Leicester City went wrong on budgets and wages argument

Such heavy losses in Leicester City’s accounts has inevitably brought on questions about their financial future and the potential for sanctions.

Here, we go through some City supporters’ queries following the announcement of those £90m losses, looking at the timing of potential points deductions, transfer problems, top-six aspirations, the limitations of the Profit and Sustainability regulations, budgeting, Brighton’s success, and more. You can read our answers below.

Q: Could this mean we get points deducted this season? If yes, what’s the worst-case scenario?

A: Based on everything we know so far, from City’s accounts, the Premier League charge, and how Everton and Forest were punished, it feels very likely a points deduction is coming. But I would be extremely surprised if that happens this season. The points deduction would have to come in before the final game of the Championship season, given the potential for an impact on the play-offs

In terms of how many points they are deducted, it feels like six is the standard set by Everton and Forest. But we don’t yet know if City breached PSR by more or less than those two clubs did, and that will be a consideration for the independent commission. Plus, City have also been charged for failing to submit their accounts, which may mean an extra points deduction. I would be surprised if a potential deduction is fewer than six points.

Q: If we go up to the Premier League, can the Championship impose the transfer embargo and any potential points deductions of their own to next season’s campaign? Similarly, if we stay down can a potential points deduction imposed by the Premier League be applied to next season’s Championship campaign?

A: Those are great questions and ones we don’t have a definitive answer to yet. On the first one, whether the EFL can impose a transfer embargo or a points deduction on City if they were in the Premier League, history would say not. When teams have broken financial rules in the past and then been promoted, they have simply been hit with a fine by the EFL. It was the case for City when they went up in 2014, and for Bournemouth shortly after as well.

On the second question, whether the Premier League could punish a club in the EFL, that’s not happened before, so it’s not totally clear. But from what I’ve heard, the two governing bodies are looking to work more closely together on this issue, while the EFL are particularly keen to see City punished over this. So City’s case may see new rules written and a new norm established. I think it’s possible that if City don’t go up, they will still start next season on minus points based on a sanction from the Premier League.

Q: Do you think it was realistic that we could ever become a permanent Big Six club like the decision-makers inside at City thought we could be?

A: I do think it was possible, yes, but extremely difficult. Essentially, for City to make the Big Six a Big Seven, they would have needed to have been close to perfect on the pitch and off the pitch for a decade. You would need a long stretch of qualifying for Europe, and in the Champions League a few times in that run too. Very few mistakes in the transfer market would be allowed. You have to hope that at least one or two of the biggest clubs have down seasons every year.

What you’re trying to do is establish yourself at the top long enough that you become a bigger name and get the commercial revenue to go with it. The Premier League prize money is actually fairly evenly split. But compare City’s commercial revenue to, say, Manchester United’s, and it’s about 10 per cent, if that.

The richest clubs can afford not to take gambles in the transfer market and can buy established players who are less likely to be duds. And yet they still do manage it. For a team like City to catch up, they have to buy players for cheaper when they’re not as established and sell them for big fees, using that cash to make the squad as a whole better. That was their approach for a while.

I think City’s issue is that they didn’t consider what might happen if it went wrong. I don’t think it was ever considered that a bad season could be as bad as it turned out to be. They gambled so much on wages without considering the possibility that a poor season could have them relegated.

Q: We’ve spent a lot of money in the transfer market and yet a lot of players have been allowed to leave for free. How has this been allowed to happen?

A: The failure to sell players has been a big part of the problem. We’ve been told plenty of times, mainly by the managers in charge, that transfer business wasn’t possible until the club sold players, but then no players have been sold. They’ve been left to sit around at the club.

Obviously, there’s a limit on the number of clubs who have big money to spend. If players aren’t performing on the pitch, then those players aren’t going to attract interest from the richest clubs. For example, in the summers it seemed like Tielemans might leave, there was no significant interest in him. That makes it more difficult for the club to move him on, which they arguably needed to do as soon as he indicated he wouldn’t be signing a contract.

However, City had so many players who could and should have gone. Let’s take Soyuncu. In the summer of 2022, he had one year left on his contract and he’d fallen so out of favour with Rodgers that he wasn’t going to play. Why was he not sold, even if just for a few million? An explanation has never been given on that.

If it’s the case that players didn’t want to leave because no other clubs could match the wages they were on at City, then that’s another issue. A 116 per cent wages-to-turnover ratio shows they got out of hand. Yes, spending on wages is the best way to build a good squad, but it feels like City have been overpaying.

Q: From my understanding of what has happened, Premier League clubs appear to be expected to plan budgets for player expenditure and wages at the start of the season and then offset them against prize money and TV revenue, which isn’t known until the end of the season. Does this mean every club outside of the rich six will have to budget as if they are to come bottom every year to ensure that one bad season doesn’t snowball into a continued downward spiral?

A: Sort of. That’s certainly a very well-put argument against PSR. Clubs are having to budget without knowing where they will finish, yes, but they will be able to make a reasonable estimate on what the bottom club will earn in prize money and TV revenue. And they will know that each place higher in the table is worth around £3m.

I think the problem in City’s case is that it seems there was no consideration of the possibility that the club would fall down the table. They have budgeted to finish in the top 10 and allowed for no leeway on that.

Clubs like Brighton have shown that it’s possible to be successful and qualify for Europe all while staying within the rules. With their £120m profit announced this week, they don’t have to budget for finishing bottom. They’ve earned that right to be more expansive in their spending because of how well they’ve operated over the past couple of years.

It seems City, in 21-22, tried to do that, to be more expansive, by spending without selling a big-name player. But that was a gamble because they didn’t have the leeway there. They’d not had a season of huge profits to build from. So when they finished outside European football, it put them in a tricky situation regarding PSR. They initially tried to rectify it by being prudent in summer 2022, but when they were then in a relegation battle, they had to spend more money on signing players in January and sacking the manager. The long-term planning and consideration of worst-case scenarios wasn’t there.

When the independent commission concludes their hearing and release their findings and we discover how much City have gone past the threshold by, then I think we’ll be in a position to make a better judgement. If the deficit is simply the prize money difference between 8th and 18th, then I think it would be understandable, albeit needing to finish eighth to ensure they stay within the rules is risky. But if they’ve gone past the threshold by more than, say, £30m, then I’m not sure they’ve got a leg to stand on.