “loophole.” They were charged by the Premier League for exceeding the £105 million loss threshold for the three seasons leading up to June 2023 but successfully argued that the Premier League had no jurisdiction to charge them once they were relegated to the Championship. Although this cleared them for 22/23, Leicester still faces scrutiny for their 23/24 finances, but they did make around £40 million in sales before the June deadline, which could help them comply.
Ultimately, these financial regulations are designed to ensure long-term sustainability in football, but the various rules across divisions and loopholes exploited by clubs like Leicester highlight the complexities of managing football finances in England.
How Birmingham feels they can spend a lot while still adhering to the regulations
Tom Wagner, representing Birmingham City’s ownership group Knighthead, laid out an ambitious plan to boost the club’s revenue and brand recognition during a TED talk-style presentation to supporters. His vision is to transform Birmingham City into a globally recognizable brand, driving up revenue, which in turn would enable the club to spend more on improving the team. Wagner highlighted several strategies, including making the club’s kit a cultural symbol, driving media interaction, and securing sponsorship deals. His goal is to more than double the club’s revenue in the next season, aiming to reach a level comparable to clubs receiving parachute payments. He believes that achieving this financial strength would significantly increase the club’s chances of promotion to the Premier League.
Wagner stressed that boosting revenue is crucial to competing with parachute clubs and achieving long-term success in the Premier League. He referenced data indicating that clubs with higher revenue have a much better chance of promotion, and he aims to create a club that stays in the Premier League once promoted, rather than fluctuating between divisions.
Meanwhile, Stoke City is navigating its financial landscape under different circumstances. John Coates, Stoke’s owner, has emphasized that while the club is now debt-free and continues to invest in infrastructure projects, its financial position under the current Profit and Sustainability (P&S) rules makes it difficult to compete with clubs benefiting from parachute payments. Clubs with parachute payments receive millions from the Premier League, which are counted towards their P&S calculations, whereas equity investments by owners like Coates are not. However, Coates remains optimistic that Stoke will maintain a competitive budget compared to other non-parachute clubs.
There is potential for changes to the Championship’s financial rules, as the EFL is reviewing the current system. Stoke’s head of finance, John Pelling, is part of a working group exploring alternatives. One possible change could involve introducing a “squad-cost ratio,” similar to what is being trialed in the Premier League. This system would allow clubs to spend a percentage of their income on the squad, which could potentially replace the current P&S rules. The review could lead to a more equitable system that enables clubs like Stoke to remain competitive without relying on parachute payments.
Both clubs are in a phase of transformation, with financial strategies playing a crucial role in their future ambitions. Birmingham City is looking to become a global brand and drive revenue to fuel its ascent, while Stoke City is navigating the current financial regulations and looking ahead to potential changes that could level the playing field.