Explained: After Nottingham Forest's four-point deduction, what next for the Premier League's financial rules?

Nottingham Forest have been thrust into the Premier League relegation zone after being hit with a four-point deduction for breaches of financial rules, that are becoming a dominant topic in the world’s richest league. Everton have also suffered a six-point deduction, reduced from 10 on appeal, to leave the Toffees fighting to prolong their 70-year status in the top flight.

The Premier League now faces the embarrassment of having relegation decided in tribunals after the season has finished, with the deadline for the appeals process coming five days after the final day of the campaign.

AFP Sport looks at the rules, why they are often criticised and what could come next.

What are the rules?

Premier League clubs are allowed to lose a maximum of £105 million ($134 million) across a three-year assessment period.

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However, for every season a club was in the second-tier Championship, that amount is reduced by £22 million. Forest, therefore, were only permitted losses of £61 million as they were promoted back to the Premier League for the first time in 23 years in 2022.

There are a number of deductions allowed for spending on costs that are deemed to be in the general interest of the club and the game. These include spending on infrastructure, youth development and women’s football.

Why are they controversial?

Financial sustainability rules are designed to limit clubs to spend within the means of what they generate in revenue. However, as a result they are often criticised for helping the established elite clubs maintain their privileged position as they make the most money thanks to larger stadiums, better commercial deals due to bigger fanbases and are regularly involved in lucrative European football.

Forest accused the Premier League of clamping down on ambition in a manner that “destroys mobility in the football pyramid”.

Despite being backed by the Saudi sovereign wealth fund, Newcastle’s rise has been halted this season in part by the restrictions on their spending. The Premier League’s slapdash sanctions policy has also been contentious.

With no fixed penalty for breaches, it is up to an independent panel to decide the severity of any points deduction.

Forest breached their cap by £34.5 million, more than the £19.5 million by which Everton exceeded their £105 million limit. Yet it was the latter who received a tougher penalty. The time it takes for cases to be heard is also problematic with all the sides fighting for survival at the bottom of the table unsure where they stand.

Where do we stand now?

Forest’s deduction takes them into the bottom three, one point behind Luton and four adrift of Everton. But more punishment could be to come for Everton as they have admitted to a second breach for the three-year period to the end of last season.

What could come next?

A landmark case against Manchester City could pave the way for future sanctions. The English champions face accusations of 115 charges of breaking the rules dating back to 2009, which came to light in 2023 after a five-year investigation.

League chief Richard Masters said in January that a date has now been set for City’s case to be heard without being able to reveal when due to legal restrictions. A host of other clubs are on the brink of breaching the rules, unless they make significant sales before the end of football’s financial year on 30 June.

After spending over £1 billion on new players in the first three transfer windows under new ownership, Chelsea reportedly need to recoup in the region of £100 million to avoid overstepping the mark.

Championship leaders Leicester could start next season with a deduction due to their losses in the three years prior to being relegated last season. Premier League clubs have become accustomed to throwing around their financial muscle in the transfer market thanks to the biggest television rights deals in football.

But transfer spending in the January window by English clubs collapsed with many other clubs wary of being sanctioned and it could be squeezed again this summer. Changes are also coming to the rules as the Premier League aligns with UEFA’s new squad cost controls.

The current £105 million limit will be replaced with clubs, instead, only allowed to spend a set percentage of their revenue on transfer fees, player and coach wages and agents’ fees.