Leeds are confident they have no PSR issues like Leicester’s — only focus is promotion — The Athletic 14/3/24
By Phil Hay
It is hard enough tempting Daniel Farke to talk
hypothetically about promotion, so the chances of Leeds United’s manager wading
in on Leicester City’s finances are virtually nil. In the spirit of controlling
the controllable, the subject of profit and sustainability rules (PSR) at the
King Power Stadium will rank as someone else’s business.
To sum this up briefly, Leicester are expected to breach the
PSR loss limit for their most recent accounting cycle and the EFL, it appears,
would like to sanction them for that this season. But the month is March, the
Championship regular season is nine games and less than eight weeks from
finishing and anyone clinging to hope of a points deduction affecting the table
might be clutching at straws. Long story short: even the rules-makers do not
seem certain about what should happen next.
From Farke’s perspective, a deduction may not matter anyway.
Leicester still lead the Championship but Leeds, from a mile back, have almost
reeled them in. The gap between them is down to three points and Leicester’s FA
Cup duties this weekend give Leeds the opportunity to go top if they beat
visitors Millwall on Sunday. Farke, no doubt, would rather get this done on the
pitch, much as the club’s then head coach Marcelo Bielsa gave short shrift to
the idea of the 2019-20 season being ended early because of the Covid-19
pandemic and his team taking the Championship title through a points-per-game
metric.
Leicester could be cast as an example of the financial
trouble awaiting teams relegated from the Premier League and deprived of much
of the revenue on offer there, but a record annual loss of £92.5million
($118.3m) in the 2021-22 year showed that problems were creeping up on them
before they went down. While Leicester won a technical argument with the EFL
last week over a demand from the governing body that they submit a strict
business plan to show how they would attempt to be PSR-compliant, they are expected
to break their £83m, three-year loss threshold and, as a result, the risk of
punishment somewhere down the line is very real. In what form, and which league
would impose it, no one can yet say.
Leeds, having been relegated from the Premier League at the
same time as Leicester last May, are subject to the same £83million limit for
losses not exempt from PSR. Among the exemptions, for example, are costs
related to academy development and certain infrastructure projects.
The £83million figure comprises £35m for each of their past
two seasons in the Premier League and £13m for this one in the Championship,
the maximum losses permitted annually in those competitions. Unlike Leicester,
Leeds say they avoided any breach of PSR in the top flight and expect to be
compliant at the end of this season. Assuming they are, they will have a big
chance of promotion without the same financial problems looming down in the
East Midlands.
That fact is a cause of frustration at Elland Road, and a
reason Leeds were among the clubs considering compensation claims against
others, such as Everton, who breached spending limits while retaining their
Premier League status.
Leeds financed their final summer window in the top flight
by selling their two best and most valuable players, Raphinha and Kalvin
Phillips, for a combined sum of around £90million, working the income to help
comply with PSR. The £42m earned for Phillips, as a homegrown academy graduate,
was entirely profit. An element of
Leeds’ grievance is that other teams who breached PSR chose not to sacrifice
prime assets in the same way.
It is no secret at Elland Road that if Leeds fail to go up
this season, they will have to cut their cloth in the ensuing summer transfer
window by balancing their books through player sales.
In the Premier League, where PSR losses in a three-year
cycle have a total upper limit of £105million, Leeds prevented their
expenditure from running badly out of hand, not least in the two seasons which
are covered by accounts filed at Companies House.
Certain factors helped with PSR. Commercially, they were the
eighth-best performing club in the Premier League, their revenue enhanced by a
strong retail arm, impressive kit sales and a stadium that was sold out for
every league game. There was a conscious effort made to avoid operating costs
rising too sharply or becoming unmanageable after promotion in 2020.
For the 2020-21 accounting period, Leeds initially posted a
profit of £25million, though that was later readjusted to a £15m loss to factor
in a £15m settlement with German club RB Leipzig over the shambolic signing of
Jean-Kevin Augustin. Waived loans of £21m were removed from the revised
calculations.
In 2021-22, the club’s overall loss was £36million. Their
next set of accounts, covering last season and due to be submitted with
Companies House before the end of this month, are expected to show another
loss, as will the books for this campaign back in the Championship. Those
losses, however, do not appear to have stopped Leeds being PSR-compliant.
At the beginning of this season, PSR looked like a challenge
because saleable assets in the squad were not plentiful. Leeds’ form on the way
to relegation was such that the market value of many of the players signed in
the summer of 2022 depreciated. Selling any of them at a loss promised to
weaken the club’s PSR position. Moreover, Leeds had negotiated clauses
entitling many of those footballers to leave on loan in the wake of relegation
— though in hindsight, those arrangements were not without certain benefits.
In the case of Brenden Aaronson, moving him on permanently
would have incurred a potentially sizeable loss on the £25million paid to sign
him from RB Leipzig a year earlier. Loaning him to Union Berlin for the
duration of this season and shifting his salary off the wage bill in the
process, was a better scenario in terms of PSR.
As a whole, Leeds were able to trim their wage bill
significantly, roughly halving it from a peak of around £12million a month.
Relegation clauses imposing salary deductions of up to 60 per cent on their
squad were key. More than £20m was also pulled in from the sale of Tyler Adams
to Bournemouth in August.
Another £20million was raised last month through the
agreement of a permanent deal for Luis Sinisterra to join loan-club
Bournemouth, a move Leeds said avoided them making a loss on the winger.
Cashing in on Sinisterra might have been indicative of Leeds actively working
to avoid a PSR breach. The fee for him was less than the price of a permanent
option Bournemouth had negotiated back in the summer as part of his season-long
loan.
Clubs who talked to Leeds during this year’s winter window
were under the impression that available transfer funds at Elland Road were
limited. Having done much of their business in the summer, PSR did not allow
for further major investment come January and there was no suggestion of trying
to take Connor Roberts permanently from Burnley. Leeds were able to secure
Roberts on a half-season loan and money was recouped by selling Leo Hjelde to
Sunderland and loaning Ian Poveda to Sheffield Wednesday. Farke, in any case,
had told Leeds’ board at the end of December that his main priority in January
was to avoid the loss of any major players.
Leeds held up their side of that bargain, but they are
bright enough to realise that spending a second season in the Championship
would make harder decisions more unavoidable.
Farke has a four-year contract and, realistically, has
earned himself another crack at promotion on the basis of results to this
point, but Leeds appreciate that to remain compliant with PSR and to keep their
accounts in check, the squad cannot remain as it is if promotion eludes them in
May. Premier League parachute payments would drop in year two out of the top
flight and player exits would be unavoidable.
For now, that concern is for a later date — and perhaps one
Leeds will avoid confronting altogether. Farke has tried his best not to be
distracted by goings-on elsewhere and Leicester’s PSR strife is unlikely to
have piqued his interest. Promotion is in Leeds’ hands with the number of
matches remaining now in single figures and the club feel confident the EFL’s
PSR limits are not beyond their grasp either.
For now, all eyes are fixed on Sunday and that chance to go
top of the table for the first time all season.