Does Leicester City's Successful Appeal Signal the End for PSR in the Premier League?

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Leicester City have avoided a points deduction for an alleged breach of PSR on a technicality after an appeal board accepted their argument that they were not technically a Premier League club at the time of the infraction.

This is because Leicester had already legally become an EFL club before the end of the 2022/23 financial year and successfully argued on appeal that the Premier League therefore had no jurisdiction over them.

It is important to emphasise that this outcome is not what the Premier League desired – they believe the decision is unfair to other clubs that have previously been penalised.

Premier League Admits PSR Has Been Undermined

The Premier League argued at the initial hearing that if they were not granted the authority to punish Leicester in these circumstances, it would, in their words, “allow a relegated club to escape all disciplinary consequences of a breach of the PSRs, however serious the breach and regardless of the unfairness to compliant clubs.”

They continued: “The effectiveness of the PSRs would be undermined, and the competition brought into disrepute. Other clubs and their supporters would feel an entirely justified sense of unfairness.”

They are absolutely correct on all these points. Nottingham Forest and Everton, in particular, feel greatly aggrieved, having been docked points last season (twice, in Everton’s case) for their own PSR breaches – not to mention Leeds United, who were relegated alongside Leicester and then missed out on promotion after the Foxes claimed one of the automatic promotion spots. (Leeds finished third.)

However, in the view of the appeal board, the Premier League's issue was that they had drafted the terms of PSR in a black-and-white manner that did not reflect the true intentions of what they were trying to achieve.

This is a constant challenge in all aspects of law. Language can be imprecise, meanings can evolve, and unexpected circumstances can arise that the lawmakers had not anticipated.

Nevertheless, as a general rule, courts adjudicating matters of contract law are reluctant to allow interpretations that deviate too far from the literal wording of the contract, even if common sense suggests they should.

By any common sense interpretation, Leicester were a Premier League club in 2022/23. Of course, they were. They played 38 Premier League matches and did not play their first Championship game until August, after the 2022/23 financial year had ended.

But the way PSR was written provided Leicester with a loophole that they have successfully exploited by arguing that the letter of the contract should prevail, rather than its spirit.

As the independent panel noted when explaining how they reached their judgement (bold emphasis our own): “The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed.

“Accordingly, when interpreting a contract, a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party.”

The unwritten implication here is that the Premier League have been unwise in how they drafted PSR, with the board’s decision noting that “the Rules are, in relevant parts, far from well drafted.” Leicester’s arguments, meanwhile, have been very astute.

Leicester’s appeal is just the latest blow to the efficacy of PSR. We have previously seen clubs exploiting amortisations to their advantage, realising that the way profits and losses are recorded on player transfers can be used to sidestep the regulations in a ludicrous yet entirely above-board manner – leading to the “unofficial transfer deadline day” on 30th June and the sudden rise of what are essentially swap deals.

And now there is this ruling, which effectively means that if a club is relegated from the Premier League, they can engage in reckless spending up until the end of June, and nobody can hold them accountable for it.

This is an extremely specific circumstance and does not render the Forest and Everton decisions retrospectively incorrect – but their sense of injustice is entirely valid nonetheless. By the Premier League's own admission, PSR has been undermined, and in a quite serious and legitimate way.

The spirit of the law is well-intended but has controversial side-effects. The regulations were introduced because, over the years, enough clubs demonstrated an inability or unwillingness to manage their own finances responsibly, prompting the authorities to intervene and impose regulations.

The alternative, they feared, was a return to what we experienced from the late 1990s through to the early 2010s, when an alarming 38 clubs across the football pyramid went into administration or CVAs (some of which did so more than once). Since 2013, there have been just five – which, of course, is still five too many, but a significant improvement.

The controversy lies in the fact that it is now also much more difficult for clubs to replicate what Blackburn Rovers did in the 1990s, Chelsea in the 2000s, and Manchester City in the 2010s: spend large sums of money that their owners can actually afford, to take the club to new heights of success.

Aston Villa and Newcastle United, in particular, have complained about the closed shop that these regulations create at the top of the division – despite both having managed to break into the top four over the past few seasons. A gradual revenue growth over many years, as Tottenham Hotspur have achieved, requires far too much patience for those clubs, their owners, or their fans to be satisfied with. Cry me a river, those lower down the leagues might say.

Are the Drawbacks of PSR Really Worth the Trouble at This Point?

The reality is that practically nobody is content with the current state of financial regulation in English football. Those at the top of the Premier League are unhappy about being constrained. Those further down the division are now unhappy that loopholes have allowed Leicester to escape punishment.

Meanwhile, most of those in the EFL continue to accumulate considerable debts in the hope that they might one day join the Premier League party.

We are, to some extent, sympathetic to the football authorities; there are no easy solutions to these problems, and drafting laws is a notoriously difficult task.

But Leicester’s case will now prompt all future clubs to scrutinise the Premier League rule book whenever they find themselves in trouble, searching for other gaps in the regulations. Or rather: they have already been doing that, but now it has been vividly demonstrated to everyone that it is indeed possible.

The Premier League’s worst fears have been realised: any suspicion that PSR is not entirely fit for its intended purpose has now been effectively confirmed. It was already challenging enough to convince aggrieved fans to accept any wrongdoing by their clubs; now it is virtually impossible.

The powers that be in English football may now need to seriously consider whether all the red tape is truly worth the hassle, given that a savvy enough legal team can still find ways to cut through it.

There are other ways to encourage greater financial responsibility among clubs, most of which have already been proposed by the Football Governance Bill. Getting that legislation passed may prove more effective than this mess, which has left the Premier League looking foolish and nobody feeling particularly satisfied.