The road to the Premier League is littered with clubs who have spent beyond their means to get there only to go back down in their first season – that’s the fate that Leeds United need to avoid.
With promotion from the Championship sealed on Monday, Leeds have delivered what 49ers Enterprises were looking for when they first bought into the club back in 2018.
The 49ers saw the commercial potential in what was a middling Championship club at the time and were convinced that they could help deliver on its promise better than Andrea Radrizzani.
Now, with Leeds in the Premier League for the first time since the 49ers full takeover, they have the chance to prove exactly that.
However, the circumstances under which they have been promoted back to the top flight are not the same as when the Radrizzani regime went up under Marcelo Bielsa in 2019-20.
For one, the atmosphere at Elland Road is different.
Had the owners in 2020 briefed that they were considering ousting Bielsa, mutiny would have ensued. When the news broke that the 49ers are exploring sacking Daniel Farke, it was met with indifference.
Another difference is the finances.
The Premier League is into a new, more lucrative cycle of TV rights since Leeds were last promoted. That means greater riches are on offer. But conversely, the league’s regulators have begun to bear their teeth.
Everton and Nottingham Forest have been penalised for breaking Profit and Sustainability Rules (PSR), while a handful of others are walking a very narrow line.
So how much leeway do Leeds have to spend upon their return to the Premier League?
Leeds United’s PSR headroom upon return to the Premier League
In the Premier League, clubs are allowed to lose up to £105m over a rolling three-year period so long as the bulk of that deficit is guaranteed by an owner.
That £105m is reduced for every year a club spends in the Championship, where the allowable loss was £39m, although the EFL increased that to £41.5m to account for rising utilities costs.
So, for every year you’re in the Premier League, you’re allowed a £35m loss. Every year in the Championship, it’s just over £13m.
In 2023-24, Leeds’ allowable loss under PSR was £83m. They escaped by the skin of their teeth, thanks primarily to the sale of Archie Grey before the assessment period rolled over.
In 2024-25, Leeds had spent two of their last three seasons – including the current one – in the Championship, so their allowable loss for the period was a little over £61m, i.e., £13m + £13m + £35m.
Next year in the Premier League, Leeds will have to pay much higher wages to players, spend much more on recruitment and set aside more cash for operating expenses, but their allowable loss will still be £61m.
And for clarity, Leeds’ parachute payments will also stop next year given that they are no longer needed to cushion the fall from the top flight to the second tier.
On the flipside, Leeds will of course be earning far, far more money in the Premier League.
This season’s 20th-place side, Southampton, are set to earn at least £110m in TV money alone. As one of the most broadcast teams, Leeds can expect that amount and more.
Factor in a big bump in commercial and matchday income at Elland Road too and the club can expect to surpass £200m in revenue next season, regardless of where they finish in the table.
So Leeds’ revenue will increase but so too will costs.
In 2023-24 – the last year of the three-year assessment window that Leeds will move into next season – Leeds lost £61m.
Allowable expenses such as infrastructure, academy and women’s spending probably knock that down to around £45m.
We don’t have the figures for 2024-25 yet, of course. But big player trading profits and a significant scaling back of the wage bill could see Leeds get much closer to breaking even.
It’s far from an exact science, but a break-even result would therefore give them room for a £60m loss next season minus PSR-exempt expenses.
Do Leeds need to sell player before they make new signings this summer?
First things first, every club promoted from the Championship to the Premier League needs to make changes to their squad. The gulf in quality between the two divisions necessitates that.
But whether Leeds need to sell players from a financial perspective is a different question.
Broadly speaking, there are three reasons that dictate how much a club can spend:
- Room for manoeuvre under PSR
- The owner’s ability to underwrite financial losses associated with spending
- The owner’s inclination to underwrite financial losses
If we work under the assumption that Leeds can make a loss of £60m next season, they can probably spend reasonably heavily, increase the wage bill and be okay as far as PSR is concerned.
Remember, new signings are amortised over a five-year period. If Leeds spent £50m on a player, only £10m hits the profit-and-loss account this year for PSR purposes.
They would, of course, have to consider future PSR assessment windows. But broadly speaking, there are levers that clubs – especially with owners as monied as Leeds’ – can pull to find more PSR headroom.
However, just because you have a credit card, doesn’t mean you should max it out.
If Leeds lose money, the 49ers need to underwrite those losses. In the short-term, they appear willing to do that, but in the long term they want a return on their investment.
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