A Premier League Salary Cap: Questions and Consequences- Daniel Geey
December 4, 2012
Further Questions
Below are a series of questions that the PL will no doubt be considering if and when some form of cost reduction mechanism is agreed to.
1. How will transitional seasons work? If the rule comes into force next season, it is highly unlikely sanctions will apply immediately. The FL FFP regulations state that there are no sanctions for breaching the regulations in the first two seasons. It would be expected that similar provisions could be drafted to provide time for clubs to comply.
2. How will any system work for promoted clubs? It would be extremely tricky and potentially unfair for promoted clubs to adhere to the PL rules in their first season in the top flight. The FL FFP rules allow for clubs relegated to the Championship to be exempt from sanctions in their first season. The club would however be sanctioned if they remained in the relevant league for a second season. The question for the PL is whether they would allow a one year exemption. It would otherwise be extremely difficult for championship clubs to plan accordingly for PL or FL competition.
3. Would the regulations be legal? The PL will no doubt take robust legal advice as to whether the agreed proposals would stand up to a legal challenge. It was well publicised that UEFA sought guidance from the European Commission regarding FFP for compliance with competition law and European free movement principles. It should also be pointed out that rugby leagues (the RFL and Premiership Rugby) have types of salary cap in operation. The Premiership Rugby cap is interesting for a number of reasons. Primarily because their regulations are modelled around a fixed figure (a maximum of £4.5m) for all clubs regardless of revenue or cost base. Clubs are also incentivised with ‘cap credits’ should they retain a certain amount of youth team players in a match day squad. Controversially, there is also a ‘star player exemption’ which allows each club to nominate one player whose wages are not included within the cap. Interestingly, the nominated player’s identity is kept secret.
It should be stressed that just because a salary cap is in place in the UK does not make it legal. However to date, and since 1999 when the Premiership Rugby cap was introduced, legal challenges to the salary cap have been thin on the ground though recent reports suggest a challenge may occur shortly. There are always potential grounds to challenge such a restriction. It may take the form of a competition law challenge to the Office of Fair Trading (OFT) or a complaint to the European Commission though proving an EU dimension for a domestic PL rule may prove challenging. The ultimate question is who would bring such a challenge. The clubs, the PFA, FIFPro or a football agency on behalf of its players? There is then the question of the appropriate forum for the challenge (presumably the High Court) which would be less likely to lead to a speedy resolution. Even a valid complaint to the European Commission it not a quick process.
The RFU set out on their website that they believe the salary cap ensures competitive balance in the league and promotes club sustainability. Such arguments would be used to justify why, among other things, such rules are appropriate, reasonable and proportionate. The recent RFU London Welsh case demonstrates however that regulations which go beyond what is necessary can be deemed contrary to competition law.
4. What sanctions could be imposed? In theory, anything is a possibility but in practice, just as the FL have done when implementing their FFP rules, is that the harshest sanctions (e.g. expulsion/relegation) were not not considered appropriate. FL FFP sanctions involve either a registration embargo or a fine. The UEFA Club Financial Control Body have been given express powers set out here which include at Article 21 the possibility of a points deduction, disqualification and/or removal of title. Until the UEFA FFP regulations are tested with relevant cases, it is difficult to assess which sanction will be afforded to which circumstance. Undoubtedly, the harsher the infringement, the more severe the penalty. It therefore remains likely that the PL clubs who will be voting for their favoured regulation will decide that registration embargo’s or fines will be preferred to expulsion, relegation or points deductions.
5. Would FFP be easier to adopt? One point for the PL to debate is whether it may actually be easier to adopt a version of the UEFA FFP rules. This would possibly be the smoothest transition for many of the PL clubs to make as they will have to adhere to the regulations in any event to participate in Champions League or Europa League competition.
Such a proposal also has the benefit of reducing the number of regulatory systems in place. The danger of multi-league/association regulation becomes apparent when there are a whole raft of regulations for different leagues and competitions. Many believed the Select Committee Report into Football Governance would provide a joined-up domestic licensing system which would encompass all PL and FL clubs and ensure adherence to the same set of uniform financial licensing requirements. It remains to be seen whether the Government adopt such uniform licensing system proposals. In the meantime, the FL and PL are pushing ahead with their own forms of regulatory change.
6. How will the new cost control measures be adopted? The final agreed proposals will require agreement of 14 from the 20 PL member clubs. Whilst it has been reported that a salary cap of some description has support from both Manchester clubs, Liverpool, Chelsea, Sunderland, Arsenal and Aston Villa, many more clubs will need to be persuaded of the benefits of such a system to make the proposals reality.
Conclusion
We await any announcement by the PL with interest. Any cost control measures have the potential to significantly affect the sporting and financial performance of top flight clubs. However, until the proposals are more concrete and ultimately the rules are published, the guessing game continues.
Daniel Geey, Associate in the Competition and EU Regulatory Group at Field Fisher Waterhouse LLP.
Please feel free to get in touch with Daniel Geey should you or your club have any questions concerning the regulations.
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