What is Salary cap ?
Also known as ‘límite de coste de la plantilla deportiva (LCPD)’ in Spain, the Salary cap is a term adopted by La Liga based on a proposal for the upcoming season given by each club, to calculate the final amount, the clubs’ expected revenues and their non-sport expenses are considered.
The salary cap is the total amount of money a club is allowed to spend on wages and salaries of all its workers in a given year. This prevents extravagant spending and gives room for a certain percentage of earnings to be spent on salaries.
It was first introduced in 2013, as LaLiga intends to protect the financial stability of it’s clubs on a long term and in 2020, due to the detrimental impact of the Covid-19 pandemic, the highest cap was reduced to not more than £500 million.
Barcelona, as well as Valencia were the biggest hit teams in the top division, hence they both got around 40 per cent reduction, while the two Madrid clubs took around 27 per cent.
LaLiga’s new economic control rules
Prior to the start of the concluded winter transfer window, the La Liga sanctioned some new economic control rules, aimed at protecting the league by controlling the club’s expenses on the long run.
Some of the rules did not play well into the plans of FC Barcelona and the club is wary that La Liga President, Javier Tebas, who is a known Real Madrid fan has approved the ruling just to limit their growing impact.
Of the ruling, and the one which most affects Barcelona is the one, which concerns the transfer of future income and only counts towards the staff limit up to five per cent of the club’s turnover.
For example, a club sells an asset and assigns future rights for five years, La Liga calculates the sum of all such sales and the sum cannot exceed five per cent of turnover.
The club can exceed that five per cent only by selling assets, but for salary cap purposes, it will only count up to that five per cent. If the club exceeds this figure with the sales, it may use it for other operations such as debt, or stadium renovations.
For instance, a club sells their stadium but it can not continue without having another. In this case, the new ruling does not apply and the club can carry out their operation without having to worry about the Sports Personnel Cost Limit.
How it goes affects Barcelona ?
This means that should Barcelona activate another lever (fifth lever) as they are intending to do in the summer, it will not count for salary cap because all the four activated levers are within the five per cent maximum.
This also means that they won’t be able to use the revenues generated from another activated levers to sign new players as it will not be able to stretch its salary cap.
The four activated levers helped bailed the club out of his financial ruins and a fifth will help them achieve the reduction of wage bill to about €200 million.
Before the start of this season, the activated levers helped the Barcelona achieve a salary cap increment of from negative €144. 353 million, a rise of almost €800m.
The club’s salary cap is now €656.429 million. The departure of top earner, Gérard Piqué will help a lot and should Sergio Busquets depart in the summer, it will become more relieving for the club.
Barcelona returned to the 1/1 rule thanks to the four activated levers, an account which dictates they have to go farther in the Champions League. Their inability to do so following their group elimination will cause them to be surplus again.
This aftermath will cause them to be overstretched again and Joan Laporta knows this. Speaking on the situation not too long ago, the Barcelona president said:
“Barcelona has been able to make great additions this season because it has activated those famous levers of 700 million euros, but in the summer it will be in the situation of 40 per cent, because they are no longer useful,”
The second economic rule enables them go from 25 per cent of what they save (i.e, the 1/4 rule) to spending 40 per cent of what they save or even 50 in some cases.
Another one of the approved rule is the diminishing of player’s worth and how it is calculated henceforth by La Liga.
Let’s say a club signed a player for £50 million on five year contract and such player is due to earn £10 million per annum. After the first year of his contract, he is now £40m.
Should the player then depart in the second year of his contract, and he is sold for £20 million, the club’s has suffered a loss of only £20 million.
However, La Liga in this case will only compute the loss of that year, which is £10 million in this case, because the league does not want to discourage the clubs from selling players whom they did not want to continue at their clubs.
The league has also approved a ruling which only allows player’s wages to only be improved by not more than 25 per cent of what they earned in the previous agreement.
Before in the league, 30 per cent is the maximum increment a player can get if they revew but to prevent instances of signing a player for a salary of four million in the first year in order to initiate a room for him and pay him ridiculous amounts in the following years.
Another new measure is that the repurchase of assets or rights that have counted towards the salary cap will lead to a reduction of the salary cap.
This means if a club sold its audiovisual unit this year that generated an income and it has been computed by the league for salary limit purposes. If that club buys it back the following year, LaLiga will reduce it again from the salary cap.
La Liga is obsessed with controlling every situation in the league but one of the scenarios which will not compute for the purposes of the Sports Personnel Cost Limit is when they sell an asset, which they can not continue as a club without such asset.
A typical example is the stadium, which has been mentioned in the above. The league wants to be in control and this is in a bid to protect the league and clubs, who doesn’t have the spending power of the heavyweights.
To protect the objectives of the wage cap rule, which is to achieve a league that is continuously competitive and protect the clubs from future loses, these are some of the reasons the LaLiga has adopted these rulings.
This might be bad news for the top teams but for those who don’t possess big spending capacity, they are protected by the league and even for those who have the money, this rule protect them from suffering heavy losses in the long run.
Barcelona fans might not be pleased with these developments but they also have to admit and accept that their club was already running risk of accumulating too many loses.
Fans are only concerned with infield performances and the performances of the management in backing the managers and bringing in new players in windows, but LaLiga teams are more compounded than teams in the other leagues.
This part of it fans have to embrace as well because this is part of the bits that come together and makes the LaLiga, the LaLiga.
Author : Kehinde Hassan Afolabi
