The English Premier League Is Considering A Salary Cap
Discover more from Huddle Up
The English Premier League Is Considering A Salary Cap
Huddle Up is a 3x weekly newsletter that breaks down the business and money behind sports. If you are not already a subscriber, sign up and join 100,000+ others who receive it directly in their inbox each week.
This Newsletter is Sponsored by… PrizePicks!
PrizePicks is the hottest game in daily fantasy, and I’ve been playing it every weekend.
It’s so simple: You just pick 2-6 players, decide if they will go more or less than their PrizePicks projection, and you can win up to 25x your money on any entry.
For example, last week, I picked Josh Allen to throw for more than 250 passing yards against the Patriots and Odell Beckham Jr. to go over 22.5 receiving yards against the Lions. Both of those hit — and we all tripled our money.
Submitting an entry takes less than 60 seconds, and PrizePicks offers projections on every sport you could imagine (NFL, CFB, NBA, Formula 1, UFC, etc.).
And here’s the best part: PrizePicks is offering Huddle Up readers a 100% instant deposit match of up to $100. So download PrizePicks today and play daily fantasy sports with me. Tell them I sent you by using code JOEPOMP when you sign up!
Friends,
Last week at the Leaders Week conference at Twickenham, Crystal Palace chairman Steve Parish quietly dropped a big piece of news — the Premier League is looking at a salary cap for its clubs.
“As far as competitive balance [is concerned], people need to be bold,” Parish said during the conference. “There are really positive conversations going on about it. We also have to be very careful because there are also unintended consequences. Hopefully, we will get somewhere that will be beneficial, not just to the clubs in the Premier League but to the whole pyramid and their ability to compete.”
Parish went on to mention that the EPL is looking at a cap with a “rigid” structure that doesn’t necessarily take each club’s annual turnover (aka revenue) into account.
So today’s newsletter will examine how a salary cap would impact the league, how a cap would make the EPL look like an American sports league, what an EPL salary cap figure could be, and more. Enjoy!
It’s no secret that wages have gone up across football globally. Oil-rich states are funding clubs like Manchester City, Newcastle United, and PSG. Saudi’s $650 billion sovereign wealth fund has spent billions recruiting players like Cristiano Ronaldo, Karim Benzema, and Neymar. And even Major League Soccer joined the party by convincing companies like Apple and Adidas to split their profits with Lionel Messi.
This wage inflation doesn’t feel sustainable, and many people are getting worried.
For example, the average Premier League club is bringing in more than $330 million in annual revenue, but they put nearly 70% of that money back into player wages annually, with some clubs even committing upwards of 85% to 90% on player wages.
This level of spending is why a salary cap is starting to feel inevitable.
The Premier League does follow financial sustainability regulations (formerly known as financial fair play) from UEFA. The simplest way to explain these rules is that they restrict the percentage of revenue clubs can spend on player and coach wages, transfer and agent fees to 70%. The rules will be gradually implemented over time, starting at 90% this year and eventually getting down to 70% in 2025.
UEFA Squad Cost Rule Implementation
2023-24: No more than 90% of club revenues can be spent on wages and transfers
2024-25: No more than 80% of club revenues can be spent on wages and transfers
2025-26 & beyond: No more than 70% of clubs can be spent on wages and transfers
But while these rules help ensure clubs aren’t overspending on players and putting themselves in debt ( like we’ve seen with FC Barcelona), the rules also give big clubs a considerable advantage.
That’s because big clubs generate more revenue — Manchester United generates $775 million in annual revenue vs. $175 million for Brentford — so 70% of their revenue is still a much higher number than the bottom three clubs on the brink of relegation.
I mean, look at the current payroll disparity across the Premier League’s 20 clubs today. Teams like Manchester United and Manchester City are spending about $250 million annually, while clubs like Sheffield United and Luton Town are at $30 million.
2023-24 Premier League Payroll Disparities* (Spotrac)
Manchester United: $248 million
Manchester City: $244 million
Arsenal: $202 million
Chelsea: $182 million
Liverpool: $164 million
Tottenham Hotspur: $140 million
Aston Villa: $139 million
West Ham United: $118 million
Newcastle United: $108 million
Everton: $94 million
Nottingham Forest: $81 million
Crystal Palace: $65 million
Brighton & Hove Albion: $70 million
Fulham: $59 million
Wolverhampton: $53 million
AFC Bournemouth: $52 million
Brentford: $46 million
Burnley: $42 million
Sheffield United: $32 million
Luton Town: $27 million
*These payroll figures do not include transfer fees
This difference in salary has a clear impact on competitive balance, and it’s the main reason why Leicester City is the only team outside of Manchester City, Liverpool, Chelsea, Manchester United, or Arsenal to win the Premier League in 20+ years.
