EFL clubs will vote on Friday on significant changes to their financial regulations that would widen the gap in spending power between the Championship and League One.
Championship clubs are voting on a proposal to align with the Premier League from next season by replacing their profitability and sustainability (P&S) rules with a squad cost ratio system, that would cap spending on player costs at 85% of football revenue.
The proposed change would permit an annual equity injection of about £10m to count towards a club’s revenue and increase spending capacity, whereas under P&S rules, losses are capped at £39m in the Championship over a three-year period.
League One clubs, in contrast, are voting on whether to have greater alignment with League Two by reducing permitted spending under the salary cost management protocol (SCMP) from 60% to 50% of turnover. A number of League One owners wanted to go further by introducing a salary cap underpinned by a so-called luxury tax for clubs breaching it, but those proposals will not be put to a vote. A reduction in the SCMP limit is seen as a compromise, with clubs in the division largely in agreement over the need to reduce costs.
The average investment by League One club owners this season was £9.6m, up from £2.6m four years ago, and many owners are reluctant to continue bankrolling such losses. A League One source said controlling costs would increase the value of clubs in that division in the medium-term and lead to greater interest from potential buyers, with the ultimate goal of bringing more external capital into the EFL.
Championship clubs want greater freedom to speculate and invest in the hope of winning promotion to the Premier League. The existing P&S rules were introduced at the start of the 2017-18 season. West Brom were docked two points by an independent commission last month for exceeding the loss limits by about £2m in the three-year period to June 2025. Leicester, Sheffield Wednesday, Derby and Reading have been found guilty of P&S breaches in the past.
At least sixteen of the 24 clubs in each division must vote in favour of the proposed changes for them to be introduced. A source at a Championship club said they expected both votes to be tight, because there are a differing views on financial regulations in both divisions.
The Championship clubs have been trialling SCR in shadow form this season so are equipped to make the transition despite the vote taking place at the end of the campaign. Premier League clubs voted last November to introduce SCR in place of their profitability and sustainability rules (PSR), which limited club losses to a maximum of £105m over three years.
Adopting SCR brings the Premier League in line with Uefa’s financial regulations, although the spending threshold for clubs competing in European competitions is 70% of football revenue rather than 85%.