A guide to Premiership Rugby’s Salary Cap Regulations 2018/19 – the principal changes for the new season

Published 28 August 2018 | Authored by: Christopher Stoner QC

With the English Premiership set to commence the 2018-2019 season on the last day of August, it seems timely to re-visit the league’s Salary Cap.

The author last considered the Salary Cap’s operation ahead of the 2015-16 season1. Since that time, significant changes have been made to the Salary Regulations of Premier Rugby Limited (the Regulations), not least of which is an increase in the base level of the senior ceiling from £5.1m for each club to £7m, a sum that was initially introduced for the 2017-2018 season but will remain for seasons 2018-19 and 2019-20202.

This article the first of two pieces by the author on the new Regulations. It examines:

  • The current backdrop and context to the Salary Cap; and

  • The principal changes to the Regulations for 2018/19.

The second piece, available here, moves on to examine the Regulations in context by looking at their practical operation, including what happens on suspicion of a breach, the disciplinary process and the sanctions that may be applied.

Readers who are completely new to the topic are advised to first read this article3 by the author, which explains the introductory essentials of the Salary Cap.

Context and background to the Salary Cap

It is an interesting time for rugby union in England. Whilst in so many ways the domestic game goes from strength to strength, there has been much discussion about financial control within the game.

Whilst a detailed analysis of the financial problems in the sport is for another day, it provides important context before turning to consider the operation of the Salary Cap in the sport.

Various reports suggest that just one of the twelve premiership clubs, namely the Champions in the season, Exeter Chiefs, made a profit in the 2016 - 2017 season, when the base level of the Salary Cap was £6.5m, with many of the remaining 11 clubs reportedly making significant losses which are simply unsustainable in the long term without significant investment into Clubs by wealthy individuals. Indeed, The Times4 reported in September 2017 that at least a third of Premiership Clubs are either for sale or seeking substantial investment.

At the same time there seems little doubt there is a growth in "player power", with significant increases in wages since the author’s last review of the Regulations, when it stood at £5.1m. An increase in wages and an increased cap cannot, surely, be unconnected?

Allied to greater headroom within the Salary Cap, no doubt the increase in wage demands is partly driven off the greater revenue generated by the broadcasting deal signed in 2015, which is reportedly worth around £200m, with speculation already being aired that with new players in the broadcasting market, such as Amazon, Google and Facebook, an even larger deal may be available when the current deal expires at the end of the 2020-2021 season5. (For more on the growing influence of OTT digital players, please see this article6.)

Furthermore, a new eight year "Professional Game Agreement" was signed between the RFU and the Premiership in July 2016, officially worth in excess of £200m, with England getting more flexibility and greater access to players, although the clubs get more cash for releasing players. It was reported that upon signing the new deal, Mark McCafferty, the Premiership Rugby chief executive said: “The significantly increased monies to the Premiership clubs, alongside their own increased TV and commercial revenues, will ensure that Aviva Premiership Rugby continues to go from strength to strength.7

However, Mr McCafferty is also reported as, responsibly, saying in response to the suggestion there are fears among some club bosses that extra revenue coming into the game will result in a drastic escalation in players’ salaries: “We will have to strike the right balance on that … We have to watch it, manage it, and be careful with it … There are concerns because we have to make sure that each club prospers over the next few years. It has to be financially sustainable.8 The same article proceeds to report that the chief executives of Leicester Tigers and Gloucester Rugby have both voiced their concerns about the effect of a constantly rising cap.

Mr McCafferty, the article also notes, said “The salary cap should develop as the club game develops, so the clubs can be financially sustainable, and also the players get well rewarded, because they are central.

Whether the right balance has been struck is a matter for debate. As stated, player wages seem to be continuing to rise and the first £1m a season player in the Premiership cannot be far away, if indeed he has not already been signed or re-signed9.

Logic also dictates that if players are paid more, then less players can be contracted within the cap, meaning smaller squads to take on the seemingly ever increasing physical demands of professional rugby and the well documented injury and concussion issues, which fact itself has to be considered, in the context of the English Premiership, when compared to leagues such as the Pro 14, with the management of players and the game time undertaken by each individual across the season.

The principal changes

At the time of publishing, the Regulations for the 2018/2019 season are not yet available on the Premiership Rugby website (although they may be uploaded soon). The principal changes to the published Regulations have however all been well communicated (see here and here10). A copy of the Regulations for the 2016-2017 season (which the author refers to as the published Regulations) are available here.11

The author assumes that the announcements as to such matters as the base level of the cap aside, the Regulations will remain the same, or substantially the same for the 2018-2019 season. This is especially so in the context of the framework through to the 2019-20 season having been announced as long ago as September 2016, no doubt with one eye on stability in the Regulations in the lead up to the next World Cup.

