It is hard enough tempting Daniel Farke to talk hypothetically about promotion, so the chances of Leeds United’s manager wading in on Leicester City’s finances are virtually nil. In the spirit of controlling the controllable, the subject of profit and sustainability rules (PSR) at the King Power Stadium will rank as someone else’s business.
To sum this up briefly, Leicester are expected to breach the PSR loss limit for their most recent accounting cycle and the EFL, it appears, would like to sanction them for that this season. But the month is March, the Championship regular season is nine games and less than eight weeks from finishing and anyone clinging to hope of a points deduction affecting the table might be clutching at straws. Long story short: even the rules-makers do not seem certain about what should happen next.
From Farke’s perspective, a deduction may not matter anyway. Leicester still lead the Championship but Leeds, from a mile back, have almost reeled them in. The gap between them is down to three points and Leicester’s FA Cup duties this weekend give Leeds the opportunity to go top if they beat visitors Millwall on Sunday. Farke, no doubt, would rather get this done on the pitch, much as the club’s then head coach Marcelo Bielsa gave short shrift to the idea of the 2019-20 season being ended early because of the Covid-19 pandemic and his team taking the Championship title through a points-per-game metric.
Leicester could be cast as an example of the financial trouble awaiting teams relegated from the Premier League and deprived of much of the revenue on offer there, but a record annual loss of £92.5million ($118.3m) in the 2021-22 year showed that problems were creeping up on them before they went down. While Leicester won a technical argument with the EFL last week over a demand from the governing body that they submit a strict business plan to show how they would attempt to be PSR-compliant, they are expected to break their £83m, three-year loss threshold and, as a result, the risk of punishment somewhere down the line is very real. In what form, and which league would impose it, no one can yet say.
Leeds, having been relegated from the Premier League at the same time as Leicester last May, are subject to the same £83million limit for losses not exempt from PSR. Among the exemptions, for example, are costs related to academy development and certain infrastructure projects.
The £83million figure comprises £35m for each of their past two seasons in the Premier League and £13m for this one in the Championship, the maximum losses permitted annually in those competitions. Unlike Leicester, Leeds say they avoided any breach of PSR in the top flight and expect to be compliant at the end of this season. Assuming they are, they will have a big chance of promotion without the same financial problems looming down in the East Midlands.
That fact is a cause of frustration at Elland Road, and a reason Leeds were among the clubs considering compensation claims against others, such as Everton, who breached spending limits while retaining their Premier League status.
Leeds financed their final summer window in the top flight by selling their two best and most valuable players, Raphinha and Kalvin Phillips, for a combined sum of around £90million, working the income to help comply with PSR. The £42m earned for Phillips, as a homegrown academy graduate, was entirely profit. An element of Leeds’ grievance is that other teams who breached PSR chose not to sacrifice prime assets in the same way.
It is no secret at Elland Road that if Leeds fail to go up this season, they will have to cut their cloth in the ensuing summer transfer window by balancing their books through player sales.
The sales of Phillips and Raphinha were a necessity (Rob Newell – CameraSport via Getty Images)
In the Premier League, where PSR losses in a three-year cycle have a total upper limit of £105million, Leeds prevented their expenditure from running badly out of hand, not least in the two seasons which are covered by accounts filed at Companies House.
Certain factors helped with PSR. Commercially, they were the eighth-best performing club in the Premier League, their revenue enhanced by a strong retail arm, impressive kit sales and a stadium that was sold out for every league game. There was a conscious effort made to avoid operating costs rising too sharply or becoming unmanageable after promotion in 2020.
For the 2020-21 accounting period, Leeds initially posted a profit of £25million, though that was later readjusted to a £15m loss to factor in a £15m settlement with German club RB Leipzig over the shambolic signing of Jean-Kevin Augustin. Waived loans of £21m were removed from the revised calculations.
In 2021-22, the club’s overall loss was £36million. Their next set of accounts, covering last season and due to be submitted with Companies House before the end of this month, are expected to show another loss, as will the books for this campaign back in the Championship. Those losses, however, do not appear to have stopped Leeds being PSR-compliant.
At the beginning of this season, PSR looked like a challenge because saleable assets in the squad were not plentiful. Leeds’ form on the way to relegation was such that the market value of many of the players signed in the summer of 2022 depreciated. Selling any of them at a loss promised to weaken the club’s PSR position. Moreover, Leeds had negotiated clauses entitling many of those footballers to leave on loan in the wake of relegation — though in hindsight, those arrangements were not without certain benefits.
In the case of Brenden Aaronson, moving him on permanently would have incurred a potentially sizeable loss on the £25million paid to sign him from RB Leipzig a year earlier. Loaning him to Union Berlin for the duration of this season and shifting his salary off the wage bill in the process, was a better scenario in terms of PSR.
As a whole, Leeds were able to trim their wage bill significantly, roughly halving it from a peak of around £12million a month. Relegation clauses imposing salary deductions of up to 60 per cent on their squad were key. More than £20m was also pulled in from the sale of Tyler Adams to Bournemouth in August.
Another £20million was raised last month through the agreement of a permanent deal for Luis Sinisterra to join loan-club Bournemouth, a move Leeds said avoided them making a loss on the winger. Cashing in on Sinisterra might have been indicative of Leeds actively working to avoid a PSR breach. The fee for him was less than the price of a permanent option Bournemouth had negotiated back in the summer as part of his season-long loan.
Clubs who talked to Leeds during this year’s winter window were under the impression that available transfer funds at Elland Road were limited. Having done much of their business in the summer, PSR did not allow for further major investment come January and there was no suggestion of trying to take Connor Roberts permanently from Burnley. Leeds were able to secure Roberts on a half-season loan and money was recouped by selling Leo Hjelde to Sunderland and loaning Ian Poveda to Sheffield Wednesday. Farke, in any case, had told Leeds’ board at the end of December that his main priority in January was to avoid the loss of any major players.
Leeds’ move for Roberts was never more than a loan (George Wood/Getty Images)
Leeds held up their side of that bargain, but they are bright enough to realise that spending a second season in the Championship would make harder decisions more unavoidable.
Farke has a four-year contract and, realistically, has earned himself another crack at promotion on the basis of results to this point, but Leeds appreciate that to remain compliant with PSR and to keep their accounts in check, the squad cannot remain as it is if promotion eludes them in May. Premier League parachute payments would drop in year two out of the top flight and player exits would be unavoidable.
For now, that concern is for a later date — and perhaps one Leeds will avoid confronting altogether. Farke has tried his best not to be distracted by goings-on elsewhere and Leicester’s PSR strife is unlikely to have piqued his interest. Promotion is in Leeds’ hands with the number of matches remaining now in single figures and the club feel confident the EFL’s PSR limits are not beyond their grasp either.
For now, all eyes are fixed on Sunday and that chance to go top of the table for the first time all season.
(Top photo: George Wood/Getty Images)
