Football Will Eat Itself: Why UEFA Need To Start Capping Salaries Now

The football economy is about to implode and it's been a long time coming...
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The football economy is about to implode and it's been a long time coming...

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The first half of the 2013-14 season is drawing to a close. However, the January transfer window offers clubs the opportunity to enter the market in search for additions to strengthen their squads, or dispose of unwanted players. At the very best clubs can hope to acquire useful squad players, perhaps someone that can provide a stop-gap solution. Very seldom though is January the stage where high-profile signings are pushed through. However, they’re not entirely unheard of. It usually takes a very large fee to convince the selling club to part with their prized asset.

Nevertheless, agreeing to a transfer fee is just one part of the equation, persuading the player is another matter altogether. Depending on the clubs stature, standing in the league table, and ambitions, it leaves them vulnerable to being exploited in contract negotiations. Take the ongoing campaign for instance. European top sides with designs on the Champions League trophy, in addition to domestic honors, will look to bolster their ranks. The problem is most players that fit the profile they are looking for are cup-tied. The ones that aren’t command a premium on top of a premium.

The 2011 January transfer window serves as a good example for the good (Luis Suarez), the bad (Fernando Torres), and the ugly (Andy Carroll). Coincidentally, Liverpool FC was central to all three of those operations. In retrospect selling Torres for a reported £50 million(€58,6 million) to Chelsea FC was the right decision, both economically and from a sporting sense. Signing Suarez for less than half of Torres fee (€26,5 million) was inspired to say the least. However, acquiring Carroll, at an overinflated price (€41 million) was bold, if not reckless.

Torres and Carroll present or presented different problems for different reasons to their new clubs while offering few or no solutions to any. Carroll only lasted 18 months at Anfield before being loaned out to West Ham, and making his permanent switch last summer in a £15 million(€17,5 million) deal. Contributing to Liverpool taking a €23,5 million hit (-57%) on his transfer.

At the other side of London Torres is still not producing the kind of form that has prompted Roman Abramovitch to sanction the biggest domestic transfer in EPL history. Whereas the Reds lucked out (depending on whether one considers a €23,5 million loss a good thing), Torres is still on Chelsea’s books, more specifically the wage bill.

The former Anfield hero reportedly earned £120,000/week(€140,000) at Merseyside, and is believed to pocket around £180,000/week(€214,000) donning the Blues jersey. A massive 50% increase in earnings.

Fernando Torres transfer to Chelsea is prime example for what can possibly go wrong. Not only are clubs willing to pay high transfer fees, they’re also prepared to better existing terms by a significant margin (upwards of 50%) to finalize the deal.

El Niño is not a bad player by any stretch, but does he belong into the category of professionals that deserve to earn in excess of €200,000-plus a week?

Let’s rephrase the question: Does any player deserve to earn more than €200,000 a week?

The answer is fairly simple: Yes, as long as there is someone willing to foot the bill.

Is it unethical?

Trick question. There is a case to be made that Reality-TV stars contribute very little but are being paid excessively.

Still, in light of ever-escalating fees for transfers and agents it makes the examination of football’s salary and wages structure more relevant.

10 Years ago, in the thick of Real Madrid’s first Galactico era Los Blancos president Florentino Perez imposed a policy where the Merengues first tier (Raul, Luis Figo, Zinedine Zidane, Ronaldo & David Beckham) all earned the same wages (around €6 millionnet). It was one of the better policies established under the Perez regime. It also provided a good reference point throughout the football industry.

After all, when 5 of the best players in the world (3 Ballon D’Or winners among them) earn the same wages it becomes difficult for agents to demand higher salaries for their clients of lesser reputation. Since then, though, wages have exploded, particularly after the arrival of billionaire club owners in Europe.

Highest Paying Teams Per Player

Of course, the increasing commercialisation through TV-Rights, the Internet, and expansion into previously untapped or underserved regions, has football become more lucrative. Hence, it is only natural that the players receive a larger share of the proceeds.

