The Premier League Wage Cap: A Well Kept Secret


June 6, 2014

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The Premier League’s (PL) latest handbook  contains a very important cost control  provision explained below. Many are unaware that the PL has implemented a soft wage cap in the PL that its member clubs are required to adhere to.

Short Term Cost Control

Rule E.18 states that

“If in any of Contract Years 2013/14, 2014/15 and 2015/16 a Club’s aggregated Player Services Costs and Image Contract Payments:

E.18.1. exceed £52m, £56m, or £60m respectively; and

E.18.2. have increased by more than £4m when compared with the previous Contract Year or by more than £4m, £8m or £12m respectively when compared with Season 2012/13;

then the Club must satisfy the Board that such excess increase as is referred to in E.18.2 arises as a result of contractual commitments entered into on or before 31 January 2013, and/or that it has been funded only by Club Own Revenue Uplift and/or profit from player trading as disclosed in the Club’s Annual Accounts for that Contract Year.”

The definition of “Club Own Revenue Uplift” is set out at A.1.32 of the PL rules and means “any increase in a Club’s revenue… when compared with its revenue in … 2012/13 (excluding Central Funds fee payments.”

The practical effect of the above is that only a £4m increase in the wage bill for PL clubs per season will be permitted.  If a PL club spends more than an additional £4m on wages from the previous season, the additional wage cost can only be funded by increased commercial revenues that the club has made during that same season. The below table sets out the defined amounts:

Season The extra amount of PL Central Fund revenue that can be used to fund player wage costs (cumulative) If the wage bill is below the following figure, then the club are exempt from the restrictions
2013/14 £4m £52m
2014/15 £8m £56m
2015/16 £12m £60m

By way of practical example, if Liverpool’s 2012/13 wage bill was around £125m and for the 2013/14 season it increased to £130m, the club spent £1m more than was permitted under Rule E.18. Liverpool would have to demonstrate to the PL that, in the same year of the wage cost increase, the £1m additional wage cost arises either from:

  • contracts entered into before 31 January 2013;
  • its own revenues excluding centrally distributed PL monies; or
  • profit from player transfers.

For the 2014-15 season, this regulation will continue to provide clubs participating in the Champions League for instance with a real competitive advantage. This is because such premium games will generate more match day revenues from Champions League participation and importantly, participation prize money from UEFA. A deep run into the competition can be worth between €30-€50m. If any Champions League club are able to receive say £30m in additional revenues from their Champions League participation, they will be able to spend, if everything else remains equal, an additional £34m on wages (i.e £30m in additional revenue plus £4m permitted under the regulations) because the additional £30m would be deemed the club’s “Own Revenue Uplift”.

Conclusion

Some people in the sports industry seem relatively unaware of the recent important changes that the PL has made to their regulations. The above restrictions do provide substantive limitations on the wages that PL clubs can offer to players. If a club is not able to grow its own non-centrally distributed revenues, they will be somewhat restricted in the amounts that they can offer to players.