Cost controls are the right fix for English football's loss habit

Key takeaways

• The Guardian reports that the Independent Football Regulator's State of the Game report will recommend that clubs adopt greater cost controls.
• According to the Guardian, the draft report finds that 94% of the top 116 clubs in English men's football are loss-making.
• When almost every club loses money, the cause lies in shared incentives around wages, transfer fees and promotion, not in individual mismanagement.
• Cost controls that tie squad spending to revenue would change how clubs approach transfers, contract lengths and wage structures.

The argument: losses this widespread call for structural limits

The Guardian reports that the Independent Football Regulator (IFR) will publish its State of the Game report on Tuesday. It is a draft of about 250 pages. An eight-week public consultation begins this week, and a final version is due in the spring. The headline finding is that 94% of the top 116 clubs in English men's football are loss-making. The report will recommend that clubs bring in greater cost controls as part of a wider set of proposals on sustainability.

This article argues that the recommendation is correct, and that cost controls should be the centre of the regulator's approach rather than a side issue. The case rests on one observation. When a few clubs lose money, you can blame poor decisions in particular boardrooms. When nearly all of them do, the problem is the structure of the market. Clubs are reacting sensibly to incentives that push them to spend more than they earn. Only a rule that changes those incentives for everyone at once can stop that.

The transfer market is where this shows most clearly. A club's two largest controllable costs are usually player wages and the accounting cost of transfer fees. Both are set in a competitive market where each club's spending raises the price for the others. Any club that holds back on its own risks falling behind rivals that do not. A cost control is a coordination device. It lets every club spend less without any one of them giving up ground alone.

Evidence one: the promotion and relegation gamble pushes spending ahead of income

English football is an open pyramid, and the income gap between divisions is very large. That shapes how clubs behave in the transfer market. Clubs in a lower division often treat promotion as the route to financial stability. They spend on wages and fees now, betting that the higher division's income will cover the bill later.

The bet is rational for each club taken alone. The difficulty is that only a limited number of clubs can be promoted in any season. Every club chasing promotion takes on similar costs, but most of them will not get the income that would justify the outlay. Across the league as a whole, losses are therefore close to built in. In each division several clubs pay for the chance of promotion and only a few collect it.

Relegation runs the same mechanism in reverse. A club that drops down keeps contracts signed on the assumption of higher income. Clubs often try to handle this with relegation clauses that cut wages automatically when the club goes down. Those clauses are negotiated one contract at a time and are not universal. Players with strong bargaining positions may refuse them, and agents may trade them away for other terms.

A cost control linked to revenue tackles this directly. It caps how far ahead of current income a club can spend on its squad. That limits the size of the promotion bet and the damage a failed bet can do. The Guardian's report of a 94% loss-making rate fits this account. The finding is hard to explain by chance and easy to explain by a system that pays clubs to gamble.

Evidence two: amortisation and long contracts hide the true cost of transfers

Most clubs do not book a transfer fee as a single cost in the year they pay it. They spread it across the length of the player's contract. This is called amortisation. In accounting terms, a large fee for a player on a long contract becomes a smaller yearly charge.

The practice is legitimate and widely used, but it affects behaviour. The cost of a signing appears in the accounts in instalments, so a club can commit to fees that its current income could not cover if they were booked at once. Instalment payment schedules agreed between clubs add another layer. The cash may leave the club on a timetable different from the accounting charge, and both may differ from when the player actually contributes on the pitch.

Earlier rules focused mainly on losses over a fixed period. Clubs could manage those rules through how they timed and structured transactions. Long contracts, the timing of player sales, and transactions between related clubs could all be used to make the figures look better. A cost control aimed at the ratio of squad costs to revenue is harder to manage this way. It looks directly at what a club spends on players, including the yearly cost of fees, compared with what the club earns.

The details of the IFR's proposals are not yet known, because the report has not been published in full. If the recommendations follow the logic of controlling squad costs, they would bring regulation closer to the real commitments clubs make when they sign players.

Evidence three: the regulator's remit is financial resilience, not sporting outcomes

The IFR was set up by statute to protect the long-term sustainability of English football. Its focus is the financial soundness of clubs and the protection of their heritage for the communities they serve. It is not there to decide who wins. That remit matters to the argument. A regulator charged with resilience that saw near-universal losses and did nothing about costs would be failing its own purpose.

Cost controls are a tool that fits this purpose. They do not decide which players a club may sign, which agents it may use, or what tactics it may play. They set a frame inside which clubs make those decisions. A club can still sign whoever it likes, provided the total cost of its squad stays within a limit tied to its income. Clubs keep their freedom to build squads as they choose. The risk that one club's overspending ends in insolvency, with the losses falling on creditors, staff and supporters, is reduced.

The consultation process also supports a measured approach. The Guardian reports that the draft will be open to public consultation for eight weeks before a final version in the spring. Clubs, supporters and other interested parties can therefore challenge the detail before anything is settled. Recommending cost controls at this stage starts that debate. It does not impose a finished rulebook.

The strongest case against: cost controls may entrench the existing order

The strongest objection is that cost controls tied to revenue lock in the current hierarchy. Clubs with large incomes can spend large amounts. Clubs with small incomes are held to small budgets. In an open pyramid, ambitious clubs climb partly by spending ahead of their income. Seen this way, the promotion gamble described above is not a fault. It is how upward mobility works. Take it away and the clubs at the top become harder to challenge, because nobody below can invest their way up.

A related objection concerns ownership. Some argue that an owner who is willing to absorb losses, and has the means to do it, is not a danger to the club. Losses are only a problem when nobody is willing or able to cover them. On this view, the 94% figure overstates the risk. Many of those losses may be funded by owners who knowingly treat the club as a long-term investment or a civic commitment. A regulator could instead focus on whether owners can prove they will fund losses, through guarantees, deposits or checks on their resources, and leave spending alone.

Practical concerns follow as well. Cost controls need precise definitions of revenue and squad cost. Every definition creates room for clubs to find ways round it. Commercial deals with related parties can inflate revenue. Spending can be pushed into categories the rules do not count. Compliance takes administrative effort, and that burden falls hardest on smaller clubs with thin finance departments. If English rules differ from those used in European competition, clubs that play in both may face two systems at once.

These objections deserve to be taken seriously. They are the most likely ground for argument during the consultation.

Evidence that would change the conclusion

Several kinds of evidence would weaken the case made here. If the full report showed that most losses at the 116 clubs were small, short-lived and reliably covered by owners, and did not lead to unpaid debts or threats to a club's survival, the argument for cost controls would be much weaker. The case for focusing on owner funding instead would be stronger.

If the losses turned out to come mainly from costs outside the squad, such as stadium investment, debt servicing or one-off items, then controls aimed at wages and transfer spending would be pointed at the wrong target.

The case would also weaken if experience under comparable revenue-linked rules elsewhere showed that clubs at the top of the system became less likely to be challenged. The objection about entrenchment would then outweigh the gains for resilience.

Finally, the design matters as much as the principle. If the consultation shows that no workable definition of revenue and squad cost can be found, one that resists manipulation without loading small clubs with costs out of proportion to their size, then the recommendation would be right in theory and difficult in practice. The final version due in the spring will show which of these concerns the regulator has accepted.

Sources and further reading

• The Guardian, football coverage reporting on the regulator's State of the Game report and its headline findings
• Independent Football Regulator, published material on its statutory remit and consultation processes
• UK Parliament, legislative record of the statute establishing the independent regulator for English football
• UEFA, published framework on club licensing and financial sustainability for clubs in European competition