Putting their thinking “cap” on

Published 13 October 2009

By Gary Rice, Beauchamps Solicitors

UEFA and the European Clubs Association have begun discussions regarding a salary cap on the amount a club can spend on player transfers and wages. It is proposed that clubs should only be allowed to spend around 51% of their revenue on transfers and salaries.

 


The Football Association of Ireland has led the way on this front, with a 65% cap already in place in the League of Ireland. The talks arise out of well founded fears that due to the recent influx of cash into the top-leagues, the system has become unsustainable. A club’s revenue consists of ticket sales, sponsorship, merchandise sales and television income, but for the purposes of the cap would not include investment by owners or shareholders. Any deal with UEFA would be limited to clubs involved in European competitions.

The rationale for the cap is to promote competitiveness and parity within the leagues and to control costs. However, if the cap is a percentage of a team’s total turnover, the richer clubs will still be spending more than their poorer counterparts. Limiting the team’s turnover so that it does not include investment by owners or major shareholders will help to some extent, but the bigger/more successful clubs will still have a larger pool of cash from sponsorship, ticket sales and merchandise than smaller clubs. The proposal comes up against EU competition law and must also not affect the free movement of players between EU Member States.

In the National Football League in the US a hard cap has been in place since 2004. It requires teams to stay under the maximum limit at all times or face fines and/or the cancellation of contracts. There is also a minimum limit for the team payroll that must be paid to players. The National Basketball Association employs a soft cap which allows teams to exceed the cap in certain circumstances, for example to keep a player who has been with the team for a long period. In Major League Baseball a “luxury tax” is imposed whereby teams who exceed a stated limit are “taxed” a percentage which is paid to the league and used for development. In practice this has proven less effective than the hard salary cap, since the wealthier teams sometimes decide it’s worth paying a little extra over the top to get the top players.

However, there are problems facing any salary cap in Europe that does not exist in the US. Free movement of players, the importance of international competitions, the fact that European sport tends to operate a promotion/relegation system (rather than franchise based teams), the fact that different governing bodies govern international and domestic competitions and the fact that tax rates and schemes differ widely from country to country all present legal and practical difficulties in implementing any sort of salary cap. Not surprisingly the top soccer clubs in Europe are not in favour of such a scheme. A salary cap has operated in the Guinness Premiership in rugby, but club owners and the Rugby Football Union are concerned with the potential departure of top players to France, where no salary cap operates.

Article obtained from www.beauchamps.ie, the website of Beauchamps Solicitors. Article reproduced with their kind permission.

For more information, contact Gary Rice
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