As we approach the new season, a new financial governance will be in place. The squad cost ratio, or SCR, is the Premier League’s all new way of monitoring the incomings, outgoings and general financial stability of each Premier League club. 

SCR replaces the much critiqued PSR (Profit and Sustainability Rules) that have ‘limited’ clubs from breaking into the so called ‘Big 6’. 

The new rules, similarly to PSR, monitor how much money clubs are spending on their first team infrastructure. Player wages, coaching staff and of course, transfer fees. 

Palace were actually one of only six clubs who voted against the new SCR rules, including Bournemouth, Brentford, Brighton, Fulham and Leeds. 

SCR, in basic terms, limits how much clubs can spend, by providing a percentage cap of club revenue which can be spent on the first team.

For sides competing in the Premier League exclusively, there is a spending cap of 85%, meaning clubs can spend a maximum of 85% of their revenue on the team, including transfers, wages and agent's fees. 

This is a really crucial point, as it will prevent teams from selling hotels, women’s teams to themselves, all loopholes previously exploited by other sides. 

At the beginning of each season, clubs will estimate their revenues and the first compliance tests will take place on March 1st. 

Of course, for Palace, the rules are slightly different, as the club prepares to compete in the Europa League for the first time. 

SCR has been in place for UEFA for a number of years, but only now is it dropping to the new percentage.  

The spending percentage limit decreases for clubs competing in continental tournaments each season. A significant decrease of 15% is applied to all sides, whether they are competing in the Conference, Europa or Champions League. 

For example, if Palace generated £200 million in football related revenue and were only competing in the Premier League, they could spend up to £170 million on wages amortisation and agents' fees. Competing in Europe, that budget drops by £30 million. 

One can only imagine that the thinking behind this is that it will allow clubs without European football to keep up, whilst limiting the distance the consistent European sides can stray from the rest of the league. 

Under the new rules, the FA and UEFA are operating a traffic light system when it comes to addressing breaches. The Green Threshold refers to clubs staying below their 85%/70% limitations, where clubs will not be punished. 

Crucially, there is a ‘Buffer Zone’, which allows for a 30% increase for clubs to absorb any unexpected financial outlays. Clubs will not be punished for this in terms of a sporting sanction, however a financial levy, or fine, is calculated as an exact percentage of the overspend. 

The ‘Red Threshold’ will apply to clubs that have spent over 115% (Domestic) or 100% (European).

At this point, immediate sporting punishments are triggered, including an automatic 6 point deduction in the Premier League, with the deduction increasing by 1 point for every £6.5 million spent over the Red Threshold.

Based on research conducted using information publicly available, Palace are closer to the 30% buffer zone than people may expect. Typically, around 77% of the Eagles’ revenue comes from television rights, with just 7% from matchday earnings due to Selhurst Park’s limited capacity, a key reason for the development of the main stand. 

An article from The Athletic which mapped out each club’s early financial status suggested that Palace would potentially have to sell before they can spend significantly on any incomings this Summer.

The Winter spending spree was amortised over the course of their contracts, but the immediate impact that those deals had on Palace’s capabilities to spend this Summer were definite. 

However, it’s not as simple as just selling your best players and freeing up a huge transfer kitty. 

Under the old PSR rules, if Palace sold a star player, Eberchi Eze for example, any profit could be injected into the club’s finances to clear room for spending. Under SCR, player sale profits must be spread out over three years. 

This means that if Palace were to sell Adam Wharton for £99 million (for the sake of easy maths), only 70% of £33 million would be available for the club to spend in the first year. This limits the freedom and potential for a club like Palace, who historically have always had to sell to buy. 

Because of the heavy Winter outlay on both Jørgen Strand Larsen (£48m) and Brennan Johnson (£35m), the club are already conscious of the SCR limits.

This could mean that to bring in players to cover the holes in the squad, a big sale likely needs to take place, especially if conditions are met for some of the more valuable squad members, such as Maxence Lacroix or Wharton. 

So Palace find themselves in a difficult position, where sales will be needed to allow for spending.