Squad Cost Ratio and how it could impact Everton

(Photo by Clive Mason/Getty Images)

From next season, the Premier League is switching to a different model of financial regulation and cost controls.

The Premier League is aligning with Uefa’s Squad Cost Ratio (SCR) model, rather than sticking with the unfit-for-purpose Profitability and Sustainability Rules (PSR).

So, how does it work, and how could it impact Everton?

WHAT IS SQUAD COST RATIO (SCR)?

Essentially, rather than focusing on how profitable a club is, or how much a club is losing, SCR measures the spend on player-related costs against the total football-related revenue and net profit or loss from player sales.

According to the Premier League, football-related revenue relates to: A club’s total earnings from football operations, including income the clubs generate themselves and the revenues distributed by the League and other football competitions.

The Premier League’s SCR will allow clubs to spend up to 85% of their total, estimated football-related revenue on their squad.

However, there is a difference for those teams in Europe, who are restricted to spending 70% of their revenue on their squads, which lines up with Uefa’s rules.

But what costs count towards SCR? Well, any costs accrued when it comes to building the squad, including player wages, amortised transfer fees and agent payments.

SCR means there will also be the closing of loopholes, such as clubs selling women’s teams to themselves — as Everton have done — or selling assets such as hotels to themselves, like Chelsea managed to do.

The Compliance Test will take place in March, when the clubs have filed their annual accounts for the previous season.

WHAT IS THE PUNISHMENT FOR BREACHING SCR?

Lots of Premier League clubs will be above the threshold of 85%, so in order to give teams time to get closer to, or within, the limit, either by trimming their squad spending or increasing their revenue, they are introducing a ‘red threshold’. 

That means that any club found to have spent between 85% and 115% of their revenue on their squad will face a financial sanction, rather than a sporting one, such as a points deduction.

If a club breaches the 115% threshold, then they will be handed a sporting sanction.

However, each time a club breaches the lower threshold of 85%, they then have less headroom when it comes to further breaches.

WHAT ABOUT EVERTON?

Given Everton were the first club to be punished under the Premier League’s previous PSR, TFG, Angus Kinnear and Co will no doubt be keeping a very close eye on how close the Toffees are to the wire.

Everton’s last set of published accounts, for the 2024-25 financial year, show a total turnover of £196,697,000.

Now, that covers the final season at Goodison Park, and so the revenue generated from the move to Hill Dickinson Stadium, plus the naming rights deal for that ground, is not yet factored in.

But we’ll do a quick calculation based on that number, just to show how it could work in theory for Everton.

Based on the above, they could spend up to £167,192,450 on all of their squad-related costs. That would include all wages, agents fees, amortised transfer payments, player bonuses, etc.

The Premier League allow clubs not to include academy and women’s team costs in this calculation, so this just boils down to the first team.

Now we should stress that the turnover number above may include some revenue that would not count as “football-related” under the new SCR regulations.

THE WAY FORWARD FOR EVERTON

We cannot know for sure what Everton’s budget is for the coming year. 

In some ways, not qualifying for Europe helps in that there is more leeway for Everton to spend, relative to their revenue. Indeed, had they qualified for Europe, then they would have almost certainly have had to enter a sanction agreement with Uefa, which would have likely resulted in a fine and/or some squad restrictions for 2026-27 (those restrictions would have only been in place for whatever European competition the Toffees were in, though).

However, if Everton want to be competing to qualify for Europe in the coming years, they need to spend wisely and improve their squad, and that will mean they have to increase their revenue.

The main way to do this is by improving as a team, and therefore finishing higher in the Premier League, going further in cup competitions and generating more income that way. However, that also risks getting into a cycle of spending more to push the squad on, and it is why it’s vital that Everton find a way to maximise every ounce out of their team — that’s on the manager.

Smart player trading also has to be taken into account. Everton cannot simply accumulate players. If 6 or 7 players come in, then 3-4 should be moved out of the door, for transfer fees.

Lastly, they must maximise the potential of Hill Dickinson Stadium and increase commercial revenue. Higher sponsorships, more events at the stadium — all of this will play a part.

By the end of this calendar year, Everton should be ensuring concerts are booked in for Hill Dickinson Stadium in 2027, while also prioritising the venue as a go-to place for other sporting events.

Just this week, we saw England Women play a World Cup qualifier there, and next month, rugby league’s Magic Weekend will take place on the docks, with a Fiji v England rugby union clash to be held there a week later.

EVERTON’S TRANSFER WINDOW PLANS

Ultimately, Everton’s approach to this window should not change too much because of SCR. The club knew it was coming and will have been planning accordingly.

Fringe players must be sold; if a huge offer comes in for a first teamer, such as Iliman Ndiaye, it will have to be considered as that is simply good business practice.

But Everton still need to spend a sizeable amount — a net spend of £60-70M is probably realistic, and should see the club stay within the SCR limit.

They must be extra careful on wages, and that puts extra pressure on the club’s lead negotiator, Nick Hammond, to ensure the deals are correct for Everton.

For now, it’s a case of trusting the process, but in theory, if Everton get this right, then SCR should not be a problem for them moving forward.

Read more World Cup watchlist: 12 under‑the‑radar players Everton could realistically target across every group

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