In the world of soccer, the term “salary cap” often stirs vigorous debate among fans. Navigating through the dynamics of soccer salary cap intricacies reveals a landscape where different philosophies collide.
In one corner, we have leagues such as the MLS, which are a proponent of the soccer club’s salary caps, aiming to create a level playing field and foster home-grown talent through a defined wage structure. Contrastingly, the Premier League and many European Football Leagues operate on a different spectrum, shying away from enforcing stringent salary caps in soccer.
After doing an in-depth research on this subject, I concluded the following:
Most soccer clubs don’t have salary caps to foster financial freedom and attract elite talent, unlike MLS, which uses a salary cap to ensure team parity. UEFA instead promotes fiscal stability through its Financial Fair Play regulations, not a wage cap.
But is there more than meets the eye here? Could adopting a salary cap bring unforeseen benefits or unveil complexities that deter its implementation in European leagues?
Do not go anywhere as we delve deeper, peeling back the layers to uncover the nuanced perspectives from industry insiders, veteran players, and financial experts shaping the soccer world.
The insights might surprise you.
The salary cap simply explained
Simply put, a salary cap is a regulatory measure limiting the amount of money a soccer club can spend on player salaries.
It’s a tool aimed at maintaining competitive balance within a league. While it might seem like a straightforward financial ceiling, it can take various forms, including hard and soft caps, each with distinct parameters and flexibilities.
Before we move any further, it is crucial to understand the two main types of salary caps that leagues might employ: the hard cap and the soft cap.
Hard Cap
This type imposes a strict limit on the total amount a team can spend on player salaries, with no exceptions. Teams must adhere to this cap strictly, ensuring stringent financial control, and fostering a scenario where financial prudence is not just encouraged but mandatorily enforced.
Soft Cap
Contrary to the hard cap, a soft cap offers a bit of leeway, allowing teams to exceed the cap limit to a certain extent under specific circumstances, such as re-signing their own players or utilizing a luxury tax system where the teams willing to exceed the cap have to pay a tax on the excess amount.
This creates a scenario where there’s a general guideline for spending but with allowances for strategic financial plays, encouraging a nuanced financial strategy and potentially giving rise to powerhouse teams with deeper pockets.
Why salary cap is not popular in soccer
Navigating through the world of soccer, one quickly discerns that the notion of implementing a salary cap is a largely unpopular and contentious one. The resistance against adopting a salary cap isn’t unfounded and is backed by a variety of reasons that include legal challenges, market dynamics, and the inherently competitive structure of global soccer leagues.
The genesis of the resistance to a salary cap in soccer finds its roots in the fundamental differences between the organizational structures of leagues in the US and Europe. US sports leagues operate under a more centralized control mechanism, fostering a sense of communal financial responsibility and social awareness among franchises.
This cohesive approach lays a fertile ground for implementing a wage cap, as it aligns well with the broader consensus and the mutually agreed objectives of the franchises involved.
In stark contrast, European football leagues evolved from a tradition that grants individual clubs significant autonomy in determining their financial trajectories. Over time, with the inundation of money into the sport, the bigwig clubs have sought to cement their dominant positions, leveraging the financial clout to dictate terms, and ensuring a protective shield around their financial supremacy.
This divergent growth trajectory and the existing power dynamics make the notion of a salary cap unfeasible and somewhat antithetical to the foundations of European soccer clubs.
Further, soccer leagues face stiff domestic and international competition, distinguishing them from leagues like the MLB, NFL, and NBA, which hold a firm monopoly in their respective domains with minimal global competition. This inherent structure of soccer leagues globally paves the way for a more open, competitive landscape that naturally steers clear of salary caps.
Market forces have a significant role in shaping the aversion to salary caps. Recently, the substantial investments from entities like those in Saudi Arabia have further fueled the market, steering it towards a landscape replete with high-value contracts and lucrative deals, a situation quite unfavorable for introducing a salary cap.
If, for example, the Premier League instituted a wage cap while other leagues refrained, it would inevitably result in a player exodus towards the rest of Europe, where the financial rewards would be greater. Essentially, this creates a prisoner’s dilemma circumstance – the concept would only function effectively if all involved parties adopted it and did it simultaneously.
Another reason why the US-style salary cap is not feasible in soccer is simply due to the difference in earnings between clubs. Let’s take EPL as a case study. In 2021/2022, Premier League generated around £5.5bn.
Now, let’s divide that by the number of teams (20) to calculate the average earnings by club. The result you get is 275 million pounds. Imagine if the Premier League says each club can earn 70% of that amount. You would get 192.5 million.
That means that Man City, whose revenue is 619 million could spend only 31% of their revenue. On the other hand, Burnley’s revenue is only 124 million. You see the problem?
