The salary cap in the Lega Nazionale Professionisti Serie B

Published 29 April 2014 | Authored by: Luca Smacchia

In this article, Luca Smacchia provides a brief overview of the salary cap in the Italian Lega Nazionale Professionisti Serie B (“LNP-B”), and then reflects on whether or not the regulations have helped to improve the financial stability of the clubs and competition of the league.

 

Types of salary caps

Salary caps can be defined as a hard cap or a soft cap. A hard cap is the more rigid of the two systems, where the maximum amount spent on players’ salaries for a team may not be exceeded a specific amount. Any contract in violation of this rule can be sanctioned. A soft cap, where in limited circumstances the amount may be exceeded, has fewer penalties and more exemptions in cases where clubs surpass of the limit. 

 

History

On March 2013, the General Assembly of the LNP-B introduced a salary cap for the clubs competing in the league. It imposes a limit to the players’ salaries, which is defined each season by a set of criteria, established in the collective bargaining agreement, that are mandatory for all the clubs.

The purpose of the innovation was to ensure the financial viability of the clubs and promote a more competitive league.

The regulations came into force for the 2013-2014 Serie B season, after being approved by the LNP-B’s twenty-two clubs and incorporated into the Codice di Autoregolamentazione (the LNP-B’s self-regulation code which was adopted in 20101, the year the LNP-B was founded and separated from the Lega Nazionale Professionisti Serie A (“LNP-A”)). 

At first, the Assembly established the soft salary cap without linking it to clubs’ total expenditure. However, following a resolution in May 20132, the LNP-B decided to connect the spending limit for contracts with the total expenditure borne by clubs. This was in response to the requests of some presidents and of the Associazione Italiana Calciatori, which asked to the League to preserve not only the presidents’ interests but also the needs of the players otherwise they would have been penalized too much by the new rules. 

 

Regulations

The regulations are two-fold, and located in Articles 2 and 3 of the Codice di Autoregolamentazione:

  • Article 2 regulates clubs’ overall salary bills:     
  • A club can pay its first team players and coaches a gross salary that does not exceed 60% of the club’s production value3
  • The gross salary consists of: gross fixed remuneration, individual bonus, collective bonus and remuneration fixed in contracts for the exploitation of the image rights related to the current football season.
  • A club’s production value is determined by reference to the club’s audited balance sheet of the previous season (article 2.5).  
  • Article 3 regulates individuals’ salaries.
  • A club may pay an individual player or coach a yearly salary no greater than € 150,000 for the fixed part, and € 150,000 for the variable part (which breaks down to € 75,000 for individual bonuses (appearances, goals etc) and € 75,000 for collective bonuses such as promotion or participation in the play-offs). 

 

Enforcement

In terms of enforcement, the LNP-B has the power to supervise and to ensure the functioning of the cap, as well as the compliance with the rules. During the year, the first check takes place in February, and the second (and last) in September. 

If a breach of the salary cap is detected at the end of the January transfer window, a possible excess will be punished with the deduction in that club’s share of the mutuality, a contribution of at least 6% of the revenues generated by the sale of television rights4, of 50% of the excess amount. 

If after the second control period the reduction will be equal to the 100% of the excess over the fixed cap salary.

 

The consequences on competition

The LNP-B’s regulations clearly aim to discourage the loss making business practices that have been prevalent in recent times, and promote economic stability, which it hopes will lead to healthier competition between its clubs. 

However, the author submits that the clubs are strongly (and overly) limited by the regulations. The bargaining powers of the clubs have been reduced by having to meet a set of overly stringent criteria, which limits their ability to recruit and retain the best players. 

The provisions, while reducing costs, can also negatively affect the transfer policy, with players preferring to play abroad where it is be possible to earn more money than the Italian second league.

The LNP-B is not a closed league and every season its composition changes, and thus the regulations are directly reflected to the others championships organized by other leagues, such as the LNP-A where there are no limitations.  Accordingly, when LNP-B clubs are promoted to the LNP-A, they will be at an immediate disadvantage due effects of the salary cap restricting the players to them to recruit and develop. 

In the author’s view, the costs reduction imposed on the clubs will decrease the quality of the football; and, as quality is directly linked to a club’s production value, will in fact help to preserve the supremacy of the bigger clubs. 

 

Lawfulness

Moreover, the new rules may be in breach EU and Italian competition laws pertaining to the free market.

EU competition law, in particular articles 101 of the Treaty on the Functioning of the European Union (TFEU), prohibits agreements and/or concerted practices between undertakings and associations of undertakings which have as their object or effect the prevention, the restriction or the distortion of the competition within the national market or in a substantial part of it, also through limiting the production, the market access and the technological progress.

Article 102 TFEU, prohibits anti-competitive abuse of a dominant market position by a sporting organization controlling a sport.

The Italian competition law n. 287 of 1990 follows EU principles, in fact, also among the Italian national market are forbidden the same kind of agreements not allowed within the continental contest.

Bodies such as leagues and federations, according to competition law are considered associations of undertakings; thus, representing the interests of many entities, they adopt rules in particular those with economic relevance, to which subjects such as athletes and clubs are bound, that may be in violation of art. 101 and art. 102 TFEU.

The reform introduced by the LNP-B may be considered an agreement between undertakings that limits investments being capable of distorting competition within the domestic market.

The AGCOM5, which is the Italian public authority that since 1990 controls the application of the competition law within the national market already inspected a sports body supposed to be in violation of competition law in the past.

In 2008 some statutory provisions of the Italian Equestrian Federation were considered restrictive of the competition under the EU law, therefore after an administrative procedure conducted by the AGCOM, the Equestrian Federation was obliged to modify those articles and to adopt appropriate remedies in order to remove the critical highlighted. 

Potential challenges to the Salary Cap could in principle come from the following sources:

  1. The EU Commission and the AGCCOM in their competence to enforce EU and domestic competition law.
  2. Clubs or clubs owners arguing that the salary cap impact unjustly on them.
  3. Player or player representative, such as organizations, arguing that the effect of the rule restrict the competition at their expense.  

In such a case, the LNP-B should demonstrate that the rules are reasonable and proportionate in promoting club sustainability. However regulations that go beyond the necessary can be considered in violation of competition law.

The author argues that these initiatives, aimed at economic-financial results, should be undertaken in a uniform manner at very least at national level (if not at European level); and that, as they stand, they have a negligible effect on improving competition, and arguably risk producing the opposite results.

 

Conclusion

The new salary cap aims to improve competition in the league, but may not give rise to the desired results.

The fact that the salary cap has not been introduced uniformly nationwide in all Italian leagues (having been adopted only by the LNP-B) could serve to weaken the technical level of the championship, and thus deflate the league’s appeal, producing negative economic consequences in terms of revenue for the participating clubs.

In addition, the activity of the European governing bodies of sport, in this case the Italian governing body, is at risk of scrutiny under the EU’s competition regime. 

For these reasons, if the intervention of sports bodies is going to lead to practical and effective improvements, such as the redistribution of wealth and reducing the economic power of the big clubs, without putting quality at risk (the real point for fans), then I believe they need to cooperate throughout the European system, or at least at national level, and introduce co-existent mechanisms such as revenue sharing and a hard cap accompanied by a high salary floor. 

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About the Author

Luca Smacchia

Luca Smacchia

Luca Smacchia is an Italian trainee lawyer, and graduated in 2012 from the University of Bari, with a thesis entitled The Court of Arbitration for Sport.

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