Opinion: The Salary Cap Can’t Come Soon Enough

by Gav Reilly

In his first piece for BPF, Gav Reilly explains why football will die if a salary cap isn’t introduced soon.

The year is 2020. The UEFA Super Champions Europa League Cup final (second leg) is just about to kickoff, and fans all over the world are breathing a weary sigh as Roy Keane’s Ipswich Town kick off against Red Bull Salzburg, with an 8-1 win in the away leg rendering club football’s greatest fixture totally and utterly redundant. What’s the point of playing this competition, wonder the fans, if the big teams when the tournament was conceived aren’t even in existence any more? Why bother taking part when Real Madrid aren’t around to try and win a tenth title, or if there’s no Man United/AC Milan/Bayern Munich/Barcelona to light up the tournament?

Except, of course, the year is not 2020, and UEFA haven’t thrown all of their tournaments together into one giant money-spinning football orgy. (Yet.) But wild as it might seem, the notion of football’s leading lights universally folding and leaving expensive, empty stadia, waiting to be demolished into boutique apartment blocks, and destroying the worldwide heritage of the Beautiful Game isn’t all that fanciful. We, in the summer of 2009, are witnessing the beginning of the end. The devil is a Spaniard, and he’s elected.

This may sound like a line well-worn by a supporter of any team other than Real Madrid (particularly when your writer is a Manchester United supporter) but Florentino Pérez is killing football. Capitalising on the honorable Spanish system of munipical club ownership, Pérez knows what people want. Real Madrid, 2008 vintage, are flounderers. Gone are the days of Figo, Zidane. Now are the days of Christoph Metzelder and Gabriel Heinze, and boring adequacy. The days of getting thrashed in El Clasico. Pérez, a former President with a filofax full of bankers’ names, has a great idea. Why not, with a Presidential election looming, promise every big name under the sun, and borrow the money to pay for them? Genius. The only problem being, in Pérez’s last term at the helm, he ran the club into £200m of debt – just think of the numbers when you’re dealing in pesetas – and the club was only saved from a serious liquidity problem when the city council bought the club’s training ground and immediately leased it back for free.

Football fans at Real Madrid welcome Kaka

You would think, then, that with the benefit of hindsight and the knowledge of the disaster only averted by municipal taxpayer money, Pérez’s second term would be one of more fiscal conservatism and right-minded financial thinking. Alas. With the impending purchase of Liverpool’s Xabi Alonso, Real’s net summer spending clocks in at about the €275m mark – and with the unusual step of paying Manchester United the full €94m for Cristiano up-front, instead of in instalments or linking pay to performance, have instantly buried themselves in another €220m (or so) in debt, with more to come should the team perform as well as Pérez hopes they should.

How do Madrid plan on paying for these players? Aah, that most 21st Century of ideas – the far-eastern tour.

The notion of big soccer teams touring the world is a reasonable one. Travel abroad, get the chance to play against teams of other footballing cultures, pick up a few fans along the way, sell some more shirts, lather, rinse and repeat. The problem, though, is that in this modern era of recession and financial conservatism, there’s no more money left to win. People don’t have discretionary income any more, particularly in the poorer parts of the world. The Far East has been bludgeoned to death by incessant Man United pre-season jaunts, the signing of Park Ji-Sung, the rampant growth of Asian domestic leagues – particularly that of China – and now the fact that people don’t have any spare money any more. The World Cup has been and gone to Asia and, just as the United States before them, Japan and South Korea are yet to find themselves at the top of the footballing ladder and up to their eyeballs in new stadiums nobody can fill any more.

Football at the turn of the 21st century reached the great unknown – total saturation. America can’t be cracked; dozens of failed attempts to ship over the world’s biggest and best without profit are testament to that. Asia is a lost cause. Africa won’t have the money until the G8 forgive their debt (unlikely). There, simply, is nowhere left to turn. And so Real Madrid will battle on, buying the best and making it too hard for their opponents to compete, and borrowing the money until there’s no money left to borrow and no money coming in to repay the loans. Shirt sales are well and good, but they don’t keep a roof over your head.

The difference between Pérez I and Pérez II is that this time around there is no municipal get-out clause. With no additional funding model to tap into, and only the hope of increased revenue from TV rights to bank on (which is hardly a healthy idea when the Setanta Sports of this world keep folding under the weight of their own debt, and BSkyB’s parent News Corp is posting slumping profits year after year) the money to keep breathing is going to dry up. Soon, other clubs will start sueing for unpaid transfer fees. Rights will be auctioned of, and players returned to their original clubs. Banks will come scraping at the door, wondering when the repayments for the Ronaldo and Kaka loans are to be expected. And down – inexorably, unstoppably, inevitably down – come the house of cards.

