Salary Cap and its Global Impact

Although the level and quality of football in Europe is known to be the best in the world, and far more competitive than soccer in the United States, the idea of a salary cap has left some thinking that coaching in the MLS is harder than handling a squad in Europe. Just recently, former Arsenal star Patrick Viera, who is now the head coach of the New York City football club, exclaimed, “I just think that coaching in the MLS is of course harder than in Europe. Because of the salary cap and the roster, and the way you have to make things balanced in the squad, making sure you have the players you need” (ESPN Staff, 1). He continued to express that in Europe you can simply go out and buy players, while in the U.S. you need to make sure that you are spending your money the right way. In analysis, the lack of a tight salary cap in Europe allows for the formation of super teams such as FCB and Real Madrid, where all of the world’s best players can team up to make championship runs. Although this is fun and exciting to watch, in the U.S. where coaching is more strategic, adds a whole other element to the game including buying young players low and hoping they grow to be stars one day.  

Article link: http://www.espnfc.com/new-york-city-fc/story/2819334/patrick-vieira-says-coaching-in-mls-harder-than-in-europe

FFP Spells Doom for Clubs that are Not Financed By Debt

Supporters of Financial Fair Play believe that the financial restrictions set in place are a great set of measures to prevent soccer clubs from spiraling out of control and deep into debt caused by excessive spending. By putting a stop to excessive contracts that cannot be financed without more debt, UEFA and its supporters (mainly smaller clubs) believe that FFP creates a sustainable financial model. Yes, this is true to a degree, but how true is it? Teams can, and always will, find loopholes that will allow their club to spend excess money and have it not count towards the balance sheet that FFP regulates. These loopholes include money spent towards their youth academy and their facilities. At the end of the day though, FFP’s goal is to make sure teams do not overspend their way into financial failure.

This idea of preventing financial failure is more of a theory than an actuality. Think of these soccer clubs as huge corporations, such as car manufacturers or companies on Wall Street. They are simply too big to fail.  Yes, some of these mega companies have filed for bankruptcy, but ultimately, they are too big not to be bailed out. Soccer clubs are very similar because they are simply too big of entities to fail. Owners know this, and would take advantage of this idea because they knew that they could spend big on players and if their investment does not pay off, they will always have another opportunity to sign another player to a max contract.

But what do the owners think that do not finance their clubs by debt financing? Let’s look at Manchester City chairman, Khaldoon Al Mubarak, and his financial model. Manchester City does not use any debt to finance its expenses. It is strictly financed by ownership wealth. Mubarak takes great offence to FFP because he believes that he was running a sustainable business model because he never owed another outside source a penny. He was spending whatever he wanted because he had the money himself. By enforcing FFP, teams like Manchester City are put at a huge disadvantage because their previous strategy can no longer be used and their greatest advantage has now turned into a disadvantage.

Do you think that a financial model that does not use debt financing from outside sources is a sustainable model for soccer clubs? What would your reaction be if you were an owner that was never affected by debt but now have to comply with regulations that were put into place to help teams get out of massive debt?

Dealing with Financial Fair Play as a Potential Owner

Before the Financial Fair Play spending limitations were put into play, it was a no-brainer for anyone with enough money and love for the game to want to own a soccer club. Seriously, who doesn’t dream of owning a sports team? Prior to FFP, it was not unusual for billionaire owners to take a fan driven approach and seek out winning at all costs, rather than look at the club as a business venture. With exceptions from top tier teams, turning a profit was not a guarantee. The owners knew this though and accepted it because it meant that they could spend any amount they wanted to attract big name players with championship aspirations.

When Financial Fair Play was introduced, dreams of a owning a team started to look more like a nightmare. You may be wondering: why would a set of financial restrictions that prevent teams from spiraling out of control with debt scare away potential new owners? Any businessman with a brain would love to have a floor in place that would prevent massive debt in an uncertain, ever changing market. But sports are different. Money is a motivating factor for players and owners are willing to spend ridiculous amounts of money to bring in players to win games. When the ability to spend unlimited amounts of money is stripped, part of being an owner is stripped.

