Birmingham City and their EFL rivals will today vote on a crucial proposal to scrap the Profit & Sustainability (P&S) rules in favour of a squad cost ratio system. The change would align the Championship with the Premier League by capping spending on player costs at 85 percent of football revenue.
Current rules and proposed changes
Under the existing regulations, Championship clubs can incur losses of up to £39 million over three years. Since 2017, several clubs have fallen foul of P&S. The new Squad Cost Ratio (SCR) would tie spending directly to seasonal turnover, preventing clubs from relying on debt to fund first-team squads.
If passed, transfer budgets will be linked to revenue, with a strict £10 million annual limit on owner equity injections. Championship clubs argue this will give them greater freedom to compete for Premier League promotion.
Birmingham City's financial position
Blues posted £35.6 million revenue for the 2024/25 season in League One. CEO Jeremy Dale indicated that figure rose in their first season back in the Championship, thanks to sponsorship deals with Knighthead, Nike, Undefeated, Delta Airlines, Coral, and Heineken. "I can assure you this year we’ve grown more than we even dreamed of," Dale told supporters at the end-of-season awards dinner.
For the vote to pass, 16 of the 24 Championship clubs must vote in favour.
What is the Squad Cost Ratio?
SCR replaces P&S by linking spending to revenue. Clubs can no longer accumulate losses; instead, spending is capped at 85 percent of football revenue. SCR expenses include player wages, manager salaries, agent fees, and annual amortisation of transfer fees. Non-first-team operational costs, such as infrastructure, are exempt. Knighthead has invested millions in St Andrew's and training grounds, and these costs remain exempt under SCR.
Owner investment limits
Owners like Knighthead can inject a maximum of £10 million per year as genuine equity, not loans. This allows them to increase squad spending within the SCR framework.
Auditing and thresholds
If aligned with the Premier League, mandatory reviews will occur every October and March. A mid-season audit will catch breaches after the January transfer window. The system has green and red thresholds: the green threshold is 85 percent of qualified revenue. Exceeding it enters a buffer zone; crossing the red threshold triggers sanctions.
Sanctions
Exceeding limits incurs an automatic six-point deduction, with an additional point for every £6.5 million overspent. If clubs exceed the green threshold but stay below red, they avoid points but pay a tax on overspending, redistributed to compliant clubs.
Impact on divisions
Implementing SCR alongside stricter League One wage caps could widen the financial gap between divisions. The Championship's 85 percent rule, with the £10 million owner limit, ties spending to commercial success, potentially increasing the disparity with League One.
