Leicester City could be on the verge of breaching the profit and sustainability (PSR) rules for the 2023-24 season following their relegation to the Championship.
The club’s financial situation is precarious, with questions surrounding the allowable losses limit they are permitted under PSR regulations.
Finance expert Stefan Borson has shed light on the potential issues facing Leicester, explaining that the rules are unclear on whether their losses cap will be £83 million or £105 million for the current season.
Borson spoke exclusively to Football Insider, revealing the complexities of the situation and the potential consequences the club could face.
Leicester managed to avoid a points deduction for the 2022-23 campaign after successfully appealing against the Premier League’s attempt to charge them with a PSR breach.
However, it is understood that they came dangerously close to breaking spending rules last season, despite securing promotion back to the Premier League.
Under current PSR rules, Premier League clubs are allowed to lose £105 million over a rolling three-year period, equating to £35 million per season.
However, Championship clubs have a significantly lower limit, with only £13 million in allowable losses per season. Leicester’s financial future may hinge on whether their limit has been reduced following relegation.
Borson explained the situation, noting that Leicester could find themselves in breach of PSR rules if their limit has indeed been lowered.
“The rules don’t seem to be that clear on whether the limit will be £83 million or £105 million,” he told Football Insider.
“We always talk about the £105 million, but the £105 million assumes that the team has been in the Premier League each year.
“There are some Premier League rules that reduce the £35 million per season limit down to £13 million, reducing it by £22 million per year. That is typically used, as it was in the Nottingham Forest case, for teams that have spent part of the assessed period in the Championship.”
Borson went on to explain the case of Nottingham Forest, who had two seasons in the Championship and therefore faced a reduced cap.
“Nottingham Forest had two seasons in the Championship and, therefore, their maximum cap was £13 million, plus £13 million, plus £35 million, which is £61 million. That meant when they had a loss of something like £95 million, they breached by around £34 million.”
The rules, Borson added, remain ambiguous for Leicester’s case.
“It’s not clear from the rules what happens in the first season back. We will have to see how that pans out, it’s not clear to me whether it’s £105 million or £83 million. But if it’s £83 million, then I think it is safe to say that Leicester will be very close to breaching.”
Leicester may escape punishment if they are granted the £105 million cap, but it remains uncertain.
Borson concluded, “Even after player sales like Harvey Barnes and Kieran Dewsbury-Hall, and the compensation they got for Enzo Maresca, they will have a challenge making PSR for 2023-24.”