Wages in the Football League are out of control, particularly in the Championship, and clubs have agreed in principle to do something about it, but as always the devil is in the detail.
In a bid to get into the promised land olf the Premiership, many Championship clubs spend nearly all their turnover on wages, indeed a small number spend even more. The problem will get worse next season when television revenue falls by 27 per cent.
Wages in the Football League are out of control, particularly in the Championship, and clubs have agreed in principle to do something about it, but as always the devil is in the detail.
In a bid to get into the promised land olf the Premiership, many Championship clubs spend nearly all their turnover on wages, indeed a small number spend even more. The problem will get worse next season when television revenue falls by 27 per cent.
The League is proposing to impose sanctions from next season to force club towards breaking even within five years. If they don’t they could be fined by an amount that would be equal to the amount by which actual losses exceed permitted losses. Transfer embargoes may also be used as a penalty.
Owners would be allowed to put in cash to cover a share of the losses, if it is funded by equity. However, it is not clear if director loans can be included to make up any shortfall. Such loans are often resorted to by clubs in difficulty and the directors know (or should do) that it is likely that they won’t get the money back (often it is converted to equity at a later date).
The scheme even envisages sanctions being imposed for potential breaches, based on future budgets submitted to the League before the start of a season. These ‘competition taxes’ could be as high as 100 per cent of any forecast breach. The money collected would be distributed between compliant clubs. It is not clear who would make this judgment of Solomon and this aspect of the package is likely to be very unpopular and may well be struck down when clubs vote on the measures before Christmas.
The proposals could hit recently relegated clubs such as West Ham United hard. They would be required to limit losses to £2m in the 2012-13 accounting year, falling to £500,000 by 2016-17. Account would be taken of money depreciation, capital costs and youth development and there is room for a lot of argument here (and possibly some creative accounting). A further £6m loss would be allowed if it is converted into equity but to put this into perspective the club would run up that amount in four months on present figures.
West Ham argue that it takes time to unload players on high wages. The introduction of the scheme would be too rapid as contracts may run for three or four years.
Big-spending Leicester City could also be affected if they are not promoted this season. However, smaller clubs could also suffer as wealthy businessmen may be dissuaded from launching takeover bids if they are unable to invest substantial sums without incurring financial penalties.
It may be that the Football League has put forward that a scheme that is tougher that it needs to be in the hope of clubs getting to agree to some of it. However, the fundamental question is whether players’ wages can be driven down in a competitive market. The Football League chairman who is reported to have suggested that the Professional Footballers’ Association might be asked to agree to a 25 per cent wage cut for their members is out of touch with reality.