There is a common thought around the soccer community that states that FFP has locked teams in their current tiers without much hope of improving. People think this because the top tier teams, who already have the best players, are making the most money and can continue to outspend all of the lower tier teams. On the other hand, the bottom tier teams in smaller markets can only spend as much as they bring in, which is no where near the top teams. This makes them unable to attract star players, which essentially prevents them from improving and continues the trend of them being unable to compete with top teams. From a potential new owner’s perspective, the only teams that will become available would be the lower tier teams, and why would you want to buy a team that is stuck being at the bottom of the standings without being able to overspend for better players?

If you were in a position to buy a soccer team, would your interests be turned away because of FFP? How would your decision process differ if you wanted to own a team prior to FFP compared to currently with FFP?

Changes to the NBA salary cap and is it similar to FFP?

This upcoming summer the NBA is changing the salary cap from 70 million per year to 90 million because of the lucrative 24 billion dollar TV deal that is distributed to teams around the league. The NBA has a lot of restrictions that have been placed over the years and ultimately commissioner Adam Silver believes that this system will allow teams to more freely pursue players even if they are close to the luxury tax level.

The problem is many people do not know how this is going to turn out. It could allow for teams already considered the best in the NBA to pursue some of the stars hitting free agency this summer. JA Adande wrote, “If, say, Kevin Durant signs with the Golden State Warriors, it would not only alter the competitve balance for the near future, but also could bring permanent changes to the framework of the NBA." A team that is the best team in the NBA history, being the fastest to get to fifty wins, wold be able to give a max contract to one of the top players in the league. This system was put in place to allow teams to more freely pursue players in the season and during the offseason, but the consequences could just be that the rich get richer and the poor get poorer.  Adam Silver, commissioner of the NBA, said, "There will be unintended consequences from all this additional cap room this summer," he added. "I just don't know what those consequences will be." That is a little concerning as a fan of the NBA. The commissioner increases the cap by a little under 30% and does not have an idea what the unintended consequences could be. It is truly an experiment that could go well or could be disastrous.

This topic related a lot to European futbol in that it seemed like a move that gets teams in the NBA closer to an FFP model. The more money you can spend, the more capable you are of forming super teams and having certain teams dominate year after year without smaller market teams being able to use up a good portion of their cap space. In the NBA, the market a player is going to is a big factor in where a star goes in free agency. Teams like the Minnesota Timberwolves or the Portland Trail Blazers constantly have to trade away their drafted star players because they want to be on a better team in a bigger market. Teams in big cities such as Los Angeles, New York, Chicago, Boston, and Miami all continue to sway players to come to their respective cities because of the attractiveness of their team’s location. To me this type of move by the NBA just gives more power to the big market teams and could be destructive for the move towards level playing field in the NBA. 

On the other hand, this could allow really good organizations in smaller markets to flourish. An example of this would be Indiana who is run by Larry Bird, one of the best general managers in the NBA. When the organization is able to spend more on players, and they already have a great system in place, this could entice big time players to make the move towards better organizations because they can now afford them rather than just big market teams.

Is this move by the NBA moving towards an FFP style of cap control or is it leveling the playing field? Would something along these lines be successful in European futbol considering it’s a lose cap? Will this work out for the NBA or just more power to the bigger market teams?

Source:

http://espn.go.com/nba/story/_/page/allstar-14773976/adam-silver-supersized-salary-cap 

Is the Financial Fair Play Structure the Best Salary Cap Option for the English Premier League

Under the current Financial Fair Play (FFP) structure of the English Premier League, it is time to dig deep into whether or not the spending limits created by the FFP are beneficial or detrimental to the league as a whole. When the FFP was introduced 2009, spending limits were enforced with the intention of preventing clubs from spending more money than they brought in to ensure long-term financial stability. UEFA, the governing body of European football, strongly believed that by setting cap restrictions, clubs will focus more on developing their youth programs, develop more analytical personnel strategies, and lower transfer fees because teams could no longer outbid other teams based on how much money owners are willing to spend.

