Major league European football: why there is now no alternative to salary caps and why they are probably legal

The news that twelve major Spanish clubs may face liquidation if they have to pay their taxes and that Fiorentina players are taking legal action to free themselves from their contracts with their insolvent club will be received with some satisfaction by the Premier League. With a large amount of its commercial revenue coming from foreign rights (generated by the large number of foreign players in the Premiership) it is nice to know that foreign stars tempted to go home may find that there actually isn’t a better home to go to.

However, this satisfaction is likely to be short-lived. Unless all the major European leagues faced with a decline in growth of broadcasting and transfer revenue make a concerted attempt to get salaries under control, they face ruin. As yet, there is still no sign of them doing this. Sergio Cragnotti (the owner of Lazio) is pushing for a salary cap, but his scheme is based on proportion of a club’s total revenues rather than a flat sum for each club. As this system favours the major clubs (naturally), the small clubs who are in a majority are unlikely to agree to it. They will prefer a flat ceiling which favours competitive balance which the major clubs oppose.

Of course, in the absence of agreement, the major clubs with similar cost structures might go their own way. However, as they will be small in number, they won’t have enough games if they want to maintain a domestic league.

It follows that salary caps can only work where the clubs who want to adopt a similar system have critical mass. In practice, this means that the cap must be Europe-wide.

Clubs who believe they have the deepest purse (and therefore the most to lose from flat salary caps) often hide behind EC competition law as an excuse for not taking salary caps seriously. They are wrong to do so. There is no evidence that the European Commission will attack such arrangements provided that individual players can negotiate and move freely. Moreover, a flat cap can assist competitive balance and all varieties of cap actually help to maintain output (in the form of financially viable clubs and leagues) which is what competition law is supposed to promote. Of course, the agreement of the players’ representatives would be a major help in getting regulatory approval, but they probably won’t need too many club failures to come on side.

The major argument used against salary caps is that they don’t work because of cheating. Up to a point this has some merit, but all anti-inflationary policies suffer the same deficiencies. Governments cheat on inflation targets regularly and find ever more ingenious ways of printing money, but no-one suggests that they shouldn’t at least try to be prudent. As the major European leagues will discover to their cost, unless you try, you are bound to fail.

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