The level of losses sustained by clubs has created “a systemic insolvency risk” for the football pyramid, says EFL chief executive Trevor Birch.

Birch issued an open letter after the Professional Footballers’ Association (PFA) began legal proceedings against the EFL over changes to financial rules in League One.

In May, the EFL announced, external Squad Cost Rules (SCR) would replace the Profitability and Sustainability (P&S) financial framework from 2026-27.

Within the changes was a lowering of the percentage of turnover that clubs could spend on wages. In League One, it reduced the percentage from 60% to 50%.

The PFA – the union for professional footballers – argued the league could not implement changes “unless there was full agreement” with the Professional Football Negotiating and Consultative Committee (PFNCC).

Birch, who was a player until the age of 23, said he recognised football was a short career, but added the financial situation for EFL clubs was “not sustainable”.

Over the past five seasons, average player expenditure in League One has increased from £3.8m to £8.0m, while loses have risen from £2.3m to £7.3m. Last season, average losses in the Championship reached £21.6m.

“Financial sustainability and player protection are not opposing ideas,” Birch wrote. “They are inseparable.

“A club that is financially secure is more likely to honour contracts, pay wages on time, invest in facilities and provide long-term career opportunities.

“This is not solely a League One issue. In the Championship it is even starker.”

A previous plan for salary caps to be brought into League One and League Two was withdrawn in 2021 after the PFA argued the new rules would be “unlawful and unenforceable”.

The PFA is unwilling to accept the latest changes, feeling it could impact upon its members’ salaries.

“The PFA insists the new rules could suppress wages and restrict spending on squads. That concern deserves to be heard,” Birch added.

“But there is also a legitimate concern that doing nothing only perpetuates the challenges our clubs face, with owners unwilling or unable to provide increased funding requirements.

“The purpose of these controls is not to limit ambition, but to put appropriate guardrails in place, so clubs can invest responsibly, remain competitive and avoid being pushed into spending that places their long-term future at risk.”

League One Oxford United were placed under a temporary registration embargo last month for failing to comply with the new rules.

They are currently unable to sign players, including loans or free transfers and the club has indicated it will take months for them to be able to meet these new obligations.

But Sheffield Wednesday spent most of last season in administration after the club’s then owner, Dejphon Chansiri, withdrew funding.

The Owls were deducted 18 points for financial breaches and came close to going out of business, with questions raised over the impact on the competitiveness of the division.

Birch said fans wanted clubs to have “the means and security to remain at the very heart of its community in the future”.

He added: “Supporters want ambition, but they also want hope that feels real, jeopardy that feels fair and competitions that remain open, credible and exciting, whether watched from the stands or on television.

“They want promotion and relegation stories that matter, local pride that endures and clubs that last beyond one ownership cycle.

“Litigation isn’t the answer. It will not solve the underlying challenge facing the game: a financial model in which too many clubs are asked to chase success through losses that owners are expected to absorb indefinitely.

“It is not sustainable.”

Birch added a “fairer and more equitable distribution model” with the Premier League would be crucial to EFL clubs, with the solidarity agreement unchanged since 2019.