The Sweeper: Time For A Salary Cap in European Football?

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It’s not only English clubs who are facing financial reality rather harshly these days, with pigeons back home and roosting all over the place. James Horncastle at Four Four Two’s French football blog, The French Connection, discusses a recent L’Equipe report that shows the scale of the losses at numerous clubs at the top levels of the game in France:

L’Équipe got hold of a confidential eight-page document produced by the DNCG that revealed the sheer scale of the financial problems engulfing the game in France.

According to the DNCG, the current model is “unsupportable for the majority of clubs, in particular the small and medium-sized ones.”

French clubs tend to survive on TV and transfer revenues alone, devoting a staggering 71 per cent of turnover to paying wages. It is estimated that French football will make a net loss of around €100m across its top two divisions this season, prompting some to call for Ligue 1 to be reduced to 18 teams.

The DNCG is the Direction Nationale du Contrôle de Gestion, a division of the French league that monitors clubs’ accounts. The key figure here is the same that’s causing problems at so many clubs across Europe today: the ratio of wages to turnover is simply unsustainable. As we mentioned the other day, over 50 clubs have become insolvent in England since 1992. This is despite massive rising revenues; the key is, salaries have risen at an inflationary manner that have eaten up so much of that cash.

In fact, it’s been clear for at least a decade that this was a crisis football’s authorities across the continent were closing their eyes and ears to.

Back in 2001/2, Deloitte’s high profile money report on English football noted that wages-to-turnover ratios would cause increasing financial problems for clubs, at 73% in the Football League and 61% in the Premier League. Deloitte noted that:

“Salary caps at a team, not player, level can greatly help a club’s viability, as long as the rules are straight-forward and sanctions strong. The discipline caps could impose on potentially irresponsible clubs who follow the ‘borrow now, pay later’ policy would have prevented many of the past financial crises. We applaud the early moves by the Football League and G-14 in this area and hope to see renewed momentum on this issue from the top clubs.”

That “renewed momentum” has not exactly taken European football by storm. League One and League Two in the Football League now do cap salaries at 60% of revenue, a sensible measure that perhaps isn’t regulated as tightly as it ought to be.

The Premier League’s wage-to-turnover ratio has remained fairly steady, hitting a high of 63% in 2008 before a small dip to 62% in 2009. Of course, this varies widely by club, and Portsmouth show that it can’t just be trusted clubs will keep it at a sensible level.

This chart from the BBC a couple of years ago shows the jumps up and down in the ratio that cause such instability across most European leagues:

Wages

The Premier League’s ratio has clearly risen since 1996, but has also remained fairly steady since the turn of the millennium: only, though, thanks to massively rising television revenues matching the spiralling wages, as the red line’s rise indicates. Should that revenue dip, at some point in the future, Portsmouth’s problems will spread league-wide.

The NFL, meanwhile, limits spending on players to 60% of gross revenue league-wide, though signing bonuses and deferred salary have often been used to circumvent the cap. Overall, though, the evidence for a European-wide UEFA-mandated salary cap somewhere around 60% of revenue in each league continues to grow. Easy to do? No. Necessary for the sustainability of club’s to avoid the pain of Portsmouth at many more top clubs? Common sense would say it’s time.

Quick Hits

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