Nottingham Forest were one of 14 Premier League clubs to vote in favour of Squad Cost Rules (SCR), and as such, they are now being implemented.

Forest have previously fallen foul of the league’s old financial rules, which saw the Reds docked four points during the 2023/24 season for a breach of the previous Profit and Sustainability Rules (PSR).

This will hopefully serve as a simple guide to what is a frankly very unsimple set of rules, with more grey areas than a pavement.

There is also a projection of Forest’s compliance with the new rules, utilising known and estimated financial figures, but this is far from perfect due to the fact that many figures are estimated by the club themselves, so cannot possibly be known yet.

On a recent Talking Reds episode, TheRandomPundit offered an excellent, in-depth explanation of SCR, at a level of detail which simply would not fit in an article. If you are after a more comprehensive understanding of SCR, it can be viewed here.

Simply put, SCR is a new way to monitor and limit how much money a club can spend. 

Unlike PSR, SCR is effectively means-tested, meaning that different clubs will be able to spend different amounts, depending on their income.

The rules are new to England, but have been used by UEFA since June 2022, and Forest were actually fined for breaching them last season.

In the Premier League’s implementation of the rules, a club’s spending on wages, transfer fees and agent fees (football-related spending) is capped at 85 per cent of their football-related revenue, which is more than the 70 per cent limit imposed by UEFA.

The wording around expenditure and revenue being ‘football-related’ is very deliberate, and is done as such in hope of closing previously exploited loopholes, like selling hotels and Women’s teams to a club’s parent company… not that anyone would dare do that, in such a blatant disregard for sporting integrity.

Crucially, income like player sales only includes profit and, even then, must be spread over a three-year period. So, for example, Forest will not record all of the £81 million profit made on Elliot Anderson in this year’s accounts, for SCR purposes, but will instead record just £27 million of profit in the first year.

Initial compliance checks will occur on March 1 of each year, but are based on revenue estimates submitted by clubs themselves at the start of the season.

Because of this, it is near-impossible to give an accurate idea of where any given club stands in relation to potential compliance, because there are simply too many unknowns.

Based on existing figures and estimates, it is conceivable that Forest are currently operating at a football-related spend of roughly 73 per cent of the club’s football-related revenue, which is well within the 85 per cent limit.

This is based on a football-related revenue estimate of £239 million, allowing for spending of up to £203.15 million.

The figure includes a third of the profit from the sales of both Anthony Elanga and Elliot Anderson, as well as accounting for changes in competition prize money and expected broadcast income.

Including things like wages, bonuses and already-amortised transfer fees among other areas, Forest’s football-related spending was estimated at £175.706 million, which is how the 73 per cent operating margin is arrived at.

While on paper, the prospect of only being able to spend a further £27.4 million may seem daunting, transfer fees continue to be amortised over the length of a player’s contract, up to five years. 

So if Forest were to sign Givairo Read, as is rumoured, for £20 million, it would represent just a £4 million outlay on this assessment period’s accounts, excluding his potential wage or agent fees, of course.

This means that there is a lot more wiggle room than there may first appear, and other potential sales will only improve the club’s position further.

The new rules are not as firm as you may expect, based on the harsh nature of some of the league’s previous sanctions.

A traffic light system means that clubs have a multi-year allowance whereby they can exceed the allowed threshold without facing a sporting sanction.

If a club enters the 30 per cent buffer zone, they can be subjected to fines, but will only face a sporting sanction if they exceed the buffer zone.

Doing so results in an automatic six-point deduction, as well as a further one-point deduction for every £6.5 million spent over the threshold.

It is important to note that you cannot simply get by by breaching the initial 30 per cent threshold and paying your way out of it.

This is because, as well as facing a fine, doing so reduces your threshold for the following assessment period. It can be increased again following continued compliance, but it prevents a club from continually failing SCR.

Some clubs are already racing in an uphill battle to comply with the new rules, while some fear they may fall foul in the first year.

Henry Swain, Round Table's Crystal Palace lead, has analysed the Eagles' situation here, for those interested in another perspective in the Premier League.