This isn’t just a Madrid issue, either, though Pérez is certainly fueling it. While the banks and Berlusconis of this world are still around to lend, the Barcelonas, AC Milans and Manchester Uniteds are going to try and compete, and keep digging themselves further into the mire.

In an attempt to keep the game alive or to make the prize money high enough to sustain the borrowing, UEFA will merge all their competitions. They might even advocate the elimination of domestic leagues. But all it will do is put off the inexorable. The biggest will run out of money, and the Ipswich Towns of the next decade will find themselves rising to the top, not on merit, but by default. There simply will be no clubs left to beat.

So. How do we stop it? We keep transfer fees down. And how do we do that? With a salary cap. Transfer fees are based on the remaining wages due to be paid under the terms of a player’s contract. And so, the wages need to be fixed at a lower point.

The financial world works on the twin basic principles of supply and demand. Demand success, supply funds. Demand repayment, supply funds back. But in a culture where the fans of Real Madrid aren’t the ones signing the cheques for their players, the demand for success will never equate to the money needed to afford it.

If you’re looking for a silver lining to this cloud, I recommend putting a tenner on Newcastle to be relegated to League One, before you sit back to enjoy the press coverage for their games against Leeds United. The clash of the Once-Titans, perhaps, while Ipswich beat Red Bull Salzburg for a trophy nobody wants to win any more.

13 Responses

  1. Kevin Coleman Kevin Coleman says:

    Fantastic read Gav.

  2. Ronan Farrell says:

    Three words for you on salary caps: will never happen.

    What’s far more likely to happen is a move towards a European Superleague, so the Madrids and Uniteds of this football world can hoover up even more TV and sponsorship money

    Good read all the same.

  3. Padraig McKeon says:

    Seems fanciful but in a year’s time this will be on the tip of tongues. Dare we say that the FAI for all its (many) ills and inadequacies are actually establishing a basis for sustained existence with the 65% salary/turnover protocol.

    As for your tip, I agree on Newcastle and have had a little nibble at 12/1 with ppower. Am hopeful though that Leeds will miss them on the way up

  4. Liam says:

    I think you forget things like Real’s t.v. deal which is something like €1bn over 5 years and United’s merchandising deal with Nike which is up for renewal soon and was £500m last time round. The big clubs will always have ways of getting more money.

  5. Gav Reilly says:

    Liam – sorry if I didn’t mention them at enough length; what I meant when I addressed Setanta and NewsCorp is that major TV broadcasters are going to find themselves coming up short very soon when it comes to keeping up the astronomical rights packages they’ve worked their ways into paying. Football, and especially the TV/Football mashup, has experienced exceptional hyperinflation in the last number of years and what goes up must come down. The problem is that clubs have built their financial foundations on huge TV rights – and so on – and are going to find themselves with nowhere to turn, particularly as mainstream media keeps falling down to user-generated online content and the tsunami of online piracy.

  6. pickarooney says:

    Decent article, but you haven’t really given any reason why the collapse of the big clubs would result in uncompetitive competitions. The talented players aren’t just going to disappear or become chartered accountants, they’ll still be around, maybe playing for other teams and a lot less money. And frankly, that might be a good thing.

  7. Smynty says:

    Good article, but I think ur argument ‘What goes up, must come down’ is very cliched, it can be simply countered by sayin ‘The Emperor is always replaced’. As u said, teams do overspend, and fall into the abyss that is the depths of debt. We have seen this with Leeds and Newcastle, both teams that were at the top of the game within the last decade, and with the collapse of Setanta Sports, but as with everything, they were all replaced, Chelsea, Everton, Villa and ESPN. As ‘PickaRooney’ said there will always be talented players comin thru the ranks, and somebody will always have money to spend on these players. Simply because a minor percentage of players are massively over-paid and some clubs excessively over-spend, does not mean that football will collapse. Those players will be replaced by btr players and those teams will be replaced by ‘New Money’ teams, even if those teams are Ipswich and Red Bull Salzburg, they may just be the teams that the next few generations of football fans support. In my opinion a salary cap is unnessesary, as their are still plenty of players being paid respectable wages that they deserve, and football will continue to thrive with our constant support. Supply and Demand will always keep football clubs and players ticking over.

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