Panel rules against salary cap

An arbitration panel has upheld a complaint by the Professional Footballers' Association that the League One and Two salary cap was illegal and unenforceable: https://www.bbc.co.uk/sport/football/55997868

It will be replaced by the old Salary Cap Management Protocol (SCMP) which took account of turnover rather than imposing an absolute limit on spending.

The salary cap has been a major constraint for Charlton, but this change has come after the closure of the transfer window, although we could take advantage of it in relation to players who are free agents.

Richard Cawley of the SLP discusses the change here: https://londonnewsonline.co.uk/charlton-athletic-no-longer-facing-salary-cap-curb-after-independent-panel-rules-for-them-to-be-scrapped/

The background

Here are some extracts from an article I wrote for VOTV last year:

SCMP limited spending on player wages to a percentage of a club’s turnover. In League 1 clubs could spend a maximum of 60 per cent of their turnover on wages, in League 2, the limit was 55 per cent.   The wages of coaching staff were not included. There were no restrictions (in themselves) on the amount a club could lose or spend on transfer fees.   Initially introduced into League 2 in 2004/5 for guidance purposes, sanctions for breaching the SCMP thresholds were introduced during the 2011/12 season, with Swindon the first club to be sanctioned under the rules. 

League Two clubs voted in favour of squad salary caps to replace the Salary Cap Management Protocol in August 2020, doubtless because smaller clubs saw it as a way of constraining their bigger competitors.  There was overwhelming support in League Two, but in League One the vote was 16 for, seven against and one abstention.

The cap takes the form of a total limit of £2.5m in League One and £1m in League Two.  This averages out at around £1,700 per player per week in League One (just over £88k a year) and £1,000 per player per week in League Two.  To solve the issue of clubs currently paying in excess of the caps, the EFL will not account for any wages players earn over each league’s average salary.  So, if a player currently earns £3,000, then only £1,700 of his wage would be recorded for the cap.  

When calculating total salary spending, the ‘cap’ includes: basic wages; taxes; bonuses; image rights; agents’ fees; and other fees and expenses paid directly and indirectly to registered players.  There are financial penalties for overspending of up to five per cent which would amount to £125,000 in League One and £75,000 in League Two.  Above five per cent and clubs will be referred to a disciplinary commission that will be able to dock points. 

The Professional Footballers’ Association set out a substantial critique of the salary cap proposals which they described as illegal and unenforceable.  They considered that the proposed rules lacked clear objectives.   They claimed, ‘there is no evidence e.g. supported by financial modelling, of how the regulations will aid future financial sustainability or why they are the appropriate mechanism to achieve the overall objectives (which do not appear to have been defined).’   It was unclear how the salary cap had been determined.   

The issue of an allowance for marquee players appeared not to have been considered.  ‘ The proposed salary caps, if implemented, could potentially reduce the ability of clubs to generate commercial revenue with sponsors and commercial partners now fully aware that clubs wage obligations will in some cases be significantly reduced. This effectively represents a potential loss of revenue to EFL clubs.’

The rules appear to be based on the Premiership Rugby Salary Regulations, but there were a number of differences between the two competitions, not least in the range and disparity of clubs. The PFA noted, ‘The financial performance of clubs in League One and League Two has remained relatively consistent in the last ten years with revenue growth being matched by increases in staff costs. Financial disparity is prevalent with the average ratio of top to bottom revenue generators being 7:1 in League One and 3:1 in League Two between 2014/15 and 2018/19.’   They pointed out that there were more important disparities between League One and League Two with a much higher ratio of highest to lowest revenue generating clubs (7: 1) in League One compared with League Two (3: 1).   

They were concerned that the process of developing the new regulations had been rushed through without proper consultation, arguing that it typically took between 11 and 25 months to devise new sporting regulations.