EFL fears new wage war after salary caps were scrapped following PFA legal action

EFL clubs are braced for a new ‘arms race’ when the transfer market reopens in June after salary cap rules were thrown out, and club chairmen are divided over what to do next.

The cap limited spending in Leagues One and Two in an attempt to prevent clubs over reaching themselves in a bid to buy promotion.

The aim was to stop more clubs, like Bury and Macclesfield, going out of business in leagues where money was tight even before the coronavirus pandemic.

The Professional Footballers’ Association objected to the salary caps in Leagues One and Two

In Leagues One and Two, 36 out of 48 clubs posted losses in 2019, with League One clubs losing £46m in total and wages while wages were at 81% of clubs’ turnover, according to the University of Liverpool football finance expert, Kieran Maguire.

And club chairmen were split over how to proceed when the matter was discussed at EFL meetings this week.

‘The fear is without proper regulation there could be an arms race in the transfer market,’ said one club official.

‘Under the previous rules we had clubs in real difficulty and there needs to be something better than that. We are back to finding a solution, but there is no solution on the table.

Sunderland paid more in wages than any of the  League One sides in 2019, says Kieran Maguire

‘We have to do something quickly. It needs to be before the June transfer window.’

There is frustration at both the PFA, which scuppered the caps, and the EFL, who some chairmen believe needs to show more leadership.

The caps were introduced after the coronavirus hit clubs’ finances through the absence or fans and commercial revenue and forced the season to be curtailed in the lower leagues.

To reduce costs the clubs voted last summer to introduce the salary caps of £2.5m in League One and £1.5m in League Two for 2020/21. As a result, clubs had to submit a playing budget that included basic salaries and agent fees, as well as estimates of what bonuses would be paid for wins, goals and clean sheets.

Charlton Athletic also racked up a big wage bill in 2019, according to Maguire

While the caps offered some protection from financial collapse they prevented clubs that can command bigger gates, and attract greater sponsorship and commercial income, from realising their competitive advantage.

Portsmouth chief executive Mark Catlin said the salary cap had been a ‘blunt instrument’ and paid no regard to the differing size of clubs in the third and fourth tiers.

‘We have been the biggest advocates of self-sustainability in football clubs but the salary cap in its current form just levelled the playing field, it did nothing in our opinion to address sustainability within clubs,’ he said.

‘You have smaller clubs where the owners would still need to be putting in £1million-plus to get to the salary cap, but you had some of the larger clubs that could afford a lot more but were not able to put that on to the pitch.

Portsmouth chief executive Mark Catlin described salary caps as a ‘blunt instrument’

‘We always said that was wrong, it went away from the model of self-sustainability which we believe is what we should be working for.’

The PFA, through the country’s top sports barrister, Nick De Marco QC, argued successfully that the caps had been introduced unlawfully.

In the absence of the salary cap, the EFL has fallen back on its original rules, known as the Salary Cap Management Protocol.

This restricts wages to a percentage of income, but the rules prevent owners lending the club money and withdrawing it at a later date.

Club chairmen fear other clubs may be forced into administration, like Bury in 2019

Broadly, in League One only 60% of revenue can be spent wages, and in League Two it is 50 percent.

However, critics point out that this scheme didn’t prevent previous financial disasters.

In 2019, Bury were the first team to be expelled from the English Football League since Maidstone in 1992 and the club is now in administration. 

‘They are trying to stop the crazy approach to football but this is not going to do it. This was in operation when Bury went bust and it didn’t stop that,’ said another club official.

Absence of fans has piled pressure of on EFL clubs heavily reliant on matchday income

‘What has the EFL learned from that situation? They tried to deal with it by introducing a salary cap, but they now need to look at it again.

Some chairmen are annoyed at the EFL leadership because they believe the PFA’s objection to limiting players’ wages predictable and inevitable.

The next step will almost certainly be for the EFL to negotiate with the PFA over a more workable system.

Chairmen have told Sportsmail the underlying issue is to not to restrict spending, but to find a way of ensuring that owners can afford to wage bills they are taking on. And not only for the season ahead, but for the duration of the players’ contracts.

In the meantime, the old rules prevail. and even though they are imperfect, they will continue to put a brake on spending, particularly in the current financial climate.

PFA chief executive Gordon Taylor has welcomed the withdrawal of salary caps

‘Yes, Bury went bust,’ one chairman told Sportsmail after the meeting. ‘But without any rules there could have been more. The rules helped.’ 

The PFA welcomed the independent arbitration panel’s judgement that led to the withdrawal of the caps, saying it wanted to work with the EFL and clubs to ensure financial stability.

PFA Chief Executive, Gordon Taylor OBE said: ‘We were disappointed that the EFL decided to introduce salary cap proposals, which were voted through without the proper consideration or consultation.

‘As a result, in August 2020, the PFA served a Notice of Arbitration on the EFL stating the introduction of the new rules were in breach of obligations under the constitution of the Professional Football Negotiating and Consultative Committee. We are pleased the panel upheld the PFA’s claim.’