Cap-ital markets

This article was first published on the Football Aid website on 07 November 2008.

"If the player wants to play somewhere else, then a solution should be found because if he stays in a club where he does not feel comfortable to play then it's not good for the player and for the club."

"I think in football there's too much modern slavery in transferring players or buying players here and there, and putting them somewhere."

Sensationalist tabloid writers of this country salivated upon hearing the above snippet from the ever-quotable President of FIFA, Sepp Blatter. While the quote was taken a little out of context to better serve the objectives of newspaper hacks (in a similar manner to that as the writer of this article has done so), the furore that followed has once again brought the public’s attention to the level of wages earned by top flight footballers across Europe.

The recently launched website Footballers’ Wages, is calling on football supporters to join a campaign to curb the soaring salaries of players. The website panders to the sentiments of the ‘average’ fan with some bold comments:

• “Did you know that with just one weeks [sic] wages, Michael Owen could afford to drink over 30,000 pints?”

• “On his current wages, Wayne Rooney pockets a cool £185,000 a day, every day!”

It urges fans to sign an online petition which shall be presented to all major football bodies and aims to cap salaries across all levels of the sport and keep any salary increases in line with inflation. Comparisons between the average Premier League wage and that of the Prime Minister (a footballer earns three times as much) and police officer (a footballer earns 28 times as much) are made.

The increasing costs to fans of following their favourite clubs, through rises in ticket prices and merchandise and new television deals, are highlighted. “When fans see some of those footballers being compare to slaves, it’s understandable that supporters feel disillusioned with their club and the sport” suggests Footballers’ Wages spokesman Michael Hewitt.

UEFA president Michel Platini has also recently championed the attributes of a salary cap. But how could a salary cap be introduced into the game in its present form?

Indeed recently, Football Association chairman, David Triesman commented that "in the current climate it could be that we have to work out [wage] restraints and what they might be... A sensible form of [wage] restraint would make sense and it is not inconceivable."

It has been almost half a century since Jimmy Hill successfully negotiated an abolition of the ‘maximum wage’ of £100 per week in the football league. Since then the game has exploded commercially, so much so that today one would be hard pressed to find it referred to as just that, a ’game’, rather than a multi-billion pound ‘industry’.

Caps have been implemented to varying degrees of success in other sports across the world. Most notably, all four major leagues of the most popular American sports, namely (American) football (NFL), basketball (NBA), baseball (MBL) and (ice) hockey (NHL), have a form of salary cap in place.

There are two main different forms in which a salary cap can be introduced:

Hard Cap
No team can spend more than a set amount per year on players’ wages.

Soft Cap
As above except only financial penalties are imposed on breaching teams. Additionally, the rules may be bent to allow wage increases for players who stay with one club for a long time. This rewards ‘sentimental favourites’ (known as the “Larry Bird” exception in the US.

These may be introduced with various related measures, for example:

Revenue sharing
Profits that are earned by all teams are shared out by the sport’s governing association amongst all member clubs.

Salary floors
Different levels of minimum wages could be used to promote youth development (inexperienced players’ minimum wage may be lower, therefore a team shall be more inclined to include such players in their squads);

Marquee players
One or two players per team who may be exempt for the salary cap. Like David Beckham at LA Galaxy.

Luxury tax
If a team were to exceed the cap a penalty payment would have to be made (this could then be divided amongst still compliant teams).

Certain measures have already been introduced into European football by UEFA and the FA in this country (see On the Ball 1 - Transfer Window Article). It is envisaged that the most talented players would be more evenly distributed in between clubs, smaller clubs may have the chance to be contenders and fans may also find some more change in their pockets after buying match tickets.

Blackburn Rovers chairman John Williams likened the idea of a salary cap in the Premier League to "racing drivers changing cars with each other to stop the same Ferrari driver always winning… A salary cap on equality would be the most fantastic thing and would lead to great sporting competition.”

The primary purpose of the system is to establish a parity of sorts in the game. Sporting reasons are the basis of the argument for the cap. The newfound equality would breed competitiveness and make the game more exciting for the fans as a consequence.

Even today, players are carefully considering their options. Due to the deep pockets of a generous owner or cleverly run clubs with sound financial structures, as the case may be, the level of wages being offered to top players is so great that economists believe ‘the utility of money may have reached a plateau.’ This effectively means a few extra thousand pounds will not make that much of a difference to a club wishing to retain a player. Luiz Felipe Scolari openly and honestly admitted that the salary offered at Chelsea was too good for him to turn down at his age – “Finance was one of the reasons, absolutely.”

Players (and their ever-altruistic agents) would consider a cap an unreasonable restraint of trade. Similarly, such an agreement may well be caught by the European Commission as being anti-competitive. From a European law perspective any capping agreement could distort ‘trade’ of players in the European football industry. FIFA, UEFA and The FA would need to find strong justifications in defence of the wage cap for it to be granted exemption.

Problems
There are also various non-legal issues that present themselves when considering the impact that a salary cap may have on the game. As football is arranged on a global and for clubs on a confederation basis i.e. UEFA charged with responsibility for all European national associations there would need to be a cap for each region where clubs compete against each other. If for example some UEFA member associations introduce their own national caps but others did not this would not provide for a level playing field across Europe.

Michel Platini has recognised the need for consensus of clubs for universal enforcement of any capping rules: “Whatever we do in terms of licensing, debt and salary caps will be implemented through the strategy council and members of the football family.”
It means the regional governing body would need to enforce any salary cap obligations across their entire jurisdiction. Issues like varying tax regimes or currency fluctuations may indeed impact in varying ways on whether a cap may promote unfairness in certain instances.

Unlike many other sports leagues, nearly all football leagues also have systems of relegation and promotion in place. In any salary-capped regime, there would have to be appropriate measures in place to assist relegated clubs who would have to adhere to a much more restrictive cap when moving to a lower division. Contrary to a mass exodus that would likely occur in the above instance, a promoted club would be required to hastily find new players – this in itself might ‘widen the gap’ that governing bodies are so wary of doing.

Have salary caps worked?
In the past 10 season there have been five different Serie A champions, four different La Liga winners and just three different champions in the Premier League. Contrast this with the NFL where, since the introduction of the salary cap in 1994, 84% of its teams have finished at least one season within one of the top six places. In the Rugby Union Premiership the competition has actually been dominated by two clubs since the implementation of the salary cap: Wasps or Leicester have won 9 of the last 11 titles.

Unknown to most, there has been a voluntary salary cap in the lower divisions of the English football league for some time now: introduced in League One in 2004 and League Two in 2003, it was proposed that clubs cannot spend more than 60% of annual income on players’ wages and no more than 75% on all salaries.

As this winter’s football slave trade (the winter transfer window) comes into focus, the bumper pay packets received by those moving (or those whose agents have successfully managed to renegotiate lucrative contracts), may be well advised to save a little bit of their monthly pay cheque should they wish to continue to live their lavish lifestyles in the future. It appears that the people at the top of the game are very real in their talk of capping salaries.

For further information, please contact Daniel Geey.

A compilation of the first set of On the Ball articles is now available. Access On the Ball.