Football’s Turn for a Salary Cap?

Updated: Mar 30

Currently, Manchester City are ranked by as having the most valuable squad in the world: an estimated market value of £924 million. Having such extreme squad depth allows teams such as Man City to dominate the league. Furthermore, Man City’s exceptional performance means that the owner and shareholders are willing to maintain their best players by paying them eye-watering wages. Moreover, these wages also attract the up-and-coming talent. Looking at the other Manchester team, Manchester United, their wage bill is of similar extremes, and has 5 players earning over £200,000/week, with Spanish goalkeeper David de Gea taking home £375,000/week. Have football’s top clubs strayed too far from reality in wages and distorted the market’s competitiveness, and more importantly should policy makers such as the FA or UEFA step in?

Why have a salary cap?

Sustainability of the league

The Rottenberg paper in 1956 is now considered one of the most important papers in the field of sports. One of the focus points is on the uncertainty of outcome in sporting fixtures. Uncertainty of outcome means that teams need to be relatively similar in strength to sustain audience interest. It’s in the leagues interest to maintain competition. This is because the amount of viewership and attendance for a game depends on the quality of opposition. Fewer people tune in to watch a match in which the outcome is almost certain. If one team finds themselves head and shoulders above the competition, while great for the team and its supporters, it takes away the incentives to follow the league or watch the games, as the result is almost always predictable beforehand. Having a more level playing field in the long run allows the league to continue growing with greater fan engagement.

Another aspect of sustainability is of the club’s financial positions, although backed by billionaires, the Covid-19 pandemic has exposed some serious financial flaws in clubs. The Spanish newspaper El Mundo reported earlier this year that Barcelona was on the verge of bankruptcy when it reported a loss of $117 million in 2020 and currently has over $1.4 billion of debt, not helped by star player Lionel Messi’s huge contract. Leaked by El Mundo earlier this year the Argentinian’s contract equates to $167 million a season.

The Premier league has become less competitive

We can see using the Koning Concentration ratio (below) that the premier league has become less competitive. The Koning ratio measures the amount of points obtained by the top 3 teams in the league divided by the maximum number of points they could have possibly obtained. This can be done for both the top and bottom teams but in this case, we see it for the top 3 teams, for which the higher the ratio the less competitive the league. As you can see post-1990, the ratio has been growing rapidly, and now the top 3 teams pick up almost 84% of their available points. When we look at the history of top-flight football, since the creation of the Premier League in 1992/93 there have only been 7 different winners of the league. In contrast, two leagues that do have a salary cap, the NFL and England’s Premiership Rugby, have had 14 and 9 different winners respectively in the same time period. Meanwhile in Spain, Barcelona and Real Madrid have dominated La Liga for the past 15 years, between them winning all but once, with Atletico Madrid managing to lift the league trophy in 2013-14. Other European leagues that see talent being hoarded by top clubs include the Bundesliga, home to German giants Bayern Munich, and the French Ligue 1 team PSG, both respective squads packed with pricey talent.

What would a salary cap look like in European football?

The Spanish League, La Liga, already has a salary cap, however, the limit on club spending is individual and based off aspects such as club revenue, so does little to address the distribution of talent. To properly address the competitiveness a standard salary cap would require a fixed amount for all teams and would work optimally when set universally across all European top leagues. This would represent huge change for the modern game. There are broadly two routes that football could go down when deciding to implement a salary cap, either a ‘hard cap’ or a ‘soft cap’.

Premiership rugby is one example of a league which operates a ‘hard salary cap’. All teams are permitted to spend up to a certain amount on players’ salaries each year, however, they can choose 2 players which are not counted in the salary cap. This ensures clubs only pay their very best players high wages. Therefore, the players who warrant these wages will likely be spread out amongst the league, ensuring more competition. Rugby’s Premiership also shows much more enforcement of regulation than we have seen so far with football, and at the end of the 2019-2020 season, mega-successful team Saracens were dropped to the lower league and fined for consistent salary cap breaches.

The implication of a ‘soft salary cap’, means teams are allowed to go over their permitted salary budget. However, they would then be taxed heavily on any spending over the limit. This model is seen in the NBA and incentivises clubs to spend within their means but also allows for some financial deviations in spending. This would likely result in bigger, richer clubs being able to poach more top players, however the extent of this would be limited by the economics. If done correctly, clubs wouldn’t be willing to pay the huge taxes in place to acquire 1 more player.

Issues with a potential salary cap

If European football is to regulate a salary cap it must be universal, or players will simply move to the league where there is no salary cap, so they can profit from higher wages. Another aspect that must be controlled for is exchange rate, as any movements in currency would alter the relative budget for teams when compared to their international counterparts.

Also, many would argue a salary cap is not needed and that perhaps the sustainability of football is not as bad as it first seems. For example, despite the Premier League being empirically less competitive, the popularity has increased since its creation year-on-year. Fans tune in to watch the Premier League, and other top European leagues, not just to see who wins, but also for the love of football. The addition of European football places up for grabs (such as Champions League and Europa League) mean teams not quite at the top still push for every point, and at the bottom of the table the relegation zone looms. Furthermore, club rivalries and team loyalty mean that despite the decreasing competitiveness, people will still turn up in masses to watch derbies, such as Tottenham Hotspurs vs Arsenal, even if the game lacks significance in the league.

Some small steps

EUFA introduced the FFP (financial fair play rules) in 2009, which broadly tried to improve the finances of clubs and promote sensible spending. This generally means that clubs must spend within their means and avoid large debts. Furthermore, UEFA, being a regulatory body, can intervene if a club is deemed to have breached these rules. Punishments include fines/squad restrictions, or the most severe, a ban from the all-important Champions League tournament. All these policies attempt to encourage responsible spending and long-term viability to keep clubs at the heart of football. However, the rules have proved hard to police, and so far, the rather hollow attempt to level the playing has left the gap between big and small teams still growing.

Some very topical news

As of the 24th March Italian outlet Gazzetta dello Sport reported that UEFA is set to scrap financial fair play. Reports suggest that UEFA think it is time for a change, and that the old rules were set during a different economic climate, so change is necessary. Although little is definitively known, it appears that UEFA will be favouring a more financially flexible model where teams have greater control over their spending and finances. There are also some suggestions of a salary cap being put forward, but details of this and more are soon to be revealed.

As Liza Minnelli and Joel Grey put it, ‘Money makes the world go round’, and for that reason I’m doubtful any salary cap or changes to help to level the playing field are likely to be made. The big clubs hold some of the largest fan bases and the deepest pockets.

These advantages allows clubs to maintain favourability with UEFA, as these clubs pull in the largest revenues for them. Furthermore, UEFA has had historic corruption issues in the past. Therefore, so long as this favouritism continues, UEFA may give clubs the ability to cherry pick players with jaw-dropping salaries, rather than making progressive changes.