Should a similar wage structure be introduced to the Premier League?

The Premier League is currently relatively unregulated from a financial point of view. For the start of the 2012/13 season the financial fair play rules will be introduced – but it’s debatable how much this will actually change. The rules are coming in with a view to European competition and tackling debt – especially due to the mounting figures in the Premier League. It’s certainly a move in the right direction for clubs to start to spend only what the club makes. However, there is a risk of it making the league less competitive with the gulf in finances between the teams at the top to the teams towards the bottom of the Premier League. It also will not explicitly limit either transfer fees or wages – it will just mean clubs will need to generate the funds for them.

Therefore, maybe measures need to go a step further and introduce some real financial regulation and inspiration can be taken from the US – where salary caps are commonplace. One of the most interesting example comes in Major League Baseball (MLB) where instead of a salary cap per se there is a luxury tax. A limit is placed on total payroll (which is determined each year) teams that exceed the figure are taxed on the excess amount. The amount generated by the tax is then put back into baseball via industry-growth fund. A team that exceeds the luxury tax for the first time in five years pays a penalty/fine of 22.5% of the amount they exceeded the cap. Do it a second time and the team will pay a penalty of 30% and there is a 40% penalty for teams exceeding the cap three times or more.

As of the 2009 season only the Boston Red Sox, the Los Angeles of Anaheim, the Detroit Tigers and notably the New York Yankees have paid any luxury tax. The Yankees have contributed to over 95% ($164.1m) of luxury tax penalties.

It would certainly be interested if something similar was introduced to the Premier League and it could be used to help shrink the gap between the richest teams and poorest. For instance the penalty money could be used to redistribute throughout the Premier League and/or money could be invested amongst teams in the Championship, League One and League Two.

In other US sports there were fines of up to $5m, cancellation of contracts and/or loss of draft picks for exceeding salary caps. General speaking if a salary cap was to be introduced into the Premier League; the punishments need to be severe for violations. However, the major problem with the concept is the fact that the rich teams will still have a lot more money to play with – but a fairly tight cap may put a stop to some of the wages that Chelsea and Manchester City have been paying out in recent years.

Some people may feel that the concept of salary/wage caps in the Premier League is too farfetched of an idea and simply will never happen. I would agree that it is something that is unlikely to be introduced but the financial fair play rules may be a step towards it – but it remains to be seen if further financially driven restrictions will be introduced in the coming seasons.

Salary capping is in fact already in operation within professional football with League Two clubs only able to spend 60% of their income on wages and a similar system is set to be introduced into League One in time for the new season. This is certainly a step in the right direction – but the real problems occur in the Premier League. Figures from Deloitte show that in 2010 Manchester City used 107% of their turnover on wages and Chelsea had the highest wage bill at £174m.

If the financial fair play rules fail to control transfer fees and wages then a cap is the next natural step. The problem is that such a cap would really need to be imposed on all European clubs through UEFA – because otherwise all the best players would simply go to other big European clubs where they can earn top dollar.

However, it is time for clubs to act more responsible and build a team in the right way. Investing in youth players and developing players is a key part of that. Despite the best efforts of Chelsea and Manchester City go – Manchester United still seems to be the best example to follow for big clubs. It’s certainly ok to sign established players – but there needs to be a balance in place and emphasis on developing players from the youth system. Certainly Arsenal have tried to be sensible with the transfer fees that they spend – but they certainly have to pay top dollar to keep Fabregas and will have to do likewise to keep Nasri at the club.

Liverpool seems to have a very clear strategy in place which involves investing in their youth academy both in terms of facilities and coaches – but also sign some quality young players as well. Smaller Premier League clubs will find it harder to compete – but investing in youth and finding rough diamonds combined with a good manager – should still make it possible to be successful. And if costs are kept under control across the league it will be better for everyone including the English national team.

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