The English Football League have confirmed that Reading are currently under a transfer embargo for breaching profit and sustainability rules. Given the club’s inactivity in the transfer window this summer, this was already rumoured to be the case but we now have it in writing.
Whereas information on embargos was previously, err... embargoed, last month EFL clubs agreed that a list of all clubs under such restrictions should be published in the interests of transparency and fair governance.
Reading are one of eight clubs to be named on the EFL website, including two other Championship sides: Derby County and Hull City. But what does it actually mean for the Royals both on and off the pitch?
Why have Reading been placed under a transfer embargo?
The EFL state that the club have breached profit and sustainability rules, which essentially means they have spent too much money. Under the current regulations, teams are allowed to lose £39 million (pre-tax) across three seasons, but Reading’s most recent set of accounts revealed that the Royals lost £42 million in 2019/20 alone. Across the three-year period, they made an eye-watering pre-tax loss of £93 million.
It is right to say that the club have been actively cost-cutting in the last 18 months. High earners such as Garath McCleary, Mo Barrow, Sam Baldock and Sone Aluko have been taken off the wage book and incomings have been limited to free signings and loan deals, with the exception of the £3.5 million spent on Ovie Ejaria. This is a positive sign, but it comes too late to save Reading from the grotesque amount of money they spent between 2017 and 2019.
Does this mean we can’t make any signings?
This unfortunately remains unclear and it has been pretty hard to achieve clarity on the matter. There is no blanket set of restrictions for clubs under an embargo and the EFL state that each case is dealt with individually. When we asked them to provide the specifics of Reading’s embargo and whether signings would be allowed, they declined to comment.
What we do know, as per the EFL website, is the considerations that will be made when assessing each club’s circumstances. They are:
- Re-engagement with currently registered players
- Signing an emergency loan goalkeeper
- Academy players
- The club having less than 24 ‘established players’
It is that fourth condition which is most relevant to Reading. An ‘established player’ is someone who is “aged 21 or over as at the 30 June immediately prior to the commencement of the season in which the club is subject to the embargo and who has been named in the starting XI on a total of at least five occasions”.
At the time of writing, the Royals only have 15 players on their books who meet this criteria: Rafael, Andy Yiadom, Michael Morrison, Liam Moore, Tom Holmes, Tom McIntyre, Josh Laurent, Andy Rinomhota, Felipe Araruna, John Swift, Ovie Ejaria, Yakou Meite, George Puscas, Lucas Joao and Marc McNulty.
It is important to note that this doesn’t automatically mean Reading are free to make signings. Having less than 24 ‘established players’ is just one thing the EFL will take take into consideration. The Royals certainly have a very good case though as they can show a pressing need to acquire more players - they are nine short of what the EFL consider to be a suitable squad size. Those aforementioned cost-cutting measures may work in their favour too, as they have shown they can be more prudent in their financial management.
If signings are allowed, the EFL state that clubs under embargo “are only permitted to ‘staff up’ by signing players on loan or players not registered with another club [free agents]”. Loan deals can only be for half a season and loan fees are not allowed, while free agents are only allowed to be signed on contracts until the end of the campaign. Once again though, each embargoed club’s power in the transfer market is dealt with individually, and the EFL declined to comment on the types of player Reading would be allowed to sign.
Will we get a points deduction?
At this point, there is no indication that Reading will be docked points like Birmingham City and Sheffield Wednesday have been in recent seasons. The embargo may be seen as suitable punishment for now, particularly considering that the Royals are cost-cutting with vigour. There is also the impact of Covid-19 to consider, and the EFL are said to be understanding of the demands clubs have faced during the pandemic.
On The Tilehurst End Podcast in April, football finance expert Kieran Maguire said: “The thing that Reading have got in their favour is that I don’t think there is any desire from the clubs in the EFL for their fellow clubs to end up with points deductions. We could end up with eight or nine clubs being on the end of points deductions, which means from a sporting integrity perspective, it would make a nonsense of 2021/22 as a season.
