The Foxes face points deductions from the Premier League and are currently under a transfer embargo from the EFL.
Leicester City’s 2022-23 accounts have revealed a loss of £89.7m – which the club admits means they “may be found not to be in compliance” with Profit and Sustainability Rules (PSR).
The Foxes were surprisingly relegated from the Premier League in 2023, but are among the favourites for promotion from this season’s Championship.
However, the 2015-16 top-flight champions have been charged with a breach of the Premier League’s PSR between 2019-2023 and placed under transfer embargo by the English Football League (EFL).
i explains what Leicester’s accounts reveal about the embargo and any potential points deductions, why promotion this season is so important, and the long-term effects of their shock relegation.
Will Leicester face a points deduction?
There really aren’t many positives to take from Leicester’s 2022-23 accounts. They span 13 months, rather than the expected 12, so some of the figures are slightly inflated, but that extension also allows them to include the sales of Wesley Fofana and James Maddison, which more than makes up for any discrepancy.
The headline numbers will be disheartening for even the most optimistic fan. Due to not competing in European competition and a lower Premier League place – the Foxes dropped from eighth to 18th in one season – their revenue has declined 17 per cent to £177m.
This coincided with a 13 per cent rise in the club’s wage budget, to £206m. This means that for every £1m the club brought in, they were spending £1.16m on wages alone.
Uefa now use squad-cost ratio as their standard financial benchmark for their Financial Sustainability Rules (FSR), the successor to FFP, rather than the three-year, £105m loss limit currently used by PSR.
Without even considering Leicester’s amortisation fees, their squad-cost ratio for 2022-23 would have been 116 per cent, the only such figure above 100 in the Premier League. Uefa are aiming for all teams to be below 70 per cent by 2025-26.
Given, as Leicester allude to in their accounts, the Premier League are considering moving the £105m PSR loss limit to a squad-cost ratio model, this is particularly concerning for the Foxes.
Across the period 2019-2023, Leicester have lost £282.6m, now five successive losses, having once been considered one of the country’s best-run clubs. This is not the relevant figure for PSR, which will be reduced due to “healthy” deductibles like women’s teams and the academy, but it shows losses of a significant enough scale to be under threat of a serious points deduction.
And the Foxes have already been charged with breaching PSR for 2019-2023, the same period in which Nottingham Forest have been charged four points for a breach and Everton are still awaiting their penalty.
In the report of Forest’s case, it was revealed that the Premier League believe that a points deduction is the only acceptable punishment for a PSR breach. Given Leicester appear to have admitted they believe they are in breach, a points penalty if they were to be promoted this season appears inevitable, likely enforced before the beginning of next season.
What is PSR?
PSR, or profit and sustainability rules, are the Premier League’s equivalent of Financial Fair Play regulations.
The key regulation clubs must adhere to is a loss limit of £105m over any three-year financial period, with potential points deductions for any losses which exceed that cap.
PSR was introduced in 2013, in the wake of Portsmouth going into administration, to ensure that clubs are run in a sustainable manner and that rogue or overambitious owners cannot threaten their existence.
In their accounts, Leicester said: “The club anticipates that it may be found not to be in compliance with the applicable PSR for the three-year reporting period ending 2022-23.
“The directors believe that any sanction resulting from any such non-compliance should be mitigated, including by the underlying circumstances described above.”
These “underlying circumstances” essentially amount to the “unique” situation surrounding the club’s relegation, a case which will be put forward by Nick De Marco KC, dubbed “the Lionel Messi of sports law”.
Leicester City CEO Susan Whelan said in a statement: “Having achieved finishing positions in the Premier League of fifth, fifth and eighth in the three preceding seasons, our targets and associated budgets for 2022-23 were entirely reasonable.
“However, for a club such as ours, whose sustained sporting achievements have justified the levels of investment required to compete with the most established clubs and pursue our ambition, a season of such significant under-performance on the pitch presents financial challenges, particularly from the perspective of the game’s current profit and sustainability rules.”
Why is promotion so important for Leicester?
Leicester do not only face charges from the Premier League – they are also under a player registration embargo from the EFL.
This means they are unable to sign new players or give current ones new contracts, a real issue when Jamie Vardy, Kelechi Iheanacho, Wilfred Ndidi and Jannik Vestergaard are all on expiring deals.
In their accounts, Leicester stressed they believe they are under Premier League jurisdiction for the period 2019-2023 and EFL jurisdiction for 2021-2024. So long as they are promoted, this may provide the safest path for them, with the EFL powerless to enforce punishment should Leicester then ensure survival in the top flight.
Yet if Leicester are not promoted this season – something which looks increasingly possible due to their poor recent form – then they can expect to face the full force of the EFL’s powers.
In part, this is what Whelan was referring to when she said: “The 2022-23 season was a significant setback, the consequences of which will be felt for some time.”
If they are not promoted, the Foxes would have to work to slash their wage budget once more, likely losing the players listed above as their contracts expire, and would still face significant points deductions in the Championship.
Kiernan Dewsbury-Hall, Mads Hermansen and Wout Faes would all likely be on the chopping block as a result– they may have to be anyway to fit in with the Premier League’s limit regardless of promotion.
Leicester’s allowable PSR loss limit for the period 2021-2024 will be £83m, less than they lost in 2022-23 alone, with 2023-24 not currently expected to be much better, but they may well be able to avoid punishment for this by being in the Premier League.
But if they cannot escape the Championship in 2023-24, they will likely be in breach of this £83m figure next season as well, which may well result in further points deductions.
This could then lead to them struggling to get out of the second tier for yet another season and potentially being handed another round of points deductions as a result, a vicious cycle which could vastly alter the club’s long-term standing.
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