Premier League football's financial regulations may have been designed to curb transfer spending, but they actually incentivise it, argues Danny Hill.

Premier League clubs spent a record £3.46bn this summer. Around 38 per cent of deals were between Premier League clubs, up from 30 per cent last year, according to Reuters.

The obvious explanations are familiar: record revenues, greater purchasing power, and an increasingly competitive market. Yet they do not fully explain why so much transfer activity is taking place between the clubs themselves.

One answer may lie within the financial regulations designed to constrain that spending. The Premier League's Profitability and Sustainability Rules, in place since 2013, capped losses at £105m over three seasons; from the 2025-26 season they have been replaced by Squad Cost Ratio rules that limit squad spending to a share of revenue, mirroring Uefa's own cost-control framework at European level. Player trading moves footballers and cash between clubs; in regulatory terms, profits on those sales can increase the amount clubs are permitted to spend on their squads. When all 20 clubs operate under broadly the same incentives, this helps explain how money keeps circulating around the league.

Consider two clubs, A and B. Club A wants one of B's players, and B wants one of A's. Assume both players came through their respective academies, meaning neither carries an acquisition cost on the balance sheet. If the players are equally valuable, the clubs could simply exchange them.

But the regulations create a different incentive. If each player is instead sold for £50m, both clubs can recognise close to £50m as a profit on disposal. Each records the incoming £50m player and recognises that cost through amortisation over the player's contract. Under the new Squad Cost Ratio rules, net profits from player sales are explicitly included in the calculation of permitted squad spending.

At £70m, the underlying economics are unchanged: the same players move, and the net cash difference remains zero, but both clubs have crystallised larger player-sale profits and increased their regulatory spending capacity, while acquisition costs are recognised over future years. The rules therefore give both clubs an incentive to maximise the supportable value of the transactions.

Now add Clubs C and D. A buys from C, while B buys from D. Those sales increase C's and D's own regulatory capacity, supporting further acquisitions and another round of trading.

How transfers recirculate money and benchmark prices

There is also a benchmarking effect from the deal between A and B, now observable in market transactions. C and D have their own incentive to maximise player-sale gains, which creates the environment for today's transactions to forge tomorrow's benchmark.

Extend that across 20 interconnected clubs, and the same pool of money can circulate through successive deals, with each transaction adding its full value to headline spending while creating regulatory capacity elsewhere.

A 2024 academic study identified a structural change in player prices following the introduction of Uefa financial regulations, advancing the idea that increased player trading in response to the rules is a possible explanation.

Remove the financial regulations, and much of this incentive disappears. A and B still want each other's players, but there is little economic reason to turn a simple exchange into two large transactions. Absent regulation, clubs would have little reason to maximise accounting profits — and, where those profits are taxable, may have an incentive to do the opposite.

Regulation gives those profits an additional value: capacity to spend again. That spending creates future amortisation costs, sustaining the incentive to generate further player-sale profits and reinforcing the cycle towards ever-larger transaction values.

The record £3.46bn should not simply be taken as evidence that football needs further financial regulation, but also considered as a potential consequence of the regulations already in place. Record spending may therefore be as much a consequence of regulatory design as evidence of the problem that regulation is intended to solve.

Danny F Hill is Assistant Professor of Finance at Providence College and founder of sports valuation consultancy Virsolus.