Explaining Squad Cost Ratio and Anchoring: The Premier League’s Proposed Financial Rules

Earlier this week, Premier League higher-ups gathered for the first shareholders summit of the season in London. Attended by representatives from all 20 Premier League sides, the meeting was thought to have focused, in part, on the new financial regulations proposed for implementation starting in the 2026/27 season.

Known as Squad Cost Ratio (SCR), the new regulations are part of the competition’s attempt to align its rules with UEFA, with Premier League CEO Richard Masters telling Sky Sports that clubs are currently operating in a “dual system coming in and out of Europe,” and that one reason for introducing SCR is to stop this.

This is because SCR has been implemented by UEFA since 2023, meaning Premier League teams playing in Europe are currently required to adhere to two different sets of financial regulations.

The original set of rules, of course, is the Premier League’s Profit and Sustainability Regulations (PSR), which we broke down earlier this year. In a nutshell, these rules set out a certain amount of allowable losses a club could make before being penalised.

What are Squad Cost Ratio Regulations?

Under the new SCR system, which is yet to be formally voted on, clubs are provided with a limit on how much they can spend as a percentage of earnings.

Currently, UEFA’s existing system holds this percentage at 70%, meaning a club’s spending on its squad (including transfers and wages) can equal up to a maximum of 70% of its revenue.

In the UEFA system, costs include wages of first team players and staff, as well as amortised player payments and agents fees, all of which are added together. The resulting sum is then divided by revenue, which includes commercial and matchday earnings, as well as any profits made on player sales, producing an overall Squad Cost Ratio figure.

Originally, this model was voted to be introduced to England’s top flight this season, but was postponed. When introduced to the Premier League, it is likely that the limit will be 70% for clubs that play in Europe, but 85% for those that don’t.

This 15% increase accounts for the fact that clubs outside Europe do not have the lucrative revenue of their UEFA counterparts, providing a higher leeway of 85% to cushion this difference.

Both last season and now, the SCR system has operated in a period of so-called shadowing by the Premier League, enforcing PSR while simultaneously trialling SCR in the background.

The wider context of the rule change includes a 2025 summer transfer window that saw the spending record broken as Premier League clubs spent £3.11 billion on new signings.

Preceding this, multiple clubs pushed the limits of PSR, with some penalised for breaches, highlighting the popularity—or lack thereof—of the regulations.

Contrastingly, SCR was met with overwhelming support amongst PL shareholders, with 19 of the 20 shareholders stating they were in favour of the rule change back in February.

What does the Rule Change Actually Mean?

While the technical aspects of the rules are for clubs to debate, fans will want to know how the change in regulations impacts their club, its spending, and the fairness of the league as a whole.

A major implication will be for clubs with wealthier owners. Under PSR, clubs are allowed to make a loss of up to £105 million over a three-year window. Of this £105 million, £90 million must be covered by ‘secure funding’ from the owners, meaning clubs can only lose an average of £15 million a season of their own money.

In the proposed world of SCR, this ‘secure funding’ (which comes in the form of equity investment) does not count as football revenue, and therefore cannot cover excessive spending. In this case, clubs would have to resort to increasing revenue in other ways if they want to increase spending. The specifics of this are yet to be seen, but typical methods include increases in sponsorships, ticket prices, or global tours, as well as a potential focus on youth development.

Furthermore, the PSR system has faced criticism because it allows richer clubs to take bigger risks. With the three-year window allowing losses of up to £105 million, wealthier clubs can overspend heavily in one year if they make up for it in following years. Less wealthy clubs often do not have the cash available to push the limits of their PSR cap in the first place.

Once again, the new regulations aim to prevent this as, unlike PSR, SCR does not look back at previous three-year spending. Instead, clubs are explicitly given an annual budget they are expected to adhere to, which is to be re-evaluated each year.

What is Anchoring?

With SCR comes the natural question of ‘If spending is now tied to revenue, then how can less wealthy clubs ever catch up?’

This is where another acronym enters the equation: TBA.

Top-to-Bottom Anchoring, or simply Anchoring, is expected to run alongside SCR, and is a cap that would further limit spending in relation to the central income of the lowest-earning team in the league.

This central income is the amount of money allocated to each team by the Premier League each year, including TV rights and prize money depending on league position.

Just how much more the richer clubs can spend remains to be decided, though when the idea was initially agreed on in 2024, discussions revolved around the 4.5x mark of the lowest club’s central income.

A Practical Example

Using both TBA and SCR at the same time means that a top-end club may have their spending restricted by TBA even if they haven’t reached their SCR cap, and this is part of a wider effort to maintain the competitiveness of the league.

For example, if the side with the lowest allocation earned £100 million from the Premier League, no club could spend more than £450 million. This would be a ‘hard cap’, meaning even if a team’s SCR limit was at, for example, £500 million, that extra £50 million could not be spent.

Last season, the team with the least central income was Southampton FC, who were paid £109.2 million at the end of the Premier League season. This would then mean that no side could spend more than £436.8 million which would not have been allowed under the TBA rules at the time.

In the transfer window following that season, Liverpool FC were the top spenders at £446 million, exceeding the theoretical limit of £436.8 million, which they would not have been allowed to do had the TBA rules been in place at the time.

As we can see from this example, the introduction of anchoring may be done during a time where it is not particularly restrictive, and the cap is seen as a  ‘pre-emptive’ measure by the Premier League, intended to prevent clubs from entering a new level of extreme spending.

With the Premier League expected to transition towards anchoring and Squad Cost Ratio regulations, and away from the controversial PSR regulations, fans will have to wrap their heads around these rules to understand how much their club can spend on player transfers.

Global Institute of Sport aims to develop the next generation of modern sports professionals, with courses and modules ranging from administration to finance and beyond. To discover our programmes taught by industry-leaders, click here.

Article by Zakaria Anani