Salary caps and football – incompatible?

Tampere United, at top of the table:

TamU – FC Lahti 1-0 (attendance 3117)

As I wrote last week, the EU is about to release its white paper on sports in July. Among the illnesses it is expected to address are the difficulties related to clubs’ financial and leagues’ competitive imbalances – in other words, the clubs are spending too much money and the leagues are being dominated by too few clubs. The former makes European football economically unsustainable, the latter makes it boring to follow.

It is also widely acknowledged that the root of the problem are salaries – which have skyrocketed ever since the Bosman ruling. Independent Sport Review 2006 (PDF, check e.g. the page 73) prescribed the introduction of salary caps as a cure, and everybody from the UEFA to the game’s oligarchs seems to agree. So the caps are good, aren’t they?

Well, not necessarily. It really depends on which form they would take. The G-14 proposal, for example, would stop the arms race by tieing the wages to the clubs’ overall budget – which would certainly ease the financial conditions of the clubs (including the G-14, of course) are facing, yet, as academically proved by this economics paper, just worsen the meritocratic side of things, by entrenching the existing hegemonies. So don’t take their views at face value, at least if it’s more balanced sport that you’re after.

Perhaps there’s something to learn from the other side of the Atlantic, for salary cap is after all an American invention. In the NBA such has been applied since 1980s, and also the NFL has had one for quite a while; the NHL introduced its a couple of years ago, after a season-long labour dispute, whereas the MLB uses a different type of balancing restriction, i.e. a luxury tax, under which the big spenders must pay a compensation to a league’s fund. The NBA cap is “soft”, or the one with several exemptions; the NFL and the NHL are using “hard”, or uniform, limitations. All the caps are absolute, having no relations to budget sizes.

A much more traditional intervention in all of the league’s then is the draft system – which has it that the young prospects from junior leagues, and from Europe, are reserved in an annual draft event where the previous season’s losers are generally let to pick first and the winners last.

The systems aren’t flawless but it’s nevertheless safe to say that they have secured more volatile competitions for the spectators – as a glimpse on the recent playoff trees of any of those leagues can confirm. Dynasties are very challenging to create and uphold.

Many reasons prevent the Europeans from doing the same with football. The North American leagues are closed from relegation and promotion – and all of them are also enjoying a prestige monopoly over their game, having no other competitions to match their appeal. The European football leagues are understandably built in the shape of a pyramid, and have their top players spread across several countries – meaning that if there’s a group of leagues to agree on a wage restraint, there’s also a very strong incentive for one of them to opt out and snatch the best players. The national leagues are largely autonomous from their UEFA umbrella, which causes coordination to be pretty challenging.

And then there is taxation. Capped gross wages would give British (let alone Russian) leagues an advantage over their Italian and French counterparts – or, when speaking of the Championnat, what about AS Monaco vís-a-vís Lyon or PSG? There have been occasional musings about EU-wide tax harmonisation but that is (most fortunately, if you ask me) out of options. So the same gross will never mean the same net, not either to footballers.

Nonetheless, the review I linked speaks quite optimistically about the pay regulation plans. It points out that, through its licensing power, the UEFA did manage to unify different leagues’ accounting methods, thus forcing mainly the southern clubs to play by the same balance sheet rules as the northerners. So where there’s a will, there might be a way; as for the form of possible regulations, the paper is in favour of luxury/payroll tax, a scheme that would punish the exceedings but still allow them.

3 Responses

  1. In baseball the luxury tax, introduced in 2002, hasn’t really introduced much additional competitive balance into the sport. In the NL there wasn’t an economically dominant club to begin with, but in the AL the Yankees have had the best regular season record in four out of five seasons. On the other hand, the luxury tax has fixed the finances of many of the poorer clubs by giving them a significant source of income that doesn’t depend on success on the field.

  2. From another direction, it’s only in 2003 that the Yankees had been in World Series and then they lost.

    It’s anyway true that if there’s a rich dominator then the luxury tax won’t bite within the short term – but I reckon that after a few years the redistribution should have at least some effect, in almost any league.

    What comes to football in Europe, it would probably work better than a rigid salary cap; European football is after all so much about classicos, dynasties and big clubs everyone can safely hate that too much mobility would make the fans complain again. Class awareness is European awareness.

  3. Lately the MLB playoffs have done a good job of distributing championships to different teams, but it has been accomplished by introducing an element of randomness to the proceedings. The top teams in the regular season only win about one third of their games against the rest of the league. In the post-season they’re playing other good teams, so their expected winning percentage goes down, and need to win three short playoff series. I haven’t done the math, but I would guess that extremely few teams, no matter how dominant over the long run, have a better than even probability of winning the championship in any given season.

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