“I suspect there won’t be any profitability and sustainability points deductions for the forthcoming season. What the EFL will probably do is assess clubs over two years. Take the losses in 2021 and take the losses in 2022, halve them and use that as the basis for the three-year assessment. So things will be really challenging in 12 months’ time.”
How does this affect Reading’s squad?
It leaves it worryingly sparse. After Michael Olise’s departure to Crystal Palace, Reading’s first-team squad consists of just 14 players who made five or more appearances last season. You can add in backup goalkeeper Luke Southwood, injury-hit Felipe Araruna and forgotten man Marc McNulty, but that hardly makes it better reading. That number also includes Dejan Tetek, whose nine appearances came almost exclusively off the bench in the final 10 minutes of matches.
Then there is Yakou Meite, who is set to miss most of the campaign after rupturing his ACL, and Liam Moore, who could be unavailable for the first few games depending on how far Jamaica get in the Gold Cup and how charitable the club will be with any rest period he gets. It is fair to say Veljko Paunovic does not currently have many senior players to choose from.
Lack of depth seriously hurt Reading in the latter stages of last season as their play-off bid fell by the wayside. Only Rotherham United (26) used fewer players in the Championship than the Royals (27), and that includes six players who made no more than two appearances. Injuries to key players at various points of the campaign worsened the problem.
Reading’s starting XI remained relatively strong for most of the campaign, but by May they were undoubtedly burned out both physically and emotionally. There were no game-changing options on the bench that Paunovic could turn to, despite the best efforts of Sam Baldock and Sone Aluko and a cluster of academy players.
Even if Reading are permitted to sign five players, as they did last summer, they would still have a first-team squad of just 22 players. That’s without any more leaving the club and any getting injured. It means we are likely to see a high volume of academy players bolstering the squad and plenty of youngsters have been involved in first team training so far this summer.
The big question is whether any academy players are ready for the step up. Due to the club’s mass cull of youngsters last summer and further departures this year, no player in the under-23 squad is over the age of 19 and there are no obvious signs of the next Michael Olise emerging. Following Omar Richards’ exit there is no senior left back so Ethan Bristow or Imari Samuels may have the chance to make a name for themselves, while there is growing excitement around Femi Azeez who was top scorer for the under-23s last season.
How can we get the embargo lifted?
The EFL website states that clubs will remain under embargo “until such time as it has met its existing financial obligations and/or the club has rectified the relevant breach of EFL regulation(s)”.
For Reading to “rectify” their breach, in other words reduce their three-year loss to £39 million or under, they would need to post a profit of £33 million in their 2020/21 accounts. That simply isn’t going to happen.
What they can do is continue to show the EFL that they have learned from their mistakes and that they are able to operate as a sustainable football club. In other words, don’t repeat the summer of 2019 when they were released from their ‘soft embargo’ and preceded to spend a reported £13 million on Lucas Joao and George Puscas.
EFL: You're under a soft embargo because you're finances aren't looking great#Readingfc: Okay— Andrew Savory (@adsavory) August 8, 2019
EFL: Right, we'll lift it but be careful guys
*READING SIGN PELE, PUSCAS, RAFAEL, JOAO AND ARE LINKED WITH KENEDY AND EJARIA*
The £8 million Reading are set to get from the sale of Michael Olise won’t be reinvested back into the squad, but it will help towards their argument to the EFL. More sales, and less of Dai Yongge’s stubborn nature in transfer negotiations, will be welcomed. Then it will be down to the club’s ‘football board’ - Dayong Pang, Bryan Stabler, Michael Gilkes and Veljko Paunovic - to get creative with any incoming transfers they are allowed to make, maximising their scouting, contacts and budget.
So all in all, yes it’s not great reading. But this has been coming for some time and if there is one positive it is that the club have been made to wake up to the fact they cannot continue running in such an irresponsible manner.
And hey, at least we’re not Swindon.