From rags to riches: what next for salary caps in football?

A month ago this week, the English Football League (EFL) confirmed that it would immediately withdraw salary caps for League One and League Two clubs that had been ruled unlawful by an independent arbitration panel. Back in August 2020, League One and League Two clubs voted in favour of fixed salary caps, limiting their budgets for wages, taxes, bonuses, image rights, agents’ fees and various other fees and expenses to £2.5 million and £1.5 million respectively. The new rules went over and above the existing Financial Fair Play Regulations which are designed with football’s long-term financial sustainability in mind.

The successful challenge was brought by the Professional Footballers Association (PFA), which argued on behalf of its members that the EFL had introduced the change without consultation and agreement. In doing so, the EFL breached the collective bargaining agreement that governs the employment of professional footballers in England, the Professional Football Negotiating and Consultative Committee (PFNCC) constitution, by introducing “major changes in the regulations of the Leagues affecting a Player’s terms and conditions of employment… without full discussion and agreement in the PFNCC”. When the salary caps were rushed through last August, there was no consultation and therefore no agreement.

Momentous as it is, the decision – the reasons for which, for now, remain unpublished – means that a very short chapter in the financial regulation of modern English football, prompted in large part by the severe impact of the Covid-19 crisis, has closed almost as quickly as it opened. But it is more than likely that English football is nowhere near the end of this particular tale.

Collective bargaining

What February’s decision shows is that collective bargaining is very much alive and well in English football. From the information about the case that is in the public domain, it is clear that industrial relations and trade union law arguments took centre stage in informing the outcome reached by the arbitrators. On one level, that is no surprise: in any other industry that had a collective bargaining agreement such as the PFNCC in place, the introduction of a salary ceiling without consulting the workers affected by it would obviously be wrong.

On another level, it represents a significant marker of the better balance that will have to be struck in future between owners, players and footballing authorities whenever discussions about financial sustainability come to the fore. Such discussions are not likely to go away any time soon. That balance makes sense in a business where players are subject to restrictions unknown to most other workplaces: for one thing, they are traded within narrow transfer windows, and cannot simply give notice and walk out on their club in the way that other employees and workers often can.

It also makes sense if salary caps are to remain a feasible option. For these to have a chance of taking hold in English football, effective collective bargaining with players’ unions will be essential, in order to get and sustain at least some degree of buy-in from players with all manner of diverse interests. High earners might prefer to ply their trade elsewhere rather than being exposed to pay ceilings and pay cuts. Lower earners and younger players might fear being sacrificed for those more expensive than them, either by being offered lower salaries or not having their contracts renewed at all. Whatever the merits of salary caps might be, it is only right that the interests of these various groups are properly considered in consultation, before any drastic steps are taken.

Snakes and ladders

The decision, however, hints at so much more than this. First of all, it gives new focus to the argument over whether salary caps can co-exist with a system involving promotion and relegation. Having salary caps in place in some leagues but not others seems hard to square with the aspiration for promotion that is so central a part of English football. Teams like AFC Bournemouth, Sheffield United and Huddersfield Town have shown in recent years that an unexpected rise through the ranks is not beyond the realms of possibility.

However, if every promoted team were to join a higher league that either had no salary cap or one that was disproportionately greater than the cap by which they had been bound the previous season, they would face an obvious and near-insurmountable disadvantage. Even if this caused competition within individual leagues to grow tighter, the gulfs between leagues would be likely to widen. This could lead to a snakes-and-ladders effect of teams going up a division only to tumble straight back down. If that trajectory were to become too predictable, the prospect of promotion might lose some of its allure and excitement. With talk of a closed European Super League that does away with promotion and relegation high on the agenda, introducing salary caps that risk impeding the already-arduous climb up through the leagues might damage the long-term prospects of domestic league competition as we know it, whilst at the same time disadvantaging English teams competing on the continent in the Champions League and the Europa League.