But it’s a worrying development when Manchester City, a club that hasn’t yet established itself in England or Europe over a prolonged length of time, is paying €6,2 million in salaries on average per player. Not to suggest that the Sky Blues players aren’t of exceptional quality but not too long ago these kinds of wages were reserved to Ballon D’Or winners, or in other words the absolute cream of the crop.

Real Madrid and Barcelona are off by 10%(€5,6 million) and 11%(€5,5 million) respectively. Because all figures were taken from the 2011-12 season, 10th placed Liverpool FC is the only club not competing in the Champions League. Nonetheless, their average salary of just under €4 million(€3,98 million) is still too high, especially if Champions League football continues to elude them. Italian club Internazionale didn’t qualify for this year’s edition, which also contributed to the organization having to find new investors after years of operating beyond their means.

More interesting though is the fact that there’s only a €700,000 difference between 4th placed AC Milan (€5,04 million) and Arsenal FC (€4,35 million), or around an extra €14,000/week per player. Without exception any club above the Gunners has won at least 1 domestic title in the last 5 years. Surely the extra €14,000/week the other sides are paying their players can’t be the difference between winning or losing silverware?

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Well, Arsene Wenger is known to be champion of equal pay (or misguided socialist experiment) as opposed to the first, second and third tier structure at other major clubs. While admirable, it sure raises a few questions how he rates and rewards individuals. Nicklas Bendtner reportedly earns around £50,000/week (approximately €60,000/week, or €3 million annually).

To provide some context, Angel Di Maria earned around €2 million before he extended his contract with Real Madrid in 2012. Until very recently (before the acquisition of Gareth Bale) the Argentine was a guaranteed starter for one of the biggest clubs in the world whereas Bendtner very rarely even made the bench. Unfortunately, Bendtner wasn’t the only misfit on Arsenal’s books (Marouane Chamakh, Park Chu-Young and some others) that earned a King’s ransom despite essentially being deadwood.

Furthermore, there isn’t too much of a gap between Arsenal and Manchester United (€4,65 million), or 6%(€300,000) which would equate to an extra €6,000/week per player. The Red Devils won 3 league titles in the 5 years prior to the relevant period (2007-2012), Arsenal on the other hand didn’t win anything. Not to mention, Manchester United have Wayne Rooney on their books who earns £225,000/week. Manchester United's wage bill has been further bloated following the arrival of Robin Van Persie, who is allegedly also taking home in excess of £200,000/week.

Their crosstown rivals Manchester City’s wage bill is a bit inflated due to their aggressive acquisition spree in their attempt to build a title-contender from the go. Nevertheless, the Citizens did sign a host a world-class talent in the process. Maybe overpaid a little here and there but it was to be expected. Arsenal is the other extreme, paying high wages to average footballers.

It goes to show that even elite clubs struggle to find the right balance between trying to compensate their players accordingly and remain competitive.

Highest Paying Teams In Sports

The Top 10 Highest-Paying Teams in Football have (had) an average wage bill of €200 million, which is 189% greater than their counterparts of the MLB (€105,6 million), NFL 94 million (214%), NBA €59,2 million (338%), NHL €51,2 million (390%) where contracts in excess of $100 million (€73 million) are commonplace.

Even though American Football boasts the largest rosters of any sport, it’s European Football (Soccer) that has by far the biggest wage bill on average. North American Leagues have found a way to circumvent the escalation of wage bills by implementing salary caps that limit the maximum a club is able or rather allowed to spend on its athletes.

Highest Average Payrolls Top 10 Teams in Sports

One of the more ingenious aspects of this framework are the various factors that come into consideration when awarding contracts to rookies, new recruits from other teams, or extensions to players already on the books. Plus there’s the league minimum that’s mandatory, giving even the players lowest on the totem pole a sense of financial security for the duration of their careers.