On the surface, the FFP seems to shine a positive light over the most competitive league in the world by leveling the finances of the playing field. Nonetheless, the FFP causes issues that make people question whether or not it is the most effective system that serves as a salary cap. One major argument against the FFP is that it takes away from the overall value of each club. For example, Aston Villa was put up for sale in 2014 and felt the negative consequences of Financial Fair Play. The FFP spending restrictions prevented Aston Villa from being an attractive investment for potential owners because these owners knew that they could not compete with powerhouse teams without a blank check. Since they are located in an economically deprived area compared to powerhouses such as Chelsea, Manchester City and Manchester United, owners cannot charge fans the same amount of money for tickets, which essentially prevents Aston Villa from signing any big name player because they do not take in enough revenue to splurge on talent. Additionally, there is no reason why a top-tier player would sign a contract with Aston Villa – a team stuck at the bottom of the standings with no real chance of winning – for the same amount of money, or less, than a top tier team.

With this in mind, it is evident that the Premier League must part ways with FFP and implement a system that is similar to the salary caps seen in the United States. With an American-like salary cap, not financial restrictions based on individual team’s revenue streams, clubs ranging from the top to the bottom of the standings will have an equal opportunity to attract talented players. This is where talented front offices will come into play. They will develop creative ideas to attract players and start building a solid foundation to a competitive team. With this type of system, teams and fans will no longer be able to complain that their club is not competitive because of financial inequality, but will start calling for managerial changes and higher player standards.

Women's Soccer: Raising the Bar

As expressed in the enclosed NY Times Article, the spotlight of European "futbol" is undoubtedly on that of men's clubs. Major teams such as FC Barcelona here in Spain, AC Milan in Italy, and PSG in France, all have extensive men's programs that are well recognized throughout the world. In the midst of debates concerning raising the salary caps in order to allow clubs to pay their players more and have more money to spend in general, the same topic of conversation for women's soccer often gets overlooked.

As of recent, an outlier club in the heart of Tuscany, Italy, namely Fiorentina, hopes to be given the chance to begin a large developmental change as they recognize that "football is for everyone... not just men" (Borden, 1). With this being said, women of Italian football encourage being allocated a budget that is just and somewhat equal to not only their male counterparts but also other areas of Europe. Statistically, their teams are given a budget that is seven million Euros less than that of France, and in Norway, who has a population about a tenth the size of Italy's, there is a women's soccer budget that is nearly twice as big.

Clearly, although Italian male football is well respected, women are not given the same opportunity to earn their name. No league games are ever broadcasted on TV. In other words, sexism is prevailing in a society where we finally thought the issue has been overcome. To counter this, proponents of women's soccer have pledged to see a rise in their salary caps, along with a promise to be made that Serie A teams start funding their women counterparts. Although the success of this plan may be far off, everything needs to see a start somewhere. Hopefully steps in the right direction will continue to be made towards equality.

Article: http://www.nytimes.com/2016/02/11/sports/soccer/in-italy-a-top-club-stands-alone-in-supporting-womens-soccer.html?_r=0

La Liga – A Case for a Salary Cap?

Since the year 1984-1885 season, there has only been five seasons where the dominant Futbol Club Barcelona and Real Madrid have not won the La Liga Primera Division Championship. Currently, FC Barcelona is in first place of La Liga (having not lost a single game at home this season) and Real Madrid is in third place (surprisingly). It is been clear throughout the history of La Liga that these two clubs are not just two of the most dominant teams in Spain, but also in the world. While this is great for these clubs, it has not been so beneficial for the other clubs throughout Spain and La Liga. It is well known that apart from Athletico Madrid, the other clubs in the country have struggled to compete. When you compare La Liga to the Premier League, there is a huge cap in the average quality of teams in the league. The top dogs of La Liga continue to get best players year after year and continue to win championships. The quality of the league overall is very low because of this, and I believe that the implementation of a salary cap will help the process of creating greater competition in La Liga. If a salary cap were to be imposed on the league, smaller market teams would become more level with the original power house clubs. They would be able to sign similar talent and the games would be more enjoyable to watch (compared to watching Barcelona blow out Celta Vigo 6-1 last night). The image below displays the salary distribution from 2013. There is a clear dropoff after the Barcelona and Real. Almeria does not even have 4% of the total salary of FC Barcelona. How are they expected to compete? In the upcoming weeks I will attempt introduce a formalized salary cap plan that would enable more competition in La Liga, while keeping the best teams competitive on an international scale.