The recent introduction of salary caps in League One and League Two is a solution to stop many EFL clubs becoming bankrupt due to COVID-19, but it could change the English football pyramid for the worse.
The majority of League One and Two clubs voted in favour of a salary cap. Salary spending will be capped at £2.5 million in League One and £1.5 million in League Two. The ‘salary cap’ consists of basic wages, taxes, bonuses, image rights, agent fees and other fees paid directly or indirectly to registered players.
Clubs also agreed for a maximum of 20 player squads which will be implemented for the 2021-22 season. Also, players under the age of 21 won’t count towards the salary cap.
Many EFL clubs have struggled due to the financial impact of COVID-19. The EFL feel that the salary cap is the only option to prevent many clubs from going out of business as clubs can’t be trusted to spend voluntarily.
David Baldwin was EFL CEO at the time the salary cap was implemented; he stated: “The term ‘salary cap’ is an emotive one, creating the impression of a restrictive measure but we are clear in our view that this is neither the objective nor the likely effect of these changes to EFL regulations. The financial impact of COVID-19 will be profound for EFL clubs and the vote will help ensure clubs cannot extend themselves to the point that could cause financial instability”.
Embed from Getty ImagesLeague One clash Oxford United vs Crewe Alexandra being played behind closed doors due to COVID-19.
What are the consequences of a salary cap?
The divide created between the Championship and League One, with the new salary cap, will make it harder for clubs to move up the football pyramid. As top players in League One will be poached by Championship or even Premier League clubs because they can afford to pay players a lot more, due to them not having a salary cap. Also, teams that are relegated from the Championship to League One will have a huge advantage for a while as their best players won’t be subject to the salary cap under their current contracts, if they manage to keep hold of them.
Well runs clubs are being punished by the new salary cap. Those clubs that have a sustainable income due to increasing attendances, making money from promising future talents, and increasing commercial income are unable to reinvest the money they’ve made back into the playing side.
There’s a perfectly good reason why the biggest clubs in League One and League Two voted against the introduction of a salary cap. Clubs such as Sunderland, Ipswich and Portsmouth in League One, and Bradford City and Southend in League Two voted against the salary cap because they will get pulled down to the same level as the worst clubs in the division, despite having much higher attendances and producing much more profit than them.
For example, at the end of the 2018/19 season, Portsmouth produced a gross profit of £3.6 million with an average home attendance of 18,098. Whereas, Burton Albion, recorded a loss of £1.2 million with an average home attendance of 3058. The salary cap would mean that Portsmouth will be unable to put their well-earned profit back into the playing squad and forced to pay their players the same amount as Burton Albion, who produce much less income.
Embed from Getty ImagesPortsmouth vs Sunderland League One play off semi-final 2nd leg 2019
Does the Premier League and Championship need a salary cap?
Some Premier League clubs are understood to be positive about the idea. COVID-19 has affected every club in the Premier League, which has led to wage cuts. However, it would mean that every European league would have to have a salary cap because, players would just play their football abroad as they’d be offered a lot more money than they would in the Premier League. If the Premier League did implement a salary cap, it’s likely that it would be similar to the one that’s currently used in the MLS.
The salary cap in the MLS is set at £3.2 million per team for a squad of up to 20 players. The maximum yearly salary for a player is £400,000 (just over £7,500 a week). Obviously, the Premier League would have a much larger cap. The MLS also have a designated player rule, this allows MLS clubs to sign players who fall outside the requirement of the league’s salary cap. This rule lets MLS clubs dip into the international transfer market in order to attract star players to their club by offering lucrative wages. For example, Zlatan Ibrahimovic signed for LA Galaxy in 2018; his contract was worth £5.4 million per year, which exceeds the salary cap by £5 million. This rule is likely to convince Premier League clubs that the salary cap is a good idea, as they’d still be able to attract big names.
Embed from Getty ImagesThe Championship is considering it’s own salary cap, set at £17.5 million. That’s around seven times more than the salary cap in League One. If the Premier League didn’t introduce a cap, then the gap between the Premier League and the Championship would grow much bigger than it already is.
What could the EFL have done instead?
Limiting wages to a percentage of income would mean that that the more a club made from match revenue, sponsorship and advertising; the more they could spend on players wages.
This would be a much more sustainable option than a salary cap and it would prevent the gap between the Championship and League One from expanding at such a fast pace. If managed properly, it could prevent many clubs from going bankrupt due the COVID-19 pandemic and it would let clubs reinvest their well-earned profit back into their playing squad.