For instance, even coveted rookies cannot earn more than a specified maximum that is determined by the length of the contract. In Europe (and the rest of the world) no amount is too obscene when it comes to the recruitment of the next big thing. In the summer of 2012 Abramovich-owned Chelsea FC signed then-21 year old Eden Hazard to a 5 year contract worth £185,000/week (around €230,000), or £9,62 million annually (€12 million), comfortably making Hazard one of the best paid players in the world.

The absence of a salary cap, or limit of any kind, makes it possible to demand such wages. When NBA Superstar LeBron James entered the league in 2003, in one of the most exciting drafts of the sport that featured Carmelo Anthony, Chris Bosh and Dwayne Wade among the Top 5 picks, his 3-year maximum contract with the Cleveland Cavaliers only guaranteed him a pay of $12,96 million over the duration of the deal, NOT annually. Far and away the most coveted player at the time James couldn’t sign a deal with better financial terms with any other team – it just wasn’t possible.

Furthermore, had James stayed with the Cavaliers he would’ve been entitled to a larger maximum contract than the one he signed with the Miami Heat in 2010, due to fact that he could’ve signed a deal worth 105% of his previous terms.

In the NBA the current salary cap is $58,7 millionannually, while a team is allowed to pay as much as 30% - 35% (if certain conditions are met) of the salary cap to a single player, meaning there’s a definitive limit. At first glance paying someone, anyone, almost $20 million (sometimes more), or one-third of the annual salary cap, is bold, brash and most of all risky. However, securing the services of the club’s best player should be paramount at any organization. If anything it creates a clear hierarchy and serves an impetus for team-building. After all, not everyone can be awarded a maximum contract. Additionally, the maximum length (for a max contract) is set at 5 years.

The North American model provides both economic and structural (as in team-building) stability. For one, any club can exercise better control over their budgets, or better yet, can more precisely forecast their profits. And two, it ensures that there isn’t a monopoly on top talent. Stockpiling the best and most promising prospects becomes more difficult. For better or worse, a salary cap creates a much more level playing field. The allocation of world class players is spread throughout the league as opposed to dwell in a few selected places. The clubs that do overspend on player's wages are hit with a luxury fine that is spread among the other teams throughout the league. Though not exactly deterring clubs from doing so, it does provide them with an incentive to not pay their rivals extra money for basically spending too much already.

Yet it is still possible to create an all-star team of sorts within the confinements of a salary cap as the aforementioned Miami Heat have demonstrated when the team picked up Chris Bosh in same summer. The Miami Heat made some shrewd trades in the preceding seasons to ensure that there was enough room in the salary cap to make it feasible to sign James and Bosh by the time the duo entered unrestricted free-agency, which is the equivalent of a player inside the final 6 months of their contract. Borussia Dortmund’s Robert Lewandowsi was arguably the most coveted free-agent in football until he agreed to join rival Bundesliga outfit Bayern Munich in the coming summer.

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It is worth mentioning though that the pair forfeited several millions by signing with the Miami based club. The point here being James and Bosh weren’t solely motivated by the financial reward but the potential of creating a title-winning unit - making forgoing a bigger payday more acceptable. Nevertheless, winning 2 consecutive NBA Championships after a Finals defeat in 2010/11 certainly hasn’t hurt their bottom line either. Sponsors gravitate towards winners, and nothing beats the allure of a champion. It’s more than likely that James and Bosh have had their shortfall in annual salary offset by lucrative endorsement deals following the championships they have won with the Miami Heat.

Salary Cap In Football?

Top 10 Highest Payrolls In Football

There’s a case to be made that football should introduce a mandatory salary cap. While Manchester City is paying the highest salary on average (€6,2 million), Barcelona have the highest annual gross wage bill out of all clubs (€267,7 million). Of course it changes annually due to various factors, or in the case of the Catalan behemoth – incentives. The majority of Barcelona’s players have heavily incentivized contracts that stipulate certain targets (Champions League qualification, appearances, minutes played, trophies won) must be met before they their bonuses are triggered.

