For the Love of Money: Exploring the Decision in the Saracens Salary Cap Case

As this earlier blog post, written by my colleague Ravi Mehta, records, a distinguished panel which included the Rt Hon Lord Dyson found against the Club, imposing a total fine of £5,360,272.31 and docking it 35 league points. The points deduction resulted in the relegation of the reigning premiership union champions to the second tier of the game.

The reasons for that decision, and indeed, the conduct giving rise to the charges were not originally disclosed. The decision was instead confined to a brief public announcement and an accompanying statement (available here and here). The Panel’s decision has now been published. Running to over 100 pages, the decision is an interesting read for sports lawyers and competition lawyers alike. 

The Premiership Rugby Salary Regulations

The stated objectives of the Regulations are: “(a) ensuring the financial viability of all Clubs and of the Aviva Premiership competition; (b) controlling inflationary pressures on Clubs’ costs; (c) providing a level playing field for Clubs; (d) ensuring a competitive Aviva Premiership competition; and (e) enabling Clubs to compete in European Competitions” (Regulation 2.2). The Premier Rugby Limited (“PRL”) - the Respondent to the proceedings – is tasked with enforcing those regulations in an “appropriate and proportionate manner” (Regulation 2.2).

In order to meet those objectives, the Regulations provide for a detailed set of rules which cap the sums that can be spent on player salaries by the clubs in the top-tier of rugby. The cap is a ‘collective cap’, or “Senior Ceiling”, comprised of the combined salaries of all the Club’s players in a particular year (referred to as a Salary Cap Year or “SCY”). The Regulations do not therefore purport to limit the sum that a club can pay an individual player. 

The types of payments that constitute ‘Salary’ are set out in Schedule 1 of the Regulations, the interpretation of which is at the heart of the Saracens decision. For the purpose of the Regulations, “Salary” is defined broadly (Schedule 1, para. 1). It includes any “salary, wage, fee, remuneration…”, as well as any “payment or benefit in kind which the Player would not have received if it were not for his involvement with a Club”. Salary is further defined to include “any loan pursuant to which the Player or any Connected Party of the Player [as defined] is not obliged to replay the full sum advance in the Salary Cap Year in which the loan is made”. 

The Schedule also specifies a number of express exceptions to the definition. The exceptions include certain payments or benefits in kind made in connection with “individual sponsorship, merchandising, employment or other individual arrangements”.

The Regulations are made by the Premiership Rugby Board, which is comprised of the 12 Premiership clubs, as well as the Salary Cap Manager (“SCM”). The role of the SCM is to monitor and investigate player recruitment and remuneration across clubs, to ensure the system is managed in a fair and reasonable way (Regulation 6). As part of that role, the SCM is tasked with determining what payments or benefits in kind should, on the balance of probabilities, reasonably be excluded from the meaning of ‘Salary’. 

The Regulations enumerate a number of factors relevant to that determination. While the SCM has an absolute discretion as to ‘any other matter’ that may be relevant to his or her decision, the Regulations specify that the SCM is to take into account factors including the following: 

• whether the arrangement is with a ‘Connected Party’ (as defined)
• whether the transaction was negotiated at arm’s length or is typical of a commercial contract of its type, or whether it exceeds the market value
• whether the arrangement was negotiated around the time of the Player’s contract
• whether the Player’s obligations are linked to his Club, are performed at its direction or in the Club’s uniform
• whether any remuneration is payable ‘as and when’ services are performed
• any involvement of any Club agent in the negotiation of the arrangement

A Club which exceeds the salary cap is liable to be fined and suffer a deduction of league points. The penalties that may be imposed form part of a graduated scheme.

The charges

The Saracens are a London-based rugby club. In recent years, they have been the dominant force in English rugby union and a serious threat in European competitions. 

The Club was charged with a breach of Regulations 3 and 11.1. The former prohibits clubs from exceeding the ‘Senior Ceiling’, which specifies the collective sum that they are entitled to spend in the relevant SCY. The latter specifies procedures that must be followed where the Senior Ceiling is exceeded by more than 5% (which in the relevant SCYs equated to £350,000). 

