Finance expert says whether Newcastle United will be better off under Squad Cost Ratio rules
Last week, the Premier League voted to scrap Profit and Sustainability Rules (PSR) in favour of a Squad Cost Ratio (SCR) system.
This means that from next season, clubs' transfer budgets will no longer be decided by an arbitrary loss limit that hasn't increased with inflation for over 10 years, but will be able to spend 85% of their revenue instead.
Newcastle United and other teams that are participating in UEFA competitions are already bound by a similar system, but the UEFA limit is set at 70%, so, in those terms, nothing really changes for Newcastle other than they no longer have that loss limit to worry about.
But the big question is, are Newcastle going to be any better off under the new system?
Football finance expert isn't expecting a dramatic shift under SCR
Geordie Boot Boys have spoken to football finance expert, Adam Williams and asked that very question. While Williams says it's too early to say for certain either way, he did make a few interesting points that are worth considering.
“On face value, I think the long-term prospects for Newcastle under SCR look slightly better than under the PSR system because it’s based on revenue, not their bottom line. Although, I will qualify that statement with the fact that, because of the loophole under PSR that you could sell physical assets to yourself and book the profits, clubs who were creative could carve out artificial spending room during the twilight era of PSR anyway.”
This sounds like we should expect some more car parks to be sold before the end of the season. We wonder if Newcastle would be so bold as to exploit this loophole before it's closed. Our gut feeling is that we won't because we're still under the microscope following our controversial takeover, but it would definitely shine a light on how some clubs get prerefential treatment when exploiting the rules if we were to try and it and got reprimanded.
Newcastle have the seventh-highest revenue in the Premier League
Williams' big point was that even with the rule change, that gap between us and the 'big six' is still way to big to bridge, so it's not going to change the power dynamic.
“In terms of it being a revenue-based system, Newcastle have the seventh-highest revenue in the Premier League and, when the new stadium is eventually built, they should separate themselves from the other 13 clubs.
“Bridging the gap between themselves and the Big Six in terms of turnover is, I think, going to be impossible, however. Those clubs simply have much bigger brands internationally, and that lead has been built up over decades. There’s a lot of intangible stuff that goes into that.
“The only other way they are going to be able to earn as much – and therefore spend as much – on a consistent basis is if the Premier League and UEFA change how they distribute money. Where we are at the moment, I don’t see that happening.”
The change is definitely a good thing as PSR has proved many times to be unfit for purpose, and the only way to know for sure if SCR is better is to try it out. But we're not holding our breath for any meaningful change.
