Another week, another set of obscure financial rules to try and get our heads round. Yes, just when we’d all managed to sound knowledgeable by remembering to refer to PSR not FFP, the Premier League passed a resolution to move away from their current system and adopt a new set of financial regulations.

What does it all mean and, more importantly, how will it impact United? Well, here’s our not-so-handy cut out and keep guide, covering three key questions in turn:

1. What are the new rules?

2. Are they a good thing?

3. Will we be able to comply?

Pay attention and you’ll be able to wow your mates over a pre-match pint with your new-found in-depth knowledge. Unfortunately, that insight won’t necessarily fill you with joy, take it from me.

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1. What are the new rules?

The details still have to be worked out, but the Premier League has committed to two broad changes. First, financial compliance won’t be measured in terms of a club’s overall profits and losses. Instead, it will depend on the “squad cost ratio”, i.e. the percentage of the club’s revenue that it spends on playing costs. Second, that ratio of permitted spending will be set at 85% for clubs not involved in European competition and 70% for those who are in Europe.

As for the finer points, it seems very likely that the regulations will closely follow those already set out by UEFA in their new regulations which have introduced that 70% spending cap. After all, seven or eight clubs each season are going to have to meet those criteria in any case, ten or twelve might aspire to, so it makes sense for them to already be aligning themselves with those rules.

In that case, we can reasonably make the following assumptions.

a) Spending will be defined as players’ and head coaches’ wages, transfer spending, agents’ fees, and any severance or compensation payments made. This will be the annual squad cost and all other spending will be excluded.

b) To calculate the cost ratio, that spending will be divided by revenue from the following sources: prize money, TV income, matchday income, commercial income, and transfer profits. Income from selling assets, say a London hotel to one of your own companies (how the hell did Chelsea get away with that one?!), or other one-off sources of revenue won’t count.

c) The relevant period will likely be shorter and more current, not the three previous seasons as is currently the case. In fact UEFA intend to use the calendar year in which the current season begins. As the regulations will be phased in, 2025 is likely to be the year in which compliance will have to be achieved for the 2025-26 season.

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2. Are the new regulations a good thing?

Well, this rather depends on what kind of club you support and what you think the purpose of financial regulation should be. But if you’re reading this, the chances are your sole interest is whether these make life better or worse for NUFC.

We’ll look in detail at the specifics of our financial situation below, but let’s phrase the question a little more generally for now. Do they make it more or less difficult for aspiring clubs like ours to bridge the divide to shit six?

Now, reader, I would love to have some good news for you here. But I don’t. The bad news is that these new regulations will not only pull up the drawbridge and leave aspirant clubs floundering on the other side of the financial moat, they’ll also throw boiling oil on them from the ramparts before pissing on their smouldering corpses. Apologies for being overly dramatic.

To explain… The current PSR rules might not have been particularly helpful, but they did at least allow for losses to be made and, just as importantly, the absolute level of losses was the same now matter how large or small your revenue as a club.

So if you’re a small Premier League club with a revenue of, say, £150 million, you can currently make losses of £35 million each year for three years in order to upgrade your squad and improve as a club. That’s nearly a quarter of your income, which is pretty substantial. Or you could take more of a punt and frontload those losses so they’re a third (£50 million) or even a half (£75 million) of your income in years 1 or 2 with the aim to grow revenue subsequently to compensate.

Now that’s not sustainable in the long term, and you’d need to make smart choices and ensure you did improve your league position. But there’s a clear lag between expenditure growth and the revenue growth that follows from it, so it’s a legitimate approach to take. In fact, it’s exactly what we’ve done.

Under the new system, at least at face value, there will be no annual losses permitted at all, no easy route to improve your team. At the risk of stating the obvious, losses mean spending at over 100% of revenue, but the new system means keeping spending well below that, at a maximum of 85%.

Of course, the differential between 85% for mid-to-lower table clubs and 70% for those in Europe has some levelling effect, reducing the spending power of the wealthier clubs. Welcome to socialism Premier League style!

But this only goes so far. After all, a smaller proportion of shit loads is still shit loads, and a larger proportion of bugger all is still, well, bugger all. Especially so when the differential is only 15%.

