Owner Promises Won't Count: The Regulator's Cash Reserve Plan for Tiers 2 to 5

A proposal, and an expectation

Two things need saying before the detail. The first is that this is a consultation. The framework is proposed, responses are open until 18 December, and the regulator says the relevant parts of its guidance will be updated afterwards.

The second is the word the regulator uses throughout, which is expectation. It is not proposing a universal statutory obligation for every club to hold a fixed sum from a fixed date. It is proposing a risk-based figure for each club, which it will use in judging whether that club has the financial resources required for a full licence. An expectation can become enforceable for an individual club, through what the regulator calls a discretionary licence condition, but that is described as a last resort.

It is also worth being clear about what the headline point does and does not mean. The proposal does not restrict owner funding or discount it. Money an owner has paid into the club, and which the club holds in qualifying assets, counts in full. What would not count is a promise to pay later. The regulator is distinguishing liquidity a club has from funding it has been told to expect.

What the regulator is proposing

Under the regulator's timetable, every club in the top five tiers of the men's game will need a licence from the start of the 2027/28 season. Clubs begin on provisional licences, and the documents describe a transition to full licences by May 2030. One of the three tests for a full licence is that a club holds appropriate financial resources, and this consultation explains how the regulator intends to judge the part of that test concerned with ready cash.

Each EFL and National League club would be given its own liquidity expectation every year, made up of a baseline that applies to all, an additional amount that rises with risk, and any adjustment for the club's individual circumstances.

The definitions differ from what a set of accounts would show. Wages means forecast cash spending on all staff, players and non-players alike, including employment costs, averaged over the season. Operating losses means the club's forecast net operating cash outflow, averaged monthly, with non-cash items such as amortisation excluded. Both figures come from the club's own forward-looking financial plan, so neither can be read straight off last year's profit and loss account.

The regulator describes the baseline as modest. It notes that businesses in other industries commonly hold between three and nine months of operating costs in reserve, and says one month of wages is well below that.

What counts, and what does not

This is the part of the proposal with the sharpest edge. Under the consultation, the expectation could only be met with what the regulator calls qualifying liquidity.

At least two-thirds of the expectation would have to be met through qualifying unencumbered cash or near-cash assets held in the licensed club's name and under its effective control. The consultation lists cash in a UK instant access account and directly owned gilts, US Treasuries and money market funds. Effective control means the club can use the funds without needing anyone else's consent.

The remaining third could be met the same way, or with cash in UK fixed-term deposits of no more than 35 days, or with a proportion of transfer fees that other clubs are contractually committed to pay. The proportion allowed would depend on how reliable the paying club is and how far off the money falls due.

Several things that clubs rely on today are excluded in the consultation. Undrawn overdrafts and revolving credit facilities would not count, and nor would written commitments from owners. The regulator's stated reasoning is that such arrangements are usually revocable, or have no contractual basis, and are likely to be withdrawn at the moment a club gets into difficulty. A club that believes it has a facility which is irrevocable can ask the regulator to recognise it towards the final third. Unsold players are not treated as liquid assets, because their value can only be realised in a transfer window and is volatile.

The consultation also says some clubs will need to change how they bank. Where a financing arrangement creates a fixed or floating charge over a club's assets, including its bank accounts, the regulator says this may restrict whether those funds qualify. It also says a club with an overdraft would need to hold its reserve at a different bank, unless the overdraft provider has contractually waived its right of set-off. Where such arrangements exist, the regulator says it will agree a transition period with the club concerned.

Why the regulator thinks this is necessary

The accompanying Supervisory Strategy sets out the reasoning, drawing on the draft State of the Game report published on 13 October. The regulator's summary of that report gives three separate measures, and they describe different things.

On profitability, it found that 94% of clubs across the top five tiers were loss-making. On cash dependence, it found that more than a quarter of EFL and National League clubs could not survive more than a month without owner funding. On the balance sheet, it found that more than 60% of EFL and National League clubs had liabilities exceeding the book value of their assets.

The strategy describes how the second of those works in practice. Most clubs do not generate enough cash from operations to cover their costs and depend on injections from owners. Many owners provide that money as it is needed, and a number average more than one injection a month, which leaves very little held in reserve. If an owner's funding stopped, the regulator says, many clubs could default on obligations such as payroll "within days". Most clubs reported having no contingency plan for that situation.