Lastly, the potential introduction of a UEFA-wide salary cap faces a staunch roadblock in the form of European Union laws that protect the principles of free labor, essentially forbidding such restrictions.
This context creates a landscape where the concept of a “sugar daddy” backing a club becomes unfeasible, as UEFA’s Financial Fair Play regulations necessitate that clubs generate their own revenues to maintain financial stability and cover expenses. This regulatory environment reinforces a structure where clubs must stand on their own financial feet, unable to rely on massive cash infusions from wealthy backers.
Which soccer leagues have a salary cap?
To my knowledge, only 4 leagues have a salary cap limit in soccer. These include La Liga, MLS, A-league, and CSL.
Wait, what? La Liga has a salary cap??
Let me explain.
La Liga salary cap explained
In La Liga, the “Límite de Coste de Plantilla Deportiva” or the Sports Team Cost Limit plays a pivotal role in regulating the financial ecosystem of football clubs, a mechanism devised to ensure their solvency.
Essentially, it sets a ceiling on the funds that can be dispersed for the remuneration of players, coaches, and other staff members, enveloping both the prime squad (registered) and other divisions such as the reserve and academy teams (unregistered).
But here’s the interesting bit: this cap is firmly anchored to 70% of the club’s total revenue, accounting for all possible income avenues including the likes of TV rights, merchandise sales, and ticket revenues.
It’s a dynamic yet stringent parameter that demands a detailed breakdown of structural expenses and projected debt settlements over the season, subtracted from the revenue to designate the cap.
And it isn’t just about slapping a number on basic salaries. This framework casts a wide net to cover every conceivable form of compensation, be it bonuses, payment in kind, or image rights transfers, orchestrating a transparent and financially robust landscape in La Liga.
Guided by the LaLiga Economic Control norms, the clubs find themselves within a well-defined financial playing field, where the salary caps are not subjective but carved out through objective, mathematical derivations, steering Spanish football towards a future grounded in fiscal prudence and sustainability. This strategic approach, bearing the hallmark of astute financial stewardship, could very well herald a redefined era in the economics of football, one grounded in stability and foresight.
According to Statista, there are La Liga spending limits by club for 2022/2023:
| Club | Salary Cap (million euros) |
| Real Madrid | 684 |
| Barcelona | 656 |
| Atletico de Madrid | 341 |
| Sevilla | 200 |
| Villareal | 151 |
| Real Sociedad | 134 |
| Athletic Club | 127 |
| Real Betis | 97 |
| Valencia | 76 |
| Espanyol | 73 |
Note that there are only 10 clubs, however it is enough to demonstrate the difference between clubs.
A few words on the MLS salary cap
In 2023, Major League Soccer teams work within a set salary cap of 5.2 million USD, a predetermined budget that governs the total annual expenditure on players’ wages and transfer fees (note that transfer fees are amortized throughout a player’s contract). Yet, clubs have at their disposal several strategies to effectively raise this spending threshold.
Let’s talk Designated Players (DPs), a category that allows teams the financial freedom to sign a high-value player without bearing the brunt of a hefty salary impacting the cap. To be precise, only a fixed amount of 612,500 USD of the DP’s salary affects the cap. And the plot thickens with young DPs – players below the age of 23 – who not only have a reduced impact on the cap but also allow a team to nurture budding talent.
Shifting gears to Allocation Money, a concept broken down into General Allocation Money (GAM) and Targeted Allocation Money (TAM) – think of it as the league’s financial tool given to teams, enhancing their ability to strategize and pull in new talent while navigating the cap restrictions. Although it’s essential to note that TAM is on its way out, gradually phasing out to perhaps simplify this financial structure.
Digging deeper, we have the U22 initiative, a mechanism that encourages teams to sign young stars without worrying about the cap space. How so? Well, the transfer fee of a player under 22 isn’t factored into the cap, provided their salary remains below the 612,500 USD benchmark. The nuances lie in the DP and U22 slots available to a team, offering a strategic playground to balance experience and youth.
But the league also fosters home-grown talent, with homegrown players exempt from the cap, creating a nurturing ground for local talents. Supplementing this, roster spots from 20 to 30 are designated for newcomers and minimum-salary players, effectively creating a space that balances experience with budding potential.
Finally, there’s an international dimension to this – a specific number of slots assigned for international players, bringing a global flavor to the team compositions. These slots become a part of the team’s strategic assets, and yes, they can be traded, adding another layer to the team-building strategy.
| League | Salary Cap |
| La Liga | 70 % of the club’s revenues |
| MLS | $5.2 million |
| A-League (Australia) | $2.6 million |
| CSL (China) | £533,000 for domestic players/ €3 million for foreigners. |