To illustrate the point, the two Manchester clubs would have playing budgets this year of £588 million and £469 million with a 70% limit, while Villa would be able to spend only £236 million, just ahead of us on £216 million, even if we both had 85%. Brentford and Palace would have only around £150 million to spend.

As such, the new regime sets in stone vastly different budgets for different kinds of clubs even allowing for that 85/70 ratio differential. And guess who the winners are?

And then there’s what I’m going to christen the “European trap”. Of course, clubs that reach the latter stages of the Champions League have vastly inflated levels of revenue which more than make up for that 15% gap, but spare a thought for a case where – oh, I don’t know, let me pluck a random, entirely made-up example out of the air – an upwardly mobile club unexpectedly qualifies for Europe or even the Champions League ahead of schedule.

Overnight, they’ll now face a 15% cut to their playing budget, about £30-40 million, precisely at a time when they need more, not fewer, playing resources. A long successful run in Europe might offset that, but an early exit won’t, something made more likely by the co-efficient that rigs – sorry, equitably determines – the draw and prize money allocation.

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3. Will we be able to comply?

Inevitably, we have to speculate here because our most recent set of accounts cover 2022-23. Still, the ever informative Swiss Ramble has done some number crunching for all Premier League clubs based on their most recent accounts, and this is what he comes up with for us.

He has our total squad cost for this purpose as £248 million, made up almost entirely of wages (£159 million) and amortised transfer fees (£87 million). On the other side, our relevant earnings are put at £255 million: £165 million from broadcasting, £47 million of commercial income, and £38 million matchday revenue. Only £4 million come from transfer fees.

Divide the former by the latter, and our current (2022-23) squad cost ratio is 97%.

Yes, that’s right. In 2022-23, we had the highest squad cost ratio in the league, and we’re one of only five current Premier League clubs to be above the 85% threshold, along with Wolves (95%), Aston Villa (93%), Everton (87%), and Chelsea (87%).

Swiss Ramble assumes that our target ratio is 85% since we weren’t playing in Europe when the relevant financial figures we generated in 2022-23. As such, he calculates that we’re 12% or £32 million short of compliance, behind only Chelsea who are 17% (or £103 million) short of their 70% target from that season.

It’s not a coincidence, then, that mentions of us in his piece consistently highlight how the regulations make life difficult for us. Newcastle, he writes, “show how difficult it is for aspirational clubs to comply with such regulations”. He singles out Villa and us as the big losers.

In reality, things are far worse, because 70% has to be assumed to be our real target figure. After all, it seems likely we’ll qualify for Europe again next year and that must surely be our minimum benchmark for success. As such, our gap to compliance would stand at a pretty staggering 27% or £74 million, since our new squad cost target would be reduced from £216 million to £174 million.

How do we bridge the gap? Well, any extra European games bring added income from TV rights, matchday revenue, and prize money but these are unlikely to be vast at the level we’re currently operating. We know there’s a new kit sponsor for 2023-24 and kit deal for 2024-25 but these aren’t monstrously big-money propositions. And all the while, don’t forget that expenditure will be increasing too.

The cold reality is that transfer income is needed. In the last three years, our income from that source has never been more than £4 million, a paltry figure compared to Chelsea and Manchester City (more than £120 million) or even Brighton, Everton, and Villa (all more than £60 million). Maxi, Shelvey, and Wood will have increased the figure for this season but much more is needed.

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For once, the blame lies not with the Premier League but rather with UEFA. More accurately, it lies with the clubs who created the ESL, both in England and abroad. These new regulations were UEFA’s bribe to keep them onside, a system guaranteed to protect their financial advantage in perpetuity.

I’m no conspiracy theorist. I instinctively baulk at talk of cartels and corruption. But on this one, you’d be absolutely right to rage at the most appalling collusion in a vile, self-serving closed shop, created with the sole intention of killing off competition. It’s fucking disgraceful, and we should be explaining as much to all Newcastle fans and anyone who else supports one of the “other 14”, venting our fury and demanding change.

Fat good that will do. This battle was lost long ago, and our club is hardly on the side of the virtuous when it comes football and ethics. So enjoy Bruno while you can, because these new regulations guarantee one thing. He won’t be here in August.

Matthew Philpotts