Premier League Champions (2000-2023)
2022/23 Manchester City
2021/22 Manchester City
2020/21 Manchester City
2019/20 Liverpool
2018/19 Manchester City
2017/18 Manchester City
2016/17 Chelsea
2015/16 Leicester City
2014/15 Chelsea
2013/14 Manchester City
2012/13 Manchester United
2011/12 Manchester City
2010/11 Manchester United
2009/10 Chelsea
2008/09 Manchester United
2007/08 Manchester United
2006/07 Manchester United
2005/06 Chelsea
2004/05 Chelsea
2003/04 Arsenal
2002/03 Manchester United
2001/02 Arsenal
2000/01 Manchester United
But if the 70% spending rule doesn’t work, what exactly is the solution?
Well, some people have recommended a “hard cap” like we have in American sports, meaning a limit is set, and no team can spend more than that limit.
But that doesn’t work in the Premier League because 1) the wage gap is more than $200 million between the league’s highest-spending teams and its lowest, and 2) this would put the league’s biggest clubs at a disadvantage against other non-EPL clubs.
Ex. Manchester City cutting its wage bill in half would hurt their Champions League odds.
Big Five European Football Leagues By Revenue (2022-23)
Premier League: $7.2 billion
La Liga: $3.7 billion
Bundesliga: $3.5 billion
Serie A: $2.6 billion
Ligue 1: $2.3 billion
Another solution is the idea of placing a salary cap on player and transfer wages based on a multiple of revenue generated by the last-place club of the Premier League.
For example, if Sheffield United finishes in last place this year in the EPL and receives a £100 million share for TV revenue, then the salary cap for all EPL teams would be a numerical multiple (e.g., 4x) of that £100 million distribution, so a £400 million cap.
I initially heard this idea from Simon Jordan and Jim White of talkSPORT, and it makes sense. Not only would you align incentives by anchoring the highest spend to the lowest revenue generation, but the salary cap would increase with TV revenue.
But I still have a hard time believing anything like this will ever happen.
Sure, this could be great for the owners, and a salary cap is one of the main reasons why several MLS teams are worth $500 million to $1 billion, despite having significantly smaller fanbases than clubs like West Ham United, Everton, or Fulham.
But the promotion-relegation model incentivizes teams to spend more so they don’t fall down the pyramid, and that’s one of, if not the most, integral parts of football.
So, instead, maybe something like a luxury tax would work. Take Major League Baseball, for example. Hedge fund billionaire Steve Cohen bought the New York Mets for $2.4 billion and then proceeded to spend $500 million on payroll this year.
But that $500 million wage bill was so far over the predetermined payroll threshold that Steve Cohen was forced to pay $110 million in luxury tax payments. And since 50% of that money gets distributed to other teams, Steve Cohen quite literally paid his competitors $55 million in 2023 (and still didn’t make the playoffs - sorry Mets fans!).
Now, don’t get me wrong, MLB has a bunch of problems. But distributing excess spending to other teams is a decent solution for a non-salary cap league, and it feels like something the Premier League should look into if they really want to create parity.
If you enjoyed this breakdown, please consider sharing it with your friends.
I hope everyone has a great day. We’ll talk on Friday.
Book a 1:1 call with Joe on Intro.
Join my sports business community on Microsoft Teams.
Interested in advertising with Huddle Up? Email me.
Your feedback helps me improve Huddle Up. How did you like today’s post?
Loved | Great | Good | Meh | Bad
Huddle Up is a 3x weekly newsletter that breaks down the business and money behind sports. If you are not already a subscriber, sign up and join 100,000+ others who receive it directly in their inbox each week.
The English Premier League Is Considering A Salary Cap
I think instead of a salary cap, where you end up penalizing players who have a limited earning window, maybe leagues should start go to a luxury tax that instead of going towards paying other teams' payrolls, goes into escrow that can be leveraged against when a team comes up short on payroll because capitalists aren't always great with money, (you know, like the San Diego Padres.), or - and perish the thought - use some of that money to grow the game at the grassroots level. Invest in youth clubs, and stipend low & non-league clubs through grants.
Salary caps won't influence ticket price inflation, which is what really is always at the heart of the general public's concerns over player wages. In fact, if anything, it will embolden teams looking to squeeze profits, because they will no longer be concerned with how much *more* they'll have to spend to keep up with the on field product of the other teams. This is especially true if the PL does go to a "hard cap" where it's a fixed number across the league, rather than the percentage limit they're rolling out (if I understood that explanation right, and my ADD sure could have interfered with that).