Football Finance: FFP and How to Compute Player Transfers — Arsenal Example

5 min readJun 30, 2024

This blog explores the concept of PSR (Profitability and Sustainability Regulations) within football and how the accounting treatment of player trading assists clubs in meeting their financial targets.

Additionally, it provides short player contract computations via Excel into the significance of key financial statements, which are crucial for assessing a club’s overall profitability.

More Information: (see Premier League Handbook 23/24)

What is PSR?

Profit and Sustainability Regulations (PSR) are the Premier League specific financial controls imposed onto Premier League clubs. It aims to:

Promote Financial Fair Play : Ensure clubs cannot leverage an unfair advantage in excessive player spending and debt accumulation.
Protect Club Health : Ensure owners are the safeguarding custodian of their Clubs, and showcase sustainability and prevent financial distress.
Stabilise the Market : Prevent inflationary pressures on player fees and wages, to ensure a more competitive and balanced market.

PSR achieves these objectives by setting a financial benchmark clubs must adhere to, focusing solely on their adjusted losses compared to their revenue over a 3 year rolling period, and limiting this.

The PSR Calculation: Adjusted Losses?

“PSR Calculation” means the aggregation of a Club’s Adjusted Earnings Before Tax for T, T-1 and T-2;
— Premier League Handbook, Section A

In short, a clubs adjusted losses over a 3 year period must not exceed £105 million.

Summary of Key Provisions:

Baseline: If Club’s aggregate Earnings Before Tax (EBT, found in Profit and Loss Statement) over the last 2 years are in a loss, club is referred to publish PSR Adjusted Losses.

Lower Limit : If Adjusted Losses < £15 million = Board shall determine whether liabilities are able to pay short term liabilities within 1 year.
Middle Limit : If Adjusted Losses > £15 million = Club must submit 2 year forecast to showcase “secure funding” (NOT DEBT!).
Upper Limit : Adjusted Losses > £105 million = FAIL! SANCTION!

What are “Adjusted Losses”?

Adjusted Losses come from the EBT (Earnings Before Tax) in the Profit and Loss Statement, with some key adjustments and exclusions, added back, to provide a more accurate representation of a club’s financial health:

Exclusions:

Youth Development: Expenses related to the club’s youth academy, including player development and education.
Infrastructure: Costs associated with stadium improvements, training facilities, and other capital expenditures aimed at long-term facility enhancement.
Women’s Football: Expenditures related to the club’s women’s football team, including player salaries and operational costs.
Community Projects: Expenditures on community engagement and development initiatives.

Important Note:

When a player is sold, their book value, which is based on their amortised value, is deducted from the Balance Sheet.

Value from Player Sale (£) = Selling Price — Book Value

When selling an academy player, the entire selling price is considered “pure profit.” This is because the costs associated with developing an academy player are included in the annual operational expenses. Since these costs are expensed rather than capitalized, the book value of an academy player on the Balance Sheet is minimal or zero (£0).

Player Deals: The 3 Financial Statements and Amortisation

Profit & Loss Statement:

The Profit & Loss Statement provides an annual summary of all the club’s expenses and revenues.

Examples of revenue streams: broadcasting rights, match-day income, sponsorship income, player sales, etc.
Examples of expenses: operational costs, staff salaries, administrative costs, and player transfer fee amortisation.

At the bottom line, the club is left with NET INCOME.

Balance Sheet:

The Balance Sheet provides a snapshot of the club’s financial health by showcasing its assets, liabilities, and equity.

Examples of assets: cash, stadium and training facilities, player contracts, and broadcasting rights.

This statement helps assess the club’s financial position at a specific point in time.

Cash Flow Statement:

The Cash Flow Statement records the actual inflows and outflows of cash within the club over a specific period.

Important Note:

The Cash Flow Statement highlights the timing of payments and the structure of instalments but does this not affect the amortisation of players as assets. Whether the transfer fee (£) is paid upfront in full or over multiple instalments, it has no impact on the club’s adjusted losses for PSR compliance.

i.e. Cash flow of transfer fees are irrelevant to PSR

Amortisation: Players as Assets

In the context of a football club, player transfer contracts are capitalised. This means that player contracts and their respective transfer fees are treated as assets, rather than expenses.

If players were treated as expenses, the entire transfer installment would be recorded on the Profit & Loss Statement in the year of purchase and deducted from revenue.

However, by capitalising players as assets, the transfer fee is amortised over the life of the contract. Only the yearly amortized amount is deducted each year, not the entire transfer fee at once.

It is important to note that player wages are still treated as an expense.