Secondly, discussions about financial controls in football need to be more open. Lifelong football fans and the communities they come from are not currently in a position to know very much at all about how their clubs are run. Bury FC offered only the most extreme recent example of this. Fans were left shocked at the sad and rapid demise of their club in 2019, caused by several years of financial mismanagement and excessive player wages that bore no real relation to the club’s revenues, but only to the size of its owner’s pockets, which turned out not to be deep enough.

This puts into further relief the fact that the reasons for the recent arbitration decision have themselves remained confidential, despite affecting two of the four main leagues in English football: all of their 48 clubs, their hundreds of players and their very many thousands of supporters. No doubt the confidential judgment was lengthy and the reasoning detailed, which makes it all the more frustrating that it cannot be scrutinised, with any appropriate redactions made. Without greater openness, it is difficult to move the debate forward sensibly, sustainably and with integrity. Publication of the decision would be an important step forward in this respect.

Finally, a blind rush to austerity without proper, nuanced consideration of what is at stake may distort competition just as much as unchecked spending. A league on the other side of the globe is perhaps entering the closing chapters of an important cautionary tale: China’s Super League, known in the UK for much of the past decade for little more than the exorbitant wages its clubs are prepared to offer to turn the heads of players from European leagues, has now introduced its first salary cap for foreign players in advance of the new season starting in April. League champions Jiangsu FC suddenly ceased operations last month for reasons that have not yet fully emerged; and cup winners Shandong Luneng were expelled from the Asian Champions League as a result of alleged “overdue payables”.

Shanghai SIPG’s star Brazilian Oscar, formerly of Chelsea FC, is thought to earn the better part of £30 million per year. Yet China’s new rules for footballing austerity have meant that the same club’s purchase of Croat Ante Majstorovic for around £3 million represented the Chinese Super League’s highest-priced acquisition from Europe in the latest winter transfer window. Precisely what this will mean for the continued viability and, perhaps in certain circles, the glamour and prestige of Chinese football remains to be seen. Irresponsible and excessive spending can have sudden and serious consequences; but salary caps may well do, too.

What next?

What would be preferable in English football is a more comprehensive, considered review of how best to ensure that clubs’ spending is calibrated to their revenue and the investment to which their owners can commit over the long term. Part of that review is likely to involve the connected consideration of how to help distribute resources more effectively across the full span of English football. The American NFL has complex revenue-sharing and distribution mechanisms in place which may offer some replicable ideas. Equally, bespoke salary caps for each club in Spain’s top tier, La Liga, have begun to force FC Barcelona to rein in spending that is well beyond its means, and outline lessons that ought to inform the debate surrounding English football.

Returning the lustre to domestic cup competitions may be another avenue worth exploring, both from a competitive and a financial standpoint. Plucky minnows Marine AFC, knocked out in the third round of this year’s FA Cup by Tottenham Hotspur, stood to net £61,500 if they prevailed, as compared to a potential £135,000 just last season. The decision to slash FA Cup prize money in half this year, not only for the eventual winners but for all rounds, represents just one way in which the abundance of riches at the top tier is not being distributed fairly and effectively, so as to enable more sustainable investment in the lower leagues.

Lurching from one extreme to another, as the Chinese example may well come to demonstrate ever more plainly with each season that passes, is unlikely to be the answer to English football’s financial complexities. The failed experiment of this season’s EFL salary caps could, however, break ground for a more sustainable alternative.

Nick De Marco QC and Ravi Mehta acted for the Professional Footballers Association in its arbitral challenge to the English Football League’s (EFL) League 1 and League 2 Player Salary Caps. 

The fourth edition of Sport: Law and Practice, co-edited by Blackstone Chambers’ Adam Lewis QC with Bird & Bird’s Jonathan Taylor QC, has been published. The book is a collaboration between Blackstone Chambers’ barristers, sports lawyers at Bird & Bird and leading sports practitioners from other firms and chambers. For further information, please see here.