Failure of EFL salary cap points to need for cooperation and pragmatism

Will efforts to implement cost control measures continue in 2021?

Last month, an independent arbitration panel determined that the English Football League (EFL) breached its legal obligations when planning to introduce a new salary cap in League One and League Two back in August 2020. The newly proposed, yet ultimately short-lived, salary cap regulations can now be added alongside Project Big Picture to a growing list of failed English Football proposals. With the recent appetite to reform technical parts of the game, where does this leave financial reform and will efforts to implement cost control measures continue in 2021?

Need for cooperation and consultation

The panel ruled that the EFL was in breach of the Professional Football Negotiating and Consultative Committee's (PFNCC) constitution by failing to consult or agree its proposals with other PFNCC members. While co-operation and consultation isn't a guarantee for success, it is a critical step in obtaining a buy-in, so serious reform can't be achieved without it. Consulting all stakeholders - both within and outside the game - can also be a safeguard against self-interest, with Project Big Picture proposals also falling victim to a lack of consultation across the game.

Equally, external stakeholders should be considered and consulted within football, as well as other sports and the wider corporate world. In Germany, the Deutsche Futball Liga (DFL) Executive Committee has set up the "Future of Professional Football" task force which sought the views of experts from sport, science, politics and business to oversee ongoing efforts in securing financial sustainability across the sport.

Cost control measures are not a new concept and already exist in sports such as the NFL, rugby and, more recently, Formula 1, and therefore football can look to existing frameworks when formulating regulation. Although caution must be exercised to ensure financial regulation is fit for purpose, noting that there is not a 'one-size fits all' approach. The NFL, which operates a hard salary cap, does not operate a tiered promotion and relegation system, with certain revenues centralised and shared equally amongst all teams. In contrast, the risk and rewards in football provide conditions where a hard salary cap is unlikely to succeed.

Financial regulation is only part of the solution

The collapse of Bury and Wigan Athletic demonstrate that any reforms need to encompass a framework that goes beyond tightening financial regulation. Cost control measures alone will not prevent clubs from mismanagement of their finances and therefore stronger due diligence, measures such as monitoring and oversight on club takeovers and a club's internal controls, need to be considered.

A steering group called 'Manifesto for Change', formed of former football players, executives and politicians, have called for wider reforms. These include creating a new independent regulatory body which would oversee the redistribution of funds, implementing a club licensing system, reviewing the causes of financial stress and liaising with internal and external stakeholders. These suggested reforms are included within a new Football (Regulation) Bill which has been brought forward by Helen Grant MP. The non-disclosure of the panel's reasons behind their ruling against the EFL only adds weight to Manifesto for Change's argument that greater transparency is needed across the game.

Prior to Covid-19, clubs were struggling to ensure revenues matched the pace of ever-rising costs and now questions are being raised as to whether funding is fairly distributed across the football pyramid. These reasons alone, amongst many others, indicate that the debate around cost control measures will continue into the rest of 2021. It is clear that the immediate focus on stakeholders' minds will be minimising the disruption of Covid-19. However, there is now a clear opportunity for co-operation and pragmatism in football to prevail by redefining governance, oversight and monitoring procedures to secure the long-term financial and strategic future of 'the beautiful game'.

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Matthew Coomber, an Associate on FRA's Forensic Accounting team, is also contributing author to this article.