Salary Caps

As Morecambe becomes the latest football club to teeter on the edge of oblivion, perhaps it is a good time to take another look at why so many clubs, across the entire professional pyramid in England, are struggling with the most basic requirement of making sure they can pay wages on time. 

The focus of much of the debate about football finances in the last 2 years has been around seeking to increase the amount of revenue that flows down the pyramid from the EPL, and the potential for a football regulator to force that to happen if no agreement can be reached between the two bodies.  But this misses the point; there is no purpose in pouring more water into a funnel when it runs straight out of the bottom. If every club in the EFL received another million pounds tomorrow, it would do nothing to stabilise their finances, but would simply throw more petrol on the wage inflation flames.

One issue guaranteed to cause controversy amongst all of those interested in football is salary caps.  Many supporters of "big" clubs or those with wealthy benefactors bitterly oppose curbs on spending, because they limit the ability of their owners to throw huge sums of money at a squad in a bid for glory.  The Premier League has changed beyond all recognition since its inception - its members in the past were mostly owned by wealthy local businessmen, then came a period when oligarchs and billionaires were the flavour of the month, and now we have the situation where some clubs are effectively owned by entire countries, with enormous resources available to deploy.  The frustration of fans of clubs such as Newcastle United at limitations on spending is almost palpable.  They equally rail - with some justification - against the fact that the financial fair play rules which were introduced effectively baked-in an advantage for those clubs who had managed to splash the cash before the new regime was introduced.  As a consequence, in recent years the EPL has tied itself in knots trying to police complex financial sustainability rules, as clubs pay accountants and lawyers more and more money to come up with inventive ruses to circumvent the restrictions.  The upshot is promotions and relegations effectively being decided in the court room rather than on the field of play, and virtually nobody thinking the system is working properly.  

In the EFL the salary cap management protocol is less stringent, and it does allow for direct owner funding.  The presence of a number of big spenders in the EFL - in particular those who are in receipt of the huge parachute payments paid on relegation from the Premier League, or clubs such as Wrexham who have a massive commercial advantage as a consequence of their star studded ownership - leaves other clubs scrambling to remain competitive, and creates a spiral of player wage inflation that sees even journeymen lower league players paid six figure salaries.

Supporters of "small" professional clubs which face a daily struggle to make ends meet, tend to favour caps because it is the only way that they have a realistic prospect of being competitive, absent a benefactor coming along to bankroll them.  In any normal business context, those arguing for a salary cap would be given short shrift - if Amazon forces small retailers out of business, then that tends to be seen as an unfortunate natural consequence of a free market economy, where survival of the fittest is key, and if you can force competitors out of the market along the way, so much the better.  But football is not like ordinary business, because it needs a strong level of competition to remain exciting and engaging.  The aim cannot be to force other clubs out of business. I don't know of any English football fan who would want to see a situation like that in Scotland, where 2 super-clubs hugely dominate the competitions, so a balance has to be struck.

Clearly clubs should cut their cloth to suit their means, but that is easier said than done when a club is struggling to compete against big-budgets and supporters are baying for new and better players.  The spectre of relegation, and the financial consequences that brings with it, encourages clubs to keep spending, and in many cases, to borrow to enable it.  The pressure is particularly intense in the Championship, where the temptation to gamble the security of a club in a bid to attain the promised land of the Premier League and parachute payments from the EPL hugely inflates the salary market for players.  But it is rapidly becoming an increasingly serious issue in the lower reaches of the EFL.

A simple salary cap introduced in Leagues 1 and 2 at the start of the 2020/21 as an emergency response to Covid season. Although most club chairmen welcomed it at the time given the environment where clubs were earning little or no revenue, it was subsequently  overturned following action by the PFA due to a failure of the required consultation process and since then there seems to have been little impetus around reviving it as attention has instead turned to trying to negotiate more money from the EPL, and the potential impact of the new football regulator.  In the meantime, there has been horrendous wage inflation in Leagues 1 and 2, with almost every club losing money and only staying afloat because the EFL rules allow owners to pump money in.

Ultimately, it can't be in the interests of football to allow unfettered spending because it means either that we end up with a lack of credible competitive tension in leagues as the tiny number of very wealthy clubs hoover up all the best talent, or with reckless overspending by clubs without the deep pockets, which jeopardises their very existence.  Equally, there has to be a way for clubs who have been successful over a period of time to be able to spend money generated by that, and without having to negotiate vast reams of complex rules.

So what is the solution?  My proposal would be to introduce a rule in the EFL that says a club can only spend on player wages cash which is earned directly through matchdays.  By this I mean 100% of income earned through season ticket sales and gate money, plus 50% of any streaming revenues.  I don't this the approach would work in the EPL, where many already have full stadiums, and where there is a need to remain competitive in the international transfer market, but for lower down the pyramid I think the principle has many benefits.  This approach is easy to audit and will encourage clubs to focus on improving the matchday experience, stadium infrastructure and getting fans to attend matches in person.  This approach would mean that the central distributions from the EFL could be used to fund the non-playing staff and operational costs, with any excess cash (for example from doing strong commercial sponsorship deals, or player trading) used for infrastructure improvements which, in the long term, will enable a club to grow its fan base and spend more on players in a sustainable fashion.

It's a radical solution but one which maintains ambition, enables clubs who grow larger fan bases over time to have bigger budgets, and puts supporters at the heart of the matter.  And, most importantly, it will massively decrease the chances of another club such as Morecambe hoping and praying for a miracle to stave off collapse.