Sheffield United could face £34m spending blow as EFL clubs vote on seismic financial shake-up
Sheffield United could be facing a multi-million-pound spending squeeze if dramatic financial reform is voted through in the Championship tomorrow
Sheffield United will join the rest of their Championship rivals in a seismic vote tomorrow that could dramatically slash how much they will be permitted to spend on transfers going forward. The Blades are already braced for a financial squeeze as their parachute payments run out this summer.
But an upcoming vote amongst EFL clubs could change the landscape even further, as they decide whether to replace the existing profit and sustainability (P&S) rules with a squad cost ratio system capping spending to 85 per cent of a club’s ‘football revenue’.
Currently clubs are only permitted to make losses of up to £39m across a three-year cycle of Championship football, with a number - including United’s city rivals Wednesday - falling foul in recent years. West Bromwich Albion were the latest to be punished only last month.
Perhaps crucially, the proposed new rules would allow an annual cash boost of around £10m from owners to top-up their club's spending abilities. United's owners, the COH Sports group, lent the Blades a similar amount in the last accounts to help them report a rare Championship profit.
But more and more owners are allowing themselves to be seduced by the prospect of reaching the Premier League and accessing the riches that it brings, with losses amongst Championship clubs reaching astonishing levels.
At least 16 clubs must approve the proposed changes for them to be implemented, with a Championship source telling the Guardian that the vote is expected to be tight "because there are differing views on financial regulations" in both the Championship and League One, who will debate their own financial reforms.
United and the rest of the Championship clubs trialled squad cost ratio in shadow form last season, the Guardian reported, and "so are equipped to make the transition despite the vote taking place at the end of the campaign."
It is currently unclear which way United intend to vote but the suggestion is that the new plans are not exactly aligned to their interests. As one of the few Championship clubs to post a profit last year, they are not under any real pressure to meet the £39m cap across a three-year cycle.
An 85 per cent limit on their spending, however, would be dramatically impacted by their looming loss of parachute payments which dominated their income in the last financial year.
Much will depend on the exact definition of "football revenue." Arguably all the income that a football club generates could be described as such, with United posting total revenue/turnover of almost £80m in the last accounts.
If that turnover broadly reflected the SCR definition of football revenue, which remains unknown, it would theoretically limit United to around £67m in spending. Their operating costs in the last accounts were around £58m, which - again, in theory - would give them some wiggle room.
But crucially, their income was dramatically influenced by the parachute payments, with the theoretical spending cap falling substantially without them. Second-year parachute payments are estimated to be worth as much as £40m - and the loss of that figure could effectively wipe £34m from United's spending power under the proposed new rules.