Salary cap is incompatible with leagues that promote growth and investment

This article was first published in The Times, on 11 February 2021.

Early this week an eminent independent arbitration tribunal upheld the claim brought by the Professional Footballers’ Association (PFA), the players’ union, that the EFL had breached its legal obligations by introducing a salary cap in League One and League Two in August last year without the agreement of, or consultation with, the PFA.

The case is significant because, in the tradition of cases brought by other players asserting their rights such as George Eastham in 1963 and Jean-Marc Bosman in 1995, it has led to the EFL changing its rules, as it immediately scrapped the first salary cap in European football.

The EFL — like the Premier League, the FA and the PFA — is party to the Professional Football Negotiating and Consultative Committee (PFNCC), a collective bargaining agreement under trade union law. The PFNCC constitution requires that “no major changes to the regulations of the leagues affecting a player’s terms and conditions of employment shall take place without full discussion and agreement in the PFNCC”. When the EFL decided to introduce a salary cap, it refused to consult with, or obtain the agreement of, the PFNCC.

The salary cap is no more and the EFL’s prospects of bringing in another controversial cap in the Championship look unlikely. But everyone in football agrees that there needs to be a functioning system of financial controls to stop clubs that overspend becoming insolvent — as happened with Bury in 2019.

One of the problems with the salary cap was that it prevented clubs who could afford to pay higher salaries than others from doing so. A club with income five times that of another was forced to pay the same wages as the smaller club, limiting competition between clubs and driving players’ wages down to the minimum.

Such a cap is incompatible with the pyramid structure of English football, which encourages clubs to try to achieve promotion and then compete in higher leagues. It is incompatible with a transfer system in which clubs can buy and sell players at whatever price they choose. That is why most sports that operate successful salary caps, mainly in the United States, have closed leagues, without promotion and relegation, and do not operate a transfer system. US salary caps are also the product of collective bargaining with players’ unions.

Financial controls that limit the amount a club can spend compared with their income make more sense, but two major problems arise here too. First, the EFL’s rules in the Championship limit club owners from investing in clubs by treating such investment as debt. That acts to discourage investment in football when it is most needed, encourages clubs to seek loopholes and means far too many clubs breach the rules.

The second problem is the opposite one — the old salary cost management protocol rules in League One and Two, which limited spending on player wages to a percentage of turnover, did allow owners to invest but failed to put in place appropriate rules and procedures to prevent an owner from “turning off the tap” and allowing a club to go under.

The best outcome from the salary-cap case will be for all the football stakeholders, from clubs and the players’ union in each of the leagues, to engage in consultation to create new financial rules that encourage investment, secure the long-term future of clubs and can be fairly enforced. Such a process should be linked with a fairer distribution of football revenues throughout the leagues. The window of opportunity is open; the football industry and fans can only hope it is not closed by a rush to bring in new rules without proper thought or consultation.

Nick De Marco, QC, along with Ravi Mehta of Blackstone Chambers (instructed by Mills & Reeve), represented the PFA in the salary-cap case.