The proceedings concerned the Saracens’ payments of Salary in SCYs 2016/17, 2017/18 and 2018/19. More specifically, the PRL alleged that:

• The Saracens had failed to declare £1,134,968.60 of salary in SCY 2016/17. The SCM concluded that the Club had failed to declare salary contributions, which were alleged to arise from: (1) capital contributions to the purchase of properties and contributions to capital expenditure for renovation and refurbishment, made by the Club’s majority shareholder and director, Mr Wray; (2) the grant of a purchase option in respect of a property purchased by Mr Wray; and (3) payments made to Players by MBN Productions, a hospitality company owned and operated by Mr Wray’s daughter and son-in-law.
• The Saracens had failed to declare £347,645.28 of salary in SCY 2017/18. That sum was alleged to be comprised of: (1) the 20% stake that Mr Wray and Mr Silvester (another Club director) held in a Player’s home; (2) the exercise of the purchase option granted in 2016/17; and (3) further contributions by Mr Wray towards the renovation and refurbishment of the properties in question.
• The Saracens had failed to declare over £800,000 of salary in SCY 2017/18, primarily attributable to a share purchase by Mr Wray, Mr Silvester and the Club’s then board member, Mr Nick Leslau.

The Club had previously been the subject of investigation under the Regulations. In 2014, it was charged with failing to cooperate with an Investigatory Audit by the SCM. The charge gave rise to disciplinary proceedings, but was ultimately settled by the Saracens in 2015. 

The preliminary issue – the competition law implications of the decision

The Saracens challenged the legality of the Regulations as contrary to competition law. It was common ground that the Regulations amounted to a decision by an association of undertakings for the purpose of Article 101 TFEU. That was the principal basis of challenge, although an abuse of dominance was also alleged. 

The competition law issue was determined as a preliminary point. 

The Saracens claimed that the Regulations had both an anticompetitive object and effect. The Panel rejected both allegations. As to the former, the Panel relied on the decision in Queens Park Rangers v English Football League, in which a distinguished arbitral panel had concluded that the ‘Financial Fair Play’ Rules (“FFP Rules”) did not amount to an infringement of Article 101 TFEU or the Chapter I prohibition under the Competition Act 1998. The Panel recognised that the FFP Rules did not involve a salary cap, and instead limited the investment owners could make in football clubs. It found that the decision strongly indicated that “rules of [that] nature aimed at promoting financial stability are not of such a nature as to reveal a sufficient degree of harm to competition absent an examination of their effects” (para. 33). 

The stated objectives of the Regulations included, inter alia, protecting financial stability, promoting a competitive balance between the clubs, and ensuring that the sport was attractive to spectators (para. 34), and were consistent with EU law. The measure adopted need not be the least restrictive means of achieving those objectives since the CJEU recognised that a margin of appreciation was afforded to the organisers of sports competitions (para. 42-47). There was no evidence of a subjective intention to distort competition; indeed, the Saracens’ witnesses were broadly supportive of a salary cap (albeit in a different form). 

Nor were the Regulations found to have an anti-competitive effect. The Saracens contended that the PRL had a “captive group of players – elite English qualified players”(para. 75), arising from the “English club only” rule of the RFU. The Court rejected a market so defined as there was no evidence that only elite English players chose to remain in jurisdiction or that they were paid below the market rate. Nor was there evidence of an adverse effect on the global market for elite players – the Saracens’ fall-back market definition. Any claim that the cap had had a deleterious effect on the Club’s performance was countered by its stellar results. 

The Saracens had not in any event put forward any ‘counterfactual’ that would apply absent a salary cap. It was not permissible to assume a counterfactual of no restriction without any other change to the competitive landscape - “a counterfactual has to be realistic: what would have happened in the competitive landscape had the restriction in issue not been put in place” (para. 89). The Panel rejected the Saracens’ suggestion that “clubs would compete on an unfettered basis”, since that had “led to financial ruin for some clubs in the past and is too big a risk for the PRL and clubs, including the Saracens, to accept” (para. 103). The relevant counterfactual was therefore “some other form of financial self-discipline imposed by clubs on themselves through the PRL” which, in all likelihood, would be a “differently organised salary cap” (para. 101).

