Salary Caps exist in many commercially successful sports around the world. The most obvious examples are the NFL and NHL in the USA, and the NRL and AFL in Australia, and most recently in Formula 1. In recent years European sport has also grasped the importance of salary caps and/or financial regulation.
As a collective, Premiership Rugby and its clubs led the way in England when they introduced a salary cap in 1999 with the aim of achieving the following objectives in a proportionate manner:
- ensuring the financial viability of all Clubs and of the Gallagher Premiership Rugby competition;
- controlling inflationary pressures on Clubs’ costs;
- providing a level playing field for Clubs;
- ensuring a competitive Gallagher Premiership competition; and
- enabling Clubs to compete in European competitions.
The salary cap was kept under continuous review each year but in 2019 the salary cap was subject to a challenge on competition law grounds to the validity of the Regulations. The Independent Panel, chaired by Lord Dyson, rejected the challenge and in setting out its conclusions, the Panel noted that the salary cap operates in a pro-competitive manner by promoting the system’s objectives. The fact that the salary cap was kept under continuous review by Premiership Rugby and the Clubs was a notable factor in the successful competition law defence.
This landmark decision – which you can read by clicking here – and the Panel’s strong endorsement of the salary cap presented the perfect springboard to undertake an extensive review of the salary cap regulations.
At the end of 2019 Premiership Rugby announced that Lord Myners CBE would lead a comprehensive review of its salary cap. The purpose of the independently-led review was to strengthen further the regulations to ensure that they provide a world-leading system with extensive investigatory powers and appropriately robust sanctions.
The review by Lord Myners included a public consultation, which received over 450 responses, and held meetings with each and every Premiership Club, the RPA and the RFU. All of whom submitted written feedback to his consultation survey.
Following the publication of the report- which you can read by clicking here – by Lord Myners in May 2020 it was announced that all 13 Premiership Rugby clubs supported the recommendations and had agreed to move to the next stage of developing these recommendations into detailed regulation. A further period of consultation was carried out by the Salary Cap Director to help in the drafting of the regulations. On 1 November 2020 the new regulations came into effect.
THE LEVEL OF THE SALARY CAP
The level of the Salary Cap is proportionate and aligned to the growth of the business and is linked directly to the central distributions to the clubs from Premiership Rugby.
For the 2020-21 Salary Cap Year, the level of the Salary Cap is £6,400,000 with the following credits and exclusions:
- Home Grown Player Credits totalling £600,000 (up to £50,000 per player) – designed to incentivise clubs to retain home grown talent;
- EPS/International Player Credits not overall limit but up to £80,000 per player – to cover player absence during international periods;
- Injured Player Credits totalling £400,000 – to allow replacement players to cover for long term injuries;
- Two Excluded Players – their entire salary is excluded from the salary cap;
- Unlimited education fund for players.
For the 2021-21 Salary Cap Year, the level is being reduced to £5,000,000 with the same credits, save for the total EPS/International Player Credits is capped at £400,000. This decision was made in summer 2020 as Premiership Rugby and the Clubs were dealing with the catastrophic Covid-19 pandemic, the effects of which will mean that there will be economic challenges facing the Clubs for many years to come. The effects are being seen in other sports and competitions where their salary caps have been reduced for the same reason, examples include the Top 14 (French Rugby), AFL (Australian Rules Football), and La Liga (Spanish Football).
HOW DOES THE SALARY CAP WORK?
In professional sports, a salary cap is an agreement or rule that places a limit on the amount of money that a team can spend on player salaries – in Premiership Rugby it is a total squad spend and not a restriction upon individual Salaries.
The Salary Cap Year runs from 1 July to 30 June and a Club’s Senior Salary Cap Spend for a Salary Cap Year is calculated by adding up any Salary that was Paid to Senior Players; and then deducting: (a) any Excluded Salary Paid to Senior Players; and (b) a sum equal to the value of the Senior Salary Credits that a Club is entitled to.
There are three types of “salary”:
- Permitted – this includes items such as wage, bonus, image rights, employer NIC, termination payments. The full list is set out in Schedule 2A of the Regulations and are all counted in a Club’s salary cap calculation.
- Excluded – this includes items such as money paid in respect of international rugby fees paid by the club, education, sponsorship that is pre-approved by the Salary Cap Director. The full list is set out in Schedule 2B of the Regulations and are not counted in a Club’s salary cap calculation.
- Prohibited – These are items that are not Permitted and not Excluded. A Club and/or a Club’s Connected Party must not pay Prohibited Salary. If they do the full amount will be counted in the Salary Cap and the Club shall be charged with breaching these Regulations. An example would be a player entering into an arrangement with a Club owner or shareholder.
HOW IS IT MANAGED?
The Salary Cap Director, who is independent of the Clubs, is responsible for all aspects of the operation of, and ensuring compliance with, the Regulations.
On-going monitoring and investigations
Throughout the year every Premiership Rugby Club is required to submit to the Salary Cap Director within 14 days of signing full copies of all Contracts and arrangements for playing (employment) and non-playing (e.g. image rights) services. Items such a Player Sponsorship and Testimonial events need to be pre-approved by the Salary Cap Director. The Salary Cap Director has the ability to investigate at any time any arrangement between a Player (and/or their Connected Party) and a Club (and/or their Connected Party). There is also a formal whistle blowing policy.
- Every year each Club must provide a Declaration (forecast) of its Salary Cap Spend for the coming year and a Certification of its actual Salary Cap Spend for the previous year. These are signed by the Club Chairperson, CEO, CFO, Director of Rugby and Club’s nominated Salary Cap Officer.
- Every year each Player must provide a Declaration for the coming year of expected income and other relevant details, and also a Certification at the end of the year to confirm what they actual received.
Each year a firm of independent auditors will carry out the Annual Audit on each Club in accordance with the Regulations. The audit results are presented to the Board of Premiership Rugby and shared with each Club.
Each year the champion club will be given an extended audit (unless they were given an Extended Audit in the previous year in which case another club from the top 4 shall be selected). This is Extended Audit is more forensic and includes reviewing of emails and text/whatsapp messages of club officials, tax returns and bank statements of at least 50% of players, plus any additional action that the SCD considers appropriate.
BREACHES OF THE REGULATIONS
Exceeding the Salary Cap
Where a Club exceeds the Salary Cap above the Overrun threshold of £200,000 an Independent Disciplinary Process managed by SRUK will appoint an Independent Panel who have the power to:
- Issue a points deduction of 50 points (entry level, discretion to increase or decrease);
- Issue a severe financial penalties based on the size of the breach by a club
- Relegate the Club;
- Remove titles and/or trophies;
- Order return of prize money.
Failure to Co-operate
Where a Club is found, by an Independent Panel, to have failed to co-operate, the sanctions available to a Panel are the same as if a Club were to have exceeded the Salary Cap.
Where a Club is found, by an Independent Panel, to have paid a Prohibited Payment, the sanctions available to a Panel are the same as if a Club were to have exceeded the Salary Cap.
For general breaches of the regulations (e.g. late submission or failing to attend an interview) there are fixed penalties, known as Summary Sanctions, and these can be issued by the Salary Cap Director without going to a Panel hearing.