The important changes to the Regulations since the author’s 2015 review can be distilled as follows:

  • The "Senior Ceiling" of the Salary Cap is now £7 million for each Club. This has risen from £4.76 million for the 2014/15 season, through £5.1 million for the 2015/16 season, £6.5 million for the 2016/17 season and was raised to £7 million for last season, a level where it will remain for at least the coming and following (2019/20) seasons.
  • The concept of the "overrun tax" has been introduced in what is now Regulation 10. This effectively enables any Club to overrun the Salary Cap by up to 5%, which sum will then be "taxed". Thus, on the basis of a Salary Cap of £7 million, a Club can overrun by up to £350,000 without breaching the Regulations. Instead a "tax" is payable. The "tax" on the overrun in the published Regulations (when the Salary Cap stood at £6.5m1) is 50 pence for every £1 of any overspend below £50,000, £1 for every £1 overspent between £50,000 and below £200,000 and £3 for every £1 overspent at the level of £200,000 to the limit. Regulation 10 makes it plain that any overspend above the "overrun" limits will be treated as a breach in accordance with Regulation 12. If a Club disputes that it has "overrun" it can ask that the matter be dealt with in accordance with the disciplinary panel provisions in Regulation 12.

    This provision has already been used, with Premiership Rugby issuing a statement on the 8th February 20182 that after an independent audit Wasps were found to have overrun the Salary Cap by £40,528, meaning they had to pay an overrun tax of £20,264. The statement emphasised that the overrun was not deliberate but appears to have resulted as a consequence of adjustments made by the auditors and stresses the overrun was not a breach of the regulations.

    Whilst there is no suggestion it was the case with Wasps, it must be said that by permitting an "overrun" which is not a breach of the Regulations, if a Club can afford it, the base level of Salary Cap could be viewed as being up to £7,350,000, although, of course, a full "tax" would mean the Club would have to pay nearly £625,000 in "tax" to achieve the additional £350,000 of available cap. Accordingly, perhaps the "overrun" tax is best viewed as a means of providing for errors that may be made in accounting when a Club is against or close to the Cap, although the temptation to overrun, if only slightly must be huge, if a Club can afford it and a competitive advantage might be gained.

    Furthermore, strict observance of the Salary Cap will inevitably be eroded. If it is debatable as to whether or not a particular sum will or will not be treated as "Salary" for the purposes of the Regulations, if the Club can afford it, inevitably decisions will be taken, which would have not been taken before, knowing that whilst there may be financial consequences if the decision is wrong and the Senior and/or Academy Ceiling is exceeded, no breach of the Regulations will arise and consequently no points deductions will be triggered (unless of course the overspend is in excess of the "permitted" 5%).

    A similar "overrun" tax applies to the Academy Ceiling as well: namely there is a 5% leeway, where overruns are "taxed" before any breach of the Regulations occurs. I believe that the Academy Ceiling remains at £100,000 per Club for the 2018/2019 season, meaning a possible overrun of up to £5000.

  • There have been substantial changes in the "credits" applied to the base Salary Cap level, which justify the reference to the £7m being the "base level" Salary Cap, as plainly the precise figure for each Club will vary once the various credits have been applied:
    • "Home Grown Senior Player Credits”: to incentivise the long – term development of home grown talent, a Club can apply up to £600,000 in "Home Grown Senior Player Credits". A "Home Grown Senior Player" is defined, in Regulation 1’ as “… a Senior Player who has been a Player at the Club since prior to his 18th birthday and for at least two complete Salary Cap Years prior to the current Salary Cap Year.

      The total of £600,000 can be applied to players at a specified rate. That rate is specified in the published Regulations at £50,000 per player, when the overall cap on the credit was £500,000. It is not clear whether that has increased to, in essence, covering 12 players at £50,000 or whether, as I anticipate, the individual credits will increase up to £60,000 for the 2018/19 season.

      A Senior Player who would otherwise qualify for a Home Grown Senior Player Credit cannot so qualify if, (i) he is loaned to another club for the season and falls within the complicated provisions of Schedule 2(j) of the Regulations; (ii) he is injured through the season and falls within the details of the provisions in Schedule 2(l) of the Regulations; or (iii) he is one of the two permitted "Excluded Players" each Club is entitled to have pursuant to Regulation 3.3.

    • International Variable Player Credits: An "International Qualified Player" is defined in Regulation 1 as “… a Player (including a Senior EPS Player) who immediately prior to the Salary Cap Year in which he is selected by his Union has (i) been a Player for his current Club since prior to his 18th birthday or (ii) been a Player for his current Club for at least 3 full Salary Cap Years or (iii) not been a Player for any Club during the previous Salary Cap Year.