But whereas this approach is useful in containing (if that’s the right word) the base salaries of the players it can easily have the opposite effect when the club unexpectedly does win everything on offer, like Barcelona did in 2008/09 - activating vast amounts of bonus payments in the millions.

To be fair, a club as big as Barcelona regularly qualifies for the Champions League and usually goes deep in most of the competitions they enter, rendering some of the incentives almost obsolete. Still, it is a nice insurance to have in the worst case of failing to qualify for Europe’s marquee club competition like Liverpool FC has for the last couple of years.

Out of the 10 clubs Italian sides AC Milan and Internazionale are at risk of falling further behind in Europe because they cannot offer the massive wages their rivals provide. It’s not financially viable. And because of it the majority of Serie A’s world-class players have ditched the Italian league for greener pastures abroad.

If a salary cap had been implemented across Europe years if not decades ago the landscape would look a lot different nowadays. Let’s say the UEFA would agree on a €150 million gross salary cap, which is 25% below the €200 million average that the Top 10 clubs are paying, Internazionale still had €10 million cap space as opposed to the current situation they find themselves at present. On the other hand the likes of Barcelona, Real Madrid or Manchester City would either have to convince some of their stars to take massive pay-cuts or sell them altogether.

In an environment where a salary cap is in place, players collecting a lower pay would be encouraged to move more frequently in search for a better compensation. But the middle to top tier earners would be more inclined to stay put, especially when their club is performing. At any rate, the all too powerful agents would be dissuaded from engineering transfers for their clients when the financial gains are marginal at best.

Nonetheless, there are many elements that make the practical introduction of a salary cap across Europe, or at least UEFA, extremely difficult. The most problematic one being taxes. The municipality of Monaco for example pays little to no taxes on salaries, making €150 million in gross wages the equivalent of €300 million and some change in most European countries. Further, it could also lead to more imaginative ways of accounting to work around it.

The prime example for funny business would be Barcelona’s acquisition of Neymar. Officially the Brazilian superstar is earning around €7 million net annually, or roughly €14,6 million gross. But according to the latest reports Barcelona paid N&N Consultoria Esportiva e Empresarial Ltd. a company owned by Neymar’s parents €40 million as part of the transfer fee taking the Santos prodigy to Barcelona.

For convenience let’s assume N&N pay as much as 50% tax on the €40 million fee to the Brazilian finance authority, the company would still have at least €20 million in their accounts. By spreading this figure over the duration of Neymar’s 5 year contract, one arrives at a €4 million net annually. Adding to his €7 million net salary at Barcelona, Neymar is possibly earning €11 million annually after tax. In reality the figure is likely to be much higher.

So while Barcelona officially claim that Neymar is only earning €7 million net, his earnings could actually be higher due to the creative usage of intermediaries and the biggest signing-on fee in the history of sport.

In the end while it would make sense to implement a salary cap, the lack of universal European tax code, in addition to the various national football governing bodies, and the creative usage of accounting, it’s near impossible to realize such a measure. Especially the latter would undermine the integrity of the system.

The rapidly rising salaries of footballers gives reason for concern for clubs and players alike. Underperforming players that signed very lucrative deals are - understandably - unwilling to move for the sake of their careers if it means taking a paycut.  The clubs on the other hand have one or more immoveable players on their books that all but cut into the profits. Plus there's the issue of parity that could lead to unrest in the dressing room because there's no such thing as a limit.

Even the richest of clubs are at risk of cannibalizing themselves trying to hold on to their many star performers. Who's to say Real Madrid's players aren't going to revlot when Gareth Bale's £300,000/week salary isn't justified by his performances on the pitch?

These days football is a seller’s market. But the verdict is still out there if that’s a good thing.

Follow Sebastian @JubeiKibagame