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The Premier League’s much-debated Profit & Sustainability Rules (PSR) will officially be retired at the end of the current season and replaced by a brand-new financial framework.

From next season onwards, PSR will no longer apply after clubs voted in favour of adopting a new system. Out of the 20 Premier League clubs, 14 supported the introduction of the Squad Cost Ratio (SCR) and Sustainability and System Resilience (SSR) rules, which will take effect from the 2026/27 campaign.

This new structure aims to modernise financial regulation in English football. Here’s a detailed look at how it will function and what consequences clubs could face if they fail to comply.

Under the outgoing PSR, clubs were restricted to a maximum loss of £105 million across a rolling three-year period.

The new SCR framework, however, assesses spending on an annual basis – from one summer to the next. Player sales remain subject to amortisation, meaning transfer fees can still be recorded in instalments over several seasons.

Unlike PSR, SCR focuses on the ‘squad cost’ rather than operating losses. This includes wages for players and head coaches or managers, agents’ commissions, and transfer-related expenses.

Under SCR rules, a club’s total squad cost cannot exceed 85% of its total revenue in a given season. For clubs competing in the UEFA Champions League, that limit drops to 70%, aligning with UEFA’s financial sustainability rules. However, the additional income generated from participating in the Champions League is expected to offset the tighter margin.

The SCR model also incorporates flexibility to account for unexpected revenue fluctuations. The 85% (or 70% for European clubs) figure is calculated based on projected revenues at the start of each campaign, known as the ‘Green Threshold’. Staying within this range means full compliance.

Beyond that, there is a ‘Red Threshold’ limit of up to 115% (or 100% for Champions League clubs). As long as a club’s squad cost stays below this upper boundary, it won’t face sporting sanctions such as points deductions. However, it may still incur a financial penalty from the 2027/28 season, depending on how much it exceeded its Green Threshold.

Overspending between the Green and Red Thresholds will reduce the club’s Red Threshold for the following season. For instance, if a non-Champions League club spends 105% of its revenue on its squad in one season—20% above the Green Threshold—its Red Threshold for the next season will fall by 20%, to 95%.

Conversely, for every season a club stays within its Green Threshold, its Red Threshold will rise by 10%, up to the maximum 30%. So, if the same club keeps spending under the 85% limit the next year, its Red Threshold for season three would increase to 105%.

Clubs exceeding their Red Threshold face serious repercussions. Breaching this limit will result in an automatic six-point deduction, plus an extra point for every £6.5 million overspent beyond the Red Threshold.

For example, if a club with a £100 million revenue and a 115% Red Threshold spends £128 million—equivalent to 128% of its revenue—it would face an eight-point deduction: six points automatically, plus two additional points for overspending by £13 million (two increments of £6.5 million).

The Premier League also plans to accelerate the disciplinary process, aiming to prevent lengthy delays in verdicts as seen under PSR cases. Each March 1, clubs will undergo an SCR Compliance Test, using projected figures from the season’s start.

Those within their Green Threshold will pass immediately. Clubs over the Green but under the Red Threshold will face further review in June, once final accounts are available. Exceeding the Red Threshold triggers instant sporting sanctions, with points deductions applied to that very season.

Clubs have the right to appeal within seven days, initially through informal discussions with the Premier League. If unresolved, the matter proceeds to arbitration, which the league intends to expedite so penalties can still be enforced within the same campaign.

Even if a club avoids points deductions, it could still face fines once the final figures are confirmed.

Alongside SCR, the new Sustainability and System Resilience (SSR) guidelines are being introduced. SSR is less about penalties and more about ensuring long-term financial stability. It involves three core assessments:

Working Capital: Evaluates a club’s short-term cash availability and ability to fund immediate operations.

Liquidity: Reviews the medium-term capacity to generate cash and withstand disruptions like relegation or the loss of major sponsors.

Positive Equity: Measures the overall financial health, focusing on whether a club is burdened by excessive debt.

SSR’s purpose is to ensure clubs have robust financial planning and are resilient across short, medium, and long-term horizons. If a club fails an SSR test, the Premier League may request corrective actions. Continued non-compliance could lead to enforced spending controls or restrictions on player registrations.

The new SCR and SSR regulations officially come into force from the 2026/27 season. Until then, clubs must continue adhering to the current PSR framework through the 2025/26 season, meaning no immediate changes are expected for Premier League teams during the upcoming January transfer window.