      If a Club is unable to select a Player in its squad for a Premiership or European game, essentially because he is on international duty, then provided he is not a Senior EPS Player (as to which see below) the Club is entitled to a credit of £10,000 per game. It must be said, given the structure of European competition it is highly unlikely an International Qualified Player would be unavailable for the European games (other, perhaps, than in the event of a re-arranged fixture), but this could be a valuable credit for Premiership games.

    • Senior EPS Credits: a Senior EPS Player is defined in Regulation 1 as a player “…nominated by the RFU to be a member of its annual senior elite player squad on or around 1 October … of the relevant Salary Cap Year.” The definition proceeds to identify that if a Player is added to the senior elite player squad later in the Salary Cap Year they shall not be treated as a Senior EPS Player, but as an International Qualified Player, as previously described.

      For Players who are Senior EPS Players, the Club is entitled to a fixed credit of £40,000 for the Salary Cap Year (known as the "Senior EPS Player Fixed Credit") and an additional sum of £5000 for each game where the Player is not available for a Premiership or European game (known as the "Senior EPS Player Variable Credit").

    • In the case of both the "International Variable Player Credit" and the "Senior EPS Variable Credit" it is not available if the Player’s absence from the Premiership or European game is because of injury and, importantly, credits of no more than £80,000 can be claimed for any one Player in any given Salary Cap Year if credits are available for that Player as a Home Grown Senior Player and/or as an International Qualified Player and/or as a Senior EPS Player. Put another way there is a cap on the credit available for any one individual Player.
    • The complications of the credits do not, however, end there. A "Home Grown Academy Player" is essentially defined in Regulation 1 as being a Player who joined the Club before reaching his 18th birthday and has never been a member of any other Club’s academy or, if he was a member of another Club’s academy, also joined the Club before his 18th birthday and has been a member of the relevant Club’s academy for at least two complete calendar years prior to the current Salary Cap Year.

      Noting also that if a Player is paid more than £30,000 for the Salary Cap Year he will be deemed to be a Senior Player for the purposes of the Regulations and canot be an Academy Player, the effect of Schedule 2(p) of the Regulations is that the entirety of the salary of any "Home Grown Academy Player" is excluded from the calculations necessary to determine the Salary Cap.

    • Injury dispensation – finally it remains the case that a Club can claim injury dispensations pursuant to Regulation 5. That injury dispensation entitles the Club to spend up to £400,000 on an injury replacement, provided the various provisions within Regulation 5 are complied with and the Salary Cap Manager provides dispensation.

      Although Regulation 5 is primarily worded in the singular, referring to a Senior Player who is injured and a replacement in the singular, Regulation 5.8 makes it plain that a Club can seek more than one injury dispensation in the (likely) event of more than one Senior Player being injured.

      Whether there is a single £400,000 limit for injury dispensations, or whether up to £400,000 can be applied to each injury dispensation seems to me, unfortunately, to be a moot point on the wording of Regulation 5, although I it appears clear the intention is to limit injury dispensations to an overall cap of £400,000 (or nearly 6% of the annual Salary Cap).

      I note, for example, that in its narrative overview of the Regulations, Premiership Rugby on its website states: “Injury dispensations up to a maximum of £400,000 per season continue to be available to each Club.” The website used to be more specific1 stating: “Where a player is injured for 12 weeks or more the Club may apply to the Salary Cap Manager to recruit a replacement player. The replacement player will then be permitted to remain with the Club for the rest of that season. The replacement player’s salary for the duration of the dispensation shall sit in a separate £400,000 cap containing the Club’s other injury replacements. The Club may not exceed the £400,000 during the salary cap year.

      However, as stated, the wording of Regulation 5 is to permit a £400,000 injury dispensation for a replacement Player (in the singular), whilst also permitting (by Regulation 5.8) further dispensations. Whilst compliance with Regulations 5.1 to 5.3 is required in the instance of any further dispensation(s) that does not detract from the fact those provisions are worded by reference to single players.

      It is important that Regulation 5.3(h) provides that “the Salary payable to the proposed replacement [must] not cause the Club’s total salary for the Salary Cap Year to exceed £6,500,000.” and, furthermore, the salary payable to the injury replacement would appear to be within the definition of "Salary" for the purposes of Schedule 1 of the Regulations.

      However, the use of this figure is problematic. The point highlights the apparent error in the published Regulations where the Salary Cap was said to be £6m (in Regulation 3.1) but is plainly taken as being the actual figure ultimately applied of £6.5m, as evidenced by the "overrun tax" being £625,000 which is 5% of £6.5m and not £6m (which would be £300,000).

      On any view, however, in isolation, the figure makes little sense. If it is just a reference to the Senior Ceiling, then it adds nothing to Regulation 5.1 which permits that Ceiling to be exceeded by a maximum of £400,000 “to replace the Injured Player”.

