Clubs face strict rules on finance

Premier League could impose transfer bans if solvency tests are failed

The Premier League yesterday announced new rules for club finances which could have meant transfer bans for Liverpool, West Ham and Portsmouth had they been in place last season.

In a set of reforms that were voted in by the 20 Premier League clubs this month, the league now has the power to stop clubs buying players or even awarding existing players new contracts if they hit serious financial problems. All clubs will have to submit detailed accounts to the league's executive by 1 March in order to prove they are solvent

In Liverpool's accounts in June, their accountants warned that the uncertainty then over refinancing the £350m debt of the American owners Tom Hicks and George Gillett "cast significant doubt" on the club's capacity to "continue as a going concern". Under the new Premier League rules, which apply immediately, the league would theoretically have had the power to take control of Liverpool's budget and player transfers.

West Ham found themselves in a similar situation last October when their former owner Bjorgolfur Gudmundsson's bank Landsbanki was placed in receivership. Portsmouth chief executive Peter Storrie admitted his club was close to administration this summer when the takeover by Sulaiman al-Fahim faltered. Both clubs could potentially have triggered the Premier League taking control of their finances.

The financial criteria that clubs will have to meet will be the same that Uefa require from clubs wishing to play in the Champions League and Europa League.

The key trigger for the Premier League to potentially take control of a club's finances will be a warning such as an auditor's note – similar to that in Liverpool's accounts – that there are serious doubts about whether the club can survive. For example, Chelsea include in their accounts the guarantee that owner Roman Abramovich is not about to call in his loans of around £600m.

However, Premier League intervention in a club's finances will still be very much a last resort. Under the new rules, clubs will be granted a licence for the entire season so if they can get themselves out of financial trouble in time to re-apply for the licence they will not be subject to the league's scrutiny.

The Premier League chief executive Richard Scudamore has persuaded the clubs to sign up to the measures as a way of seeing off pressure from the government about football clubs' huge debts.

Scudamore said: "Our view is the current owners are just the current custodians and the clubs will be there before them and long after them. It's absolutely right that the clubs are sustainable and that they are able to meet their obligations to fans and the competition."

The clubs have also agreed on a quota for homegrown players in Premier League squads. Under new rules they will have to have eight players in a squad of 25 who are "homegrown". According to the Premier League's definition of homegrown, that means a player who is developed at any club in England or Wales for three years before he is 21. It does not mean the player in question has to be English.

Scudamore said: "It clearly encourages youth development and the promotion of young players, but, and we don't apologise for it, it goes nowhere near a nationality test because we don't believe that's right."

New rules: Will they really make a difference?

Why Portsmouth may have no need to panic...

They may often be held up as an example of a club in a tricky financial position, but even Portsmouth could have avoided falling foul of the new Premier League rules on finances. The licence is applied for annually at the start of each season and lasts a year – so a mid-season meltdown would go unpunished as long as the books are back in order by the start of the next season.

... while Liverpool need to ring the changes

Liverpool could be a casualty of the squad regulations. From next season each club would have to name a 25-man squad including eight "home-grown" players, defined as having spent three years in English football while under 21. So only Fabio Aurelio, Jamie Carragher, Steven Gerrard, Glen Johnson, Jay Spearing and Krisztian Nemeth would qualify.

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