Championship clubs voted to scrap Profit & Sustainability (P&S) rules and introduce new Squad Cost Ratio (SCR) rules on Friday. Twenty of the 24 Championship clubs voted in favour of implementing SCR for the 2026/27 season, with only 16 votes needed to pass the new legislation.
Birmingham City and their rivals will now align with the Premier League by replacing existing financial measures with a squad cost ratio system that caps spending on player costs at 85 percent of football revenue. Transfer budgets will be tied directly to revenue, and there will be a strict £10m annual limit on owner equity injections.
Financial Context for Birmingham City
Blues posted a £35.6m revenue figure for their 2024/25 season in League One. Chief executive Jeremy Dale suggested that figure increased in their first season back in the Championship thanks to lucrative sponsorship deals with owners 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 club’s end-of-season awards dinner.
What Are the Changes?
The new Squad Cost Ratio (SCR) will replace the Championship's Profitability and Sustainability rules (P&S), which have been a bugbear for some clubs. Instead of allowing Blues to accumulate a £39m loss over a rolling three-year period, spending will be tied directly to seasonal turnover. Clubs will no longer be able to rely on building up debts to fund first team squads.
On-the-Pitch Costs
SCR expenses are directly tied to the first team, including player wages, manager salaries, agent fees, and the yearly amortisation of player transfer fees. These are consolidated into a single budget pool representing the true cost of the squad.
Infrastructure Impact
All non-first team operational expenses are exempt from SCR. Knighthead have spent millions on St Andrew's and the club's training grounds over the past few years, and those costs contributed to significant losses in the club's annual accounts. Infrastructure costs are exempt from SCR, as they were in the P&S era.
What Can Knighthead Invest?
Knighthead and other Championship owners will be able to inject a maximum of £10m per year. That £10m would then allow them to increase their squad spending limit, although it must be genuine equity and not a director's loan.
Audit Process
The system the Premier League uses will be adopted. There will be mandatory reviews every October and March. A mid-season audit would catch breaches immediately after the January transfer window and likewise the summer.
Restrictions and Thresholds
There will be a green threshold and a red threshold. The green threshold acts as the baseline target of spending a maximum of 85 percent of qualified revenue. If clubs exceed this, they enter a temporary headroom buffer zone to allow some flexibility. However, should they cross the red threshold, a punishment would then be triggered.
Sanctions
A non-negotiable sporting penalty is applied in the season that an offence occurs. Exceeding limits incurs an automatic six-point deduction. The point deduction increases based on the size of the breach. For every £6.5 million spent beyond the ceiling, an additional one-point penalty is added.
If the 85 per cent green threshold is exceeded but clubs stay beneath the red threshold, they will avoid point deductions. However, clubs will suffer a tax on the amount they overspend. The money is collected and then redistributed directly to the clubs who have stayed within the limits.
