It's late April 2024, towards the end of the 2023-24 season, and English Premier League (EPL) club Chelsea is licking its wounds. Its once all-conquering football (soccer) team has just suffered a brutal 5-0 defeat to London rival Arsenal.

It was a disappointing season for mid-table Chelsea, particularly considering the €1.1 billion the club spent on player signings since the northern summer of 2022. According to an ESPN report, that’s twice as much as any other football club during that period besides Paris Saint-Germain, which competes in the top division of French football.

So, in a competition with strict financial fair play rules, now known as ‘profit and sustainability rules’, how does such spending stack up?

The question is particularly relevant to the 2024-25 competition kicking off on 17 August. Last season, both Everton and Nottingham Forest were stripped of vital points, landing them deep in the relegation zone. More pressingly, glory club and defending champion Manchester City still has an alleged 115 potential breaches of financial rules against its name.

What is going on in one of the world’s most successful sporting leagues? And is it all just a result of poor accounting?

Understanding the EPL’s profit and sustainability rules

The financial fracas around the EPL has meant that in a league in which the title race is closer and more fiercely contested than it has been in a very long time, much of the media focus is on accounting and finance.

As the EPL has grown into the world’s most financially successful football league, its costs have also increased dramatically.

“The Premier League is ridiculously successful, and it deserves a big pat on the back for that,” says Kieran Maguire, an associate professor in football finance at the University of Liverpool, as well as a chartered accountant, author of The Price of Football and co-host of a podcast of the same name.

“In 2014, there was a TV deal which increased the value of the TV rights by 70%. In 2017, the same thing happened. Since then, the TV rights have not gone up. However, since the Premier League started [in 1992], based on my data, revenues have gone up by 2800%, but wages have gone up by 3800%.”

And so, costs are outgrowing revenue. The average weekly salary of a player in the EPL is now £70,000, Maguire says. Clubs are at risk of finding themselves in financial strife, and that could damage the entire league. The EPL’s financial rules are intended to ensure good financial management, and also to avoid external regulation.

One of the main rules is that a club is not permitted to lose more than £105 million over any three-year period.

This has led to a great deal of what Maguire describes as “creative accounting”.

“What we’ve seen over the years is that some clubs have attempted to benefit from certain transactions, then the authorities have said that’s not really in the spirit of the rules and they have changed the rules,” he says.

Some examples of such creative accounting, Maguire says, include:

• Chelsea's recent £76.5 million sale of two hotels, adjacent to the club’s Stamford Bridge stadium, to a sister company
• Manchester City’s allegedly separate employment contracts for one manager, who was paid a base salary of £1.45 million to coach the club’s first team, in addition to an annual £1.75 million salary to coach for four days each year at Abu Dhabi club Al Jazira.

What about Chelsea’s spending on player transfers?

Chelsea’s relatively new owners purchased the club after the Russian invasion of Ukraine resulted in the previous owner, Russian oligarch Roman Abramovich, being forced to offload it. The spending spree has been partly accounted for by offering longer seven- and eight-year contracts to the players, meaning costs can be amortised across a longer period, reducing the annual loss.

Who is conducting the audits?

Everton was docked 10 points when the club’s accounts showed a loss of £371.8 million over the previous three years, well beyond the £105 million threshold. Following an appeal, the deduction was reduced to six points.

The overspend came from a combination of issues, including the cutting of ties with Russian oligarch Alisher Usmanov, the loss of a stadium naming-rights deal, a technicality linked to the borrowing of money from the owner as opposed to a bank, and difficulties in selling players during the COVID-19 period.

The punishment represented the biggest sanction in EPL history.

So, who was Everton’s auditor? Actually, the club has been through several. In 2022, having conducted audits for the previous two years, BDO walked away because of questions over the club’s financing and ownership.

Crowe UK then took on the job, eventually reporting that “a material uncertainty exists that may cast significant doubt on the group’s ability to continue”.

Nottingham Forest, audited by Azets Audit Services, was similarly stripped of four points this season when found guilty of losing more than the allowable amount. That club’s case was more complex because it had recently been promoted from the second-tier championship, where clubs are only allowed a loss of £39 million across three seasons.

Deloitte audits the EPL itself. Many of the clubs count big six services firms as their auditors, including KPMG for Chelsea, BDO for Manchester City, PwC for Manchester United, Deloitte for Arsenal and Tottenham Hotspur, and EY for Liverpool.

There is currently no indication that auditors have been guilty of any wrongdoing. However, Maguire argues that some of the loopholes currently being signed off, such as Chelsea’s eight-year player contracts, are legitimate but don’t pass the “smell test”.

Are the rules too complex?

With several high-profile problems arising, it’s easy to assume the rules concerning club finances are simply too complex. However, that is not the case, Maguire says.

“I think the accounting is actually quite straightforward,” he says. “Clubs have got no excuse for saying they didn’t know what the rules were. The rules are very much in the public domain. There are monthly club executive meetings with the Premier League. Anybody saying they weren’t aware of the rules is being very mischievous.”

The experience of being an accountant in the finance team at any EPL club likely varies depending on the club’s owner, Maguire says. Some owners are happy to stay within the boundaries of the spirit of the rules. Others fly close to the sun in pursuit of the ultimate rewards that can come, both on and off the pitch, with sporting success.

When owners do cross the line, the resulting media circus around EPL finances, rather than a focus on the beautiful game, is not doing anyone any favours. It particularly hurts the fans.

“You can see why there is so much cynicism and pushback,” says Maguire, a die-hard Brighton & Hove Albion supporter, who commutes 400 kilometres to work each week, in Liverpool, because he wants to live close to his football club.

“It has made accountants and lawyers in sport into celebrities. It’s ludicrous, and it’s not the reason we fall in love with the game.”