      If this is wrong and a total of up to £400,000 is permitted over the Base Level of the Senior Ceiling, which is taken to be the £6m referred to in Regulation 3.1 of the published Regulations, then why the figure is £6.5m is unclear, unless it also takes into account the Academy Ceiling for these purposes (although, if that were the case, it is not altogether clear why).

      If the reference to £6.5m is meant to be a figure after the various credits are applied, that would appear to penalise Clubs otherwise incentivised by the credits to produce Home Grown players, especially those who go on to play for England. It would also appear to be potentially inequitable as between the Clubs.

      Finally, if £400,000 per player is permissible, then whether or not, given what I have suggested may be an error in the published Regulations, the Base Level of the Senior Ceiling is taken at £6 or £6.5m, a longstop of £6.5m again makes little sense.

      It would appear some tidying up of the wording in the Regulations in respect of Injury Dispensations is required, if only to provide clarification.

  • The possibility of sanction for "False Declarations" has been dropped from the Regulations. Previously, if a Club deliberately or recklessly submitted false salary information, that could lead to sanction.

    In my previous article I discussed the difficulties with the "False Declarations" provision and it appears a change has been effected by vesting greater powers in the Salary Cap Manager in Regulation 6.5. Essentially, if the Salary Cap Manager is of the view any Player’s salary is declared or certified at a figure less than it should be, or if arrangements with connected or third parties are more favourable than the commercial rate, then the Salary Cap Manager can investigate and require an explanation from the Club.

    If the Salary Cap Manager remains of the view the Salary or arrangements have not been properly explained he can apply a "deemed salary" for the purposes of the Salary Cap calculation. Whilst a Club has a right to challenge the Salary Cap Manager’s view, assuming there is no challenge, and/or it is unsuccessful, it is the "deemed" figure that is then used to determine whether or not a Club has complied with its obligations pursuant to the Regulations.

  • There have also been some important changes to the sanctions that may be applied in the event of breach. There is now a simplified financial sanction, namely that for every £1 above that amount provided for by the overrun tax, subject to the discretion of the Disciplinary Panel (as described below) a fine of £3 is payable by the Club which has breached the Salary Cap.

    The potential for point deductions has also been reduced. In the Regulations previously considered the disciplinary panel could deduct up to 40 points, which was applicable for any breach over £250,000. Now the maximum point deduction is 35 points and exceeding the Senior Ceiling by a sum within the overrun tax provisions will not result in a point deduction, that being consistent with the line that such an overrun is not to be treated as a breach of the Regulations.

    If, however, a Club exceeds the Senior Ceiling by a sum in excess of the Overrun Tax provisions, then a minimum point deduction of 5 points will be applied, with a scale applying at £50,000 bands through to the maximum deduction of 35 points (which in the published Regulations, where the overrun tax was £325,000, was for a breach where the overspend was more than £625,000).

Considered in totality, the above changes (and indeed the other minor changes not specifically mentioned) since the last occasion I reviewed the Regulations are significant. They show a desirable continual engagement by Premiership Rugby in the promulgation and development of the Salary Cap.

It does seem to me, however, that the administration of the Salary Cap has become more difficult, which is an inevitable consequence of the introduction of a number of "credits" which are difficult to follow and which, if applicable in full to any particular Club, will mean that Club has a Salary Cap which is well in excess of the base level of £7m.

Whilst it might be said that this means the transparency of the Cap has been blurred, it seems to me that is a price that has to be paid in view of the need to ensure that appropriate incentives and accommodations are made not only for Clubs that regularly have Players playing for England (or their nation) but also for Clubs that are nurturing home grown and potential talent for England.

Finally, whilst is perhaps surprising that the exact limit of the Salary Cap has been blurred by the introduction of the "overrun tax", albeit such that it permits honest errors to be made without a breach scenario arising, when considered in the context of the fact points reductions do not now apply until a Club is more than 5% in excess of the Senior Ceiling, calculated by application of the base level and adjusted by reference to credits, the ultimate sting has unquestionably been removed from the Regulations as they were initially introduced.

Has a more equitable sanctioning regime been introduced (if that is not an oxymoron)? Well, given the financial plight of the Premiership Clubs, perhaps. But equally to have a base level Cap of £7m where no points penalty will apply unless and until, before the complexity of credits are introduced, a Club has spent £7.35m or more, leaves room for argument.

This concludes the author’s first article. The second piece, available here , moves on to examine the Regulations in context by looking at their practical operation, including what happens on suspicion of a breach, the disciplinary process and the sanctions that may be applied.

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About the Author

Christopher Stoner QC

Christopher Stoner QC

Chris specialises in both property litigation and the regulatory/disciplinary aspects of sports law.

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