Media & Entertainment Law

Salary cap for soccer teams in Europe?

By Rick Karcher, Michael McCann, Geoffrey Rapp, Greg Skidmore, and Howard Wasserman

Nowadays the financial crisis also seems to be hitting the European sports sector. Sport clubs, associations and politicians come up with different proposals to solve the crisis or at least prevent clubs to fall into bankruptcy. One of the topics in the world of European soccer is the introduction of a salary cap which should improve the financial situation of the clubs. The Union of European Football Associations (UEFA) is currently (re-)considering the idea of limiting clubs' expenditure on salary and transfer fees to a particular proportion of their direct and indirect sporting revenues.

Revenue would be defined as money received only from ticket sales, sponsorship, merchandise and television income. It would not include any financial investment by owners or major shareholders. Apart from creating tools to battle the financial crisis, the introduction of a salary cap tries to limit the increasing importance of (mostly) foreign investors which seem to destabilize competition. According to UEFA these foreign investors are responsible for immoral wages and transfer fees.

The UEFA is of the opinion that the United States sports system and regulators could be an example of how to maintain a competitive balance between sporting measures and regulations to ensure the clubs are properly managed. The main arguments of the critics however are the following:

- The introduction of a salary cap must be introduced at international level. If one or more national leagues refuse to introduce the salary cap, this could result into a competitive gap between capped and uncapped leagues.

- The richest (and most powerful) clubs in Europe will resist on the introduction of the salary cap as it could undermine their competitive advantage.

- There is no such thing as a European accounting, financial or auditing standard which could safeguard that the salary cap will equally applied in the different countries. The introduction of a salary cap would need to be accompanied by the introduction of (strict) financial/accountancy rules for all clubs.

There is no doubt that measures need to be taken to improve the financial situation of the European soccer teams. The financial crisis could be the ideal stimulus for the European authorities to come up with initiatives to introduce a global framework with coherent financial, auditing and accounting standards which the different teams have to respect. A salary cap could be one of those standards, but will have little effect without a global framework.

Full post as published by Sports Law Blog on March 30, 2009 (boomark / email).