I Do Better When You Do Better

You’re only as strong as your weakest link. A timeless philosophy that is still as relevant today as it has ever been. When it comes to sports, its a philosophy that’s been adopted more readily in the United States where the financial model of the sports industry is quite unique. This coming season (2016/17) will be the first in the Premier League under the updated deal for their broadcast rights, £5.1bn from 2016-2019. An absolutely staggering amount by any standards and in contrast to Spain for example, is testament to what can happen when teams work together.

Currently La Liga is the only top flight league that allows teams to individually negotiate their own individual TV deals and the disparity between the highest and lowest earners is 10:1. Consequently this has created the situation where the relegated teams in the Premier League earn more from broadcast revenue than 90% of all La Liga teams. (Only Real Madrid and Barcelona earn more.) Encouragingly the Spanish League are moving towards a collective bargaining TV deal. Latest reports suggest all teams are now in favour, Real Madrid being the last of the hold outs. Any collective bargaining agreement would initially mean less money for them (Real and FCB currently take home 50% of all broadcast revenue in Spain) but thankfully they’ve decided to put the long term health of the league ahead of their own short term needs.

This ideology is akin to what happens on the other side of the Atlantic. So is there anything more we can learn from our American friends, and would they work on this side of the pond?

During the last 50 years the NFL has become the gold standard of sports organisations. For those of you who are interested, this Vanderbilt Research Paper is very well written and gives a detailed picture of the beauty of the NFL business.

Disclaimer: I’m speaking from a purely financial health perspective. The way they have recently dealt with bullying, domestic violence, and other scandals that have come their way means that the NFL has a long way to go before they will be a morally upstanding organisation.

New-England-Patriots

The New England Patriots (shown above) are the most successful franchise in the NFL over the past decade, both on and off the field. So what are the most interesting traits we can learn from American sport?
– Salary Cap
– Player Draft

Player recruitment in Europe and to be fair across the whole football world is very different to the US. Each team generally has their own academy, an international scouting network, and an established method of player acquisition. Given the lack of a “feeder” network, and the absence of a strong university network, or for that matter any established single source of player talent, a player draft (IMHO) isn’t viable for Europe right now. Watch this space though…

dangelo-russell-jalil-okafor-karl-anthony-townD’Angelo Russell (La Lakers), Jahlil Okafor (Philadelphia 76ers), Karl Anthony Towns (Minnesota Timberwolves

A salary cap on the other hand is much more interesting…but what is it?

It’s a fixed annual amount mandated by the governing body which all member teams adhere to. This is used in the NBA, NFL and many major sports organisations in the US. Specifically in the NFL, in 2014 the cap was set at $133m for each team; of which at least 95% of that figure must be contractually paid out to all active players. At the end of each year, any money not contractually paid out is shared between the active players on a teams roster. Incidentally the salary cap only applies to players and not any other franchise employee.

Teams can face huge penalties if they either go over the limit or are found to be gaming the system. Back in 2012 the NFL reduced the combined salary cap of the Washington Redskins and Dallas Cowboys by $46 million for this precise reason. Contrast this with the relative speed tickets given to Man City and PSG when they fell foul of FFP regulations and you can start to see why American sports franchises are generally the gold standard for how to run sports teams.

The intention of the salary cap (and the reason for the sanctions) is to promote competitive balance.

So does it work?

In a word, YES. Within the last 30 years 14 different NFL teams have won the Super Bowl, whilst 25 different teams have made an appearance on the final game day. In the last 30 years how many different teams have won the Champions League or have been finalists? This diversity of competition and success in no way shape or form is solely down to the salary cap, but it can’t hurt; and if the objective of scheme is seemingly being realised then you logically have to acknowledge that scheme has it’s merits. No?

In addition it doesn’t take a maths genius to make the connection between salary caps and financially stable sports organisations. Leeds United under Peter Ridsdale, and Liverpool under Gillette & Hicks couldn’t happen in the NFL. In 2014 NFL teams spent on average 53% of revenue on player costs…in 2013 QPR (non champions league playing, relegation candidates) spent 128% of turnover on player and employee wages!

tony-fernandesTony Fernades (QPR Chairman) could probably do with giving the NFL a call.

 

When people say you’re only as strong as your weakest link then that should be a sobering thought for anybody connected with the Premier League.

So what does this mean for you? Well research shows the cap doesn’t affect the prices charged for tickets and merchandise, but it does affect the way a team keeps and acquires players. On average NFL ticket prices increase 3.1% a year, whilst in the Premier LEague it’s 8.7% (3x the rate of inflation). The lack of a salary cap means we will always have a select group of clubs who are able to offer top wages to the elite players, and consequently it’s these same teams who are there when the prizes are handed out at the end of the season. Ultimately the absence of a salary cap creates an imbalance in the competitive ability of each team and short changes the quality of the product served to us the fans.

In reality a salary cap is much harder to enforce in Europe. The freedom of movement between teams across borders would mean that this would need to be a UEFA level directive. Given their reluctance to even embrace goal-line technology, I’m not holding my breath to see this anytime soon. It would be encouraging to know that policy makers and football regulators thought about the big picture and actively looked at how to make the game more accessible for consumers, sadly this doesn’t appear to be the case.

I never thought I’d say this but maybe we should all become a bit more American!