The Panel concluded that the Club had not discharged the burden of proof so as to establish an effects restriction. Amongst other things, evidence as to the continuing financial viability of clubs in the Aviva Premiership and the success of English clubs in European competition supported a finding that the Regulations were pro-competitive (para. 107-110).

 The decision on the charges

The Panel also substantially upheld the decision of the SCM, rejecting the Club’s invitation to conduct a de novo review. The Panel instead exercised a review function, assessing the judgment exercised by the SCM against the various ‘Salary factors’ outlined above. That approach was said to be justified since the question as to what constitutes salary was not a “hard-edged judgment, but one on which opinions can reasonably differ” (para. 134). 

Applying that approach, the Panel found: 

• That the capital contributions and contributions to capital expenditure by Mr Wray constituted Salary. The Tribunal did not express a view as to the motive or purpose of the payments, but found that this was the true meaning and effect of the payments (para. 179). The SCM was not only reasonably entitled, but right, to conclude that the transactions were not made at arm’s length (para. 183). 
• The purchase options amounted to Salary, notwithstanding the fact that the player did not in fact profit from those arrangements. The SCM was required to determine whether an arrangement gave rise to salary each SCY: “He cannot wait to see what happens in a later SCY before determining it. The scheme… does not admit of a “wait and see” approach” (para. 203).
• The payments from the hospitality company amounted to Salary, and there was no evidence to show that any of the events in question had in fact taken place (para. 209). The SCM’s conclusions fell within the range of reasonable decisions (para. 219). 
• The buy-out of the 20% share that the directors had in a Player’s home constituted Salary. Saracens had argued that Mr Wray and Mr Silvester had received a higher price in exchange for delayed repayment, such that those repayment terms did not involve a net transfer of value to the Player, who would not receive the 20% interest until he had repaid. The Panel concluded that it was not required to determine whether that arrangement amounted to a loan. The Player had received property without having to pay for it during the period of deferment of payment of the price. The transaction was not at arm’s length.
• The SCM was reasonably entitled to find that the purchase price under the share purchase agreement was above the market value and constituted Salary. Valuation was not a science and that conclusion was open to the SCM.

The decision on sanction

The Panel found that, on a strict application of the Regulations, the financial penalties payable amounted to £5,360,272.31 and 70 league points fell to be deducted. While it declined to exercise its discretion to reduce the former, the Panel reduced the points deduction to 35.  It nonetheless emphasised the seriousness of the Saracens’ breaches, finding that the Club “continually and recklessly” failed to comply with its obligations to cooperate, that the case was not one involving an isolated breach, and that the Club had “massively” exceeded the financial limits in the Regulations (Appendix 3, para. 7).

Case comment

The Panel’s decision is comprehensive, running as it does to 103 pages. The decision on the preliminary issue is important reading for any budding lawyer with an interest in both sports and competition. That is particularly so in circumstances where the decision in QPR v EFL – something of a precursor to this case – was unpublished at first instance and settled on appeal. 

Notwithstanding the distinguished composition of the Panel, the Decision may raise a few eyebrows. The Panel concluded, for example, that it was unconstrained by the limits of the original Charge. It is hard to understand how that finding can be reconciled with the ‘review function’ the Panel purported to adopt. Nor, with respect, is it immediately clear why the question as to what constitutes ‘Salary’ is anything other than hard-edged and therefore why a ‘review-only’ role was in any event justified.

Query, however, whether the Saracens would have profited from de novo findings. The Panel was clearly unimpressed by the evidence that the Saracens had offered for the complex financial arrangements it had entered with its Players in respect of the more serious charges against the Club. And while the Panel was careful to avoid any finding as to the motive behind those arrangements, its finding that the Saracens were “continually and recklessly” in breach of its obligations is a serious one. It is perhaps unsurprising, however, where the Club had repeatedly failed to disclose the arrangements to the SCM. 

The Club has since apologised unreservedly for its mistakes. That apology unfortunately came too late to be of assistance in mitigation.