Labour market restrictions in English professional team sports

Peter Sloane

Chapter 17 in A Modern Guide to Sports Economics, 2021, pp 258-268 from Edward Elgar Publishing

Abstract: It is traditionally argued that some control over the ability to recruit players is necessary to protect against the possibility that richer clubs will become too strong relative to smaller clubs, and thus threaten uncertainty of outcome. But another argument is that competitive bidding in the market for players will increase wage costs and lead to financial instability. We assume that the objective of clubs is to maximise playing success rather than profit maximisation, though this will not influence the underlying case for salary capping. Each league is assumed to be open rather than closed (though closed leagues have been discussed in some English sports), so that clubs may be promoted to a higher division or relegated to a lower one. Hence, some financial transfers from the top clubs may be required to protect clubs in lower divisions from harmful financial losses or against the adverse consequences of relegation. In this chapter we focus on the four major team sports in England, namely football, cricket and the two rugby codes - union and league. It is noteworthy that different approaches have been adopted in these sports, reflecting their different circumstances and different financial strengths and sizes. Salary capping is longer established in North America than in Europe. Thus, the National Basketball Association (NBA) established a cap in 1976 and the US National Football League (NFL) in 1994. The former has a soft cap (which allows exceptions for certain categories of player) and a luxury tax, which transfers income from clubs exceeding a certain level of expenditure on players and transfers it to clubs below the limit. The attempt to introduce a salary cap in basketball led to a players' strike in 1994/95. The owners then proposed a luxury tax, which was agreed in 1997 with a tax rate of 35 per cent on payrolls exceeding $51 million. In contrast, the NFL has a hard cap (which means equal wage bills for each team without exceptions) and a hard floor (which aims to prevent teams from pocketing the transfers from richer clubs) at 64 per cent of gross revenues, which was reduced to 63 per cent in 1995 and 62 per cent in 1997. The NHL abandoned the salary cap which existed in its early days, but then restored it after the 2004/05 lockout in the form of a hard cap, but without luxury taxes or exemptions. Baseball has a luxury tax, which is effectively a salary cap as there are penalties for exceeding certain thresholds. In North America the imposition of salary caps is frequently a cause of industrial conflict.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2021
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