The document says this is not hypothetical. The regulator reports that since its creation it has seen several occasions on which a club failed or very nearly failed to meet its commitments because of events of this kind. No clubs are named.

It also acknowledges the owners' point of view. Funding a club as bills fall due avoids tying up capital, and the regulator accepts that a number of owners have funded their clubs reliably in this way for years. Its concern is where the risk sits. The owner chooses when to pay, and the club carries the consequences if the owner's intentions or circumstances change.

What it could mean in pounds

Neither document contains a cost estimate, a worked example or a figure for how many clubs fall into each risk category. The table below is an illustrative calculation, not an IFR estimate. It takes a hypothetical club that forecasts £24m a year in wage costs and £12m a year in net operating cash outflow, giving a monthly wage bill of £2m and a monthly operating cash loss of £1m.

In the higher-risk case at least £4.67m would have to be qualifying cash or near-cash assets in the club's name, and the reserve would build from £2.33m in summer 2028 to £4.67m in 2029 and the full £7m in 2030.

The gap between the tiers is the incentive. A club that moves from higher to lower risk in this example cuts its expectation by more than two-thirds, and the regulator says explicitly that reducing risk will reduce the amount a club is asked to hold.

How clubs will be sorted

The regulator has not published the thresholds between lower, medium and higher risk, and says its supervision is driven by judgement within a common framework. It has listed the features it regards as signs of lower risk. These include income that covers operating costs, the absence of large negative cash flows, pre-funding of forecast losses, limited reliance on frequent owner injections, no large or growing external debt, no covenants that could trigger sudden cash demands, limited charges over assets and future income, credible financial planning, and no contingent liabilities that could cause distress if they crystallised.

Each club would receive an annual risk letter from summer 2027 setting out the regulator's view and its liquidity expectation, along with the changes that would lower it. Every club will have a named supervisor. Assessments would be repeated at least annually and could be brought forward if a club's circumstances change materially.

Timetable

The licensing dates and the proposed liquidity dates are separate, and only the second set is under consultation.

The first financial plans must include stress tests and contingency plans against three scenarios: relegation, the withdrawal of owner funding, and a fall in revenue. Results will feed into each club's risk assessment from 2028.

What happens if a club falls short

The regulator stresses that it prefers to work with clubs and treats formal powers as a last resort. Where it has concerns about a club's position or its ability to reach the expectation by 2030, it says it will work with the club to agree a faster timeline and, if necessary, impose discretionary licence conditions. Those could take the form of a formal liquidity requirement, a debt requirement or a requirement to reduce overall costs. Clubs at the highest risk may also be asked to report key liquidity figures monthly.

The Premier League, promotion and relegation

Premier League clubs are not given a starting expectation. The regulator says the evidence shows liquidity risk is less acute in tier 1 and that those clubs have better access to commercial borrowing. They will still be risk assessed individually, some may be asked to hold more than they do now, and the position will be reviewed in 2028.

A club promoted from the Championship would be expected at least to keep the reserve it had built. A club relegated into the Championship may be offered transitional arrangements, in recognition that building a reserve while absorbing the cost of relegation is difficult.

Also in the consultation

Two further items are included. The regulator is seeking views on the template clubs will use for their annual financial plan, due each 31 May and covering the rest of the current year and the following two. It also proposes a new rule allowing it to transfer a licence from one company to another within a club's group, for example after a restructuring or change of ownership. Clubs would have to give notice in advance and explain what assets and liabilities stay behind, and the regulator could refuse a transfer it believed was designed to get round the regime.

The Bottom Line

One month's wages sounds like a low bar, and by the standards of other industries it is. What makes the proposal significant below the Premier League is the definition of what can meet it. For clubs funded by owners month to month, an expectation that cash sits in the club's own name, free of any lender's claim and beyond the owner's discretion, changes the timing of that funding even if it does not change the amount.

There is also a point here for anyone who follows clubs through their filings. Registered charges at Companies House provide an important starting point for examining whether a club's assets or bank accounts may be subject to lender security. Establishing whether particular funds qualify as unencumbered liquidity requires examining the underlying arrangements. The pattern of owner funding matters too, since the regulator has said it will weigh reliance on frequent injections in a club's risk assessment.

The regulator calls this the start of a multi-year process and names debt as its next area of focus. The consultation closes on 18 December.