
The idea of a "soft" wage cap in the Premier League was looked at in an article yesterday, whereby wages would be capped as a percentage of club's turnover. As promised in that article, this article would look at the effects of imposing a "hard" wage cap in the Premier League. A "hard" wage cap would be one where for example Premier League clubs cannot spend more than a certain amount on wages, with that amount being a fixed one and strictly set. The same clubs who were looked at in the analysis of a "soft cap" will be used for this analysis. As a reminder, these are the wage bills each of the 14 clubs had during the 2018/19 financial period.

As can be seen from the above graphic, in total, these clubs spent roughly £2,455m in wages, with an average of approximately £175m per club. If the Premier League had to set a wage cap of for example £120m, which would be a "hard cap", the wage bills for each club would be as follows. (Note: for those clubs who already had wage bills below £120m, the same figures as in their accounts will be used)

As can be seen from the graph above, 9 out of the 14 clubs would have had to lower their wage bills in order to comply with this cap. A "hard cap" would have the effect of significantly reducing wages in the league. In total, wages would fall from £2,455m to around £1,494m with the average for each club falling to around £107m - a sharp drop of around 39 percent. Furthermore, the gap between the clubs with the highest and lowest wage bills would sharply decrease if a wage cap were put in place. This would also have a big effect on wages to turnover, with the ratio falling from around 62% to now around 38%, an extremely sharp drop. The below graphic shows the wages to turnover ratios each club recorded, with the one immediately below it showing how these would change with a wage cap of £120m.


Clearly, one can see that many clubs would see a fall in the wages to turnover figure. However, with a "hard cap" of £120m on wages, there would be a significant difference between the clubs with the highest and lowest wages to turnover ratio, as now Manchester United would have a wages to turnover of merely 19%, whilst AFC Bournemouth's ratio would remain the same at 85% given that they would not have exceeded the £120m wage cap. It is no coincidence to note that the five clubs from the 'big six' (Arsenal, Chelsea, Liverpool, Manchester City, Manchester United and Tottenham Hotspur - who have not been included) would have extremely low ratios, given that they generate extremely large amounts of revenue. That said, there is a key assumption that revenue would remain the same, which would probably not be the case in practice, though the effects of this would be hard to truly quantify.
It should be noted, of course, that a wage cap of £120m would inevitably affect clubs' operating profits/losses. The two graphics below will show firstly clubs' operating profits/losses actually recorded last season, with the latter showing how these would change with a cap of £120m on wages.


One can clearly see that a wage cap set to £120m would have resulted in 3 more clubs making an operating profit rather than a loss, with these clubs being the 3 of the 'big six' who had made an operating loss, since they would have to sharply reduce wages. In the 2018/19 financial period, the 14 clubs on average made an operating loss of £36m. Under a wage cap set at £120m, now clubs would make an operating profit of around £33m on average, though this figure must be analysed extremely carefully. This sharp swing from an operating loss to an operating profit, would mainly be influenced by the fact that the five clubs from the 'big six' would have to sharply reduce their wage bills in order to comply with the wage cap, and thus it would be a case of these 'bigger' clubs who see the larger increases in their profits. In reality, aside from the three clubs of the 'big six' who made an operating loss, most of those clubs would have anyway complied with this wage cap. However, it should be pointed out that West Ham United, Leicester City and Everton would have seen considerable reductions in their operating losses given that they did have fairly large wage bills.
Also, a "hard cap" of £120m on wages, would inevitably affect clubs' profits before interest and tax. The following two graphs show the actual profits/losses before interest and tax that the clubs recorded and how these would change with a wage cap of £120m.


In the 2018/19 financial period, six out of the 14 clubs made profits before interest and tax, with clubs on average making a loss before interest and tax of £13m. If a wage cap of £120m were to be put in place, 3 more clubs would have made a profit before interest and tax, with these being Arsenal, Chelsea and Leicester City. Clubs would now, on average, be making a profit before interest and tax of £56m. Despite that, this is heavily influenced by the fact that Manchester United, Liverpool and Manchester City would all be making profits before interest and tax in excess of £200m.
Conclusions
From the analysis above, it can clearly be seen that a "hard cap" on wages would clearly have the effect of causing player wages to fall significantly. Those who argue in favour of a "hard cap" on wages would claim that it would have the effect of "levelling the playing field". Now this may be true to an extent, as it would probably be more effective in lowering player wages and in order to try and "level the playing field" than a "soft cap" would, as wages would be more or less equal throughout and there would be less of a gap between the highest and lowest spenders on wages.
However, it should be noted that the argument of a "level playing field" has its limitations. In reality, even if say (with every due respect) Cardiff City could afford to sign for example Kevin De Bruyne on wages of e.g. £30,000 a week, if he were offered a choice between joining Cardiff or for example Manchester City, in reality it is highly unlikely that De Bruyne would opt to join Cardiff over Manchester City, despite being offered equal wages - meaning that players would still inevitably prefer to join the bigger clubs (if given the choice, of course) and it would probably take time for smaller clubs to properly catch up to the so-called big clubs.
Also, it is possible that a "hard cap" on wages may potentially encourage TV companies to try and pay less money when it comes to broadcast deals, and thus clubs' turnover may end up falling together with wages. That said, if for example Sky opted to bid less for TV rights, it may encourage other companies such as Amazon to bid more as it might be more affordable to them, and this might lead to a bidding war for broadcasting rights, therefore, in practice it might not necessarily be the case that TV rights would drop, and in fact there is even an argument to be had that they might increase further still. Additionally, if a "hard cap" were to be imposed, given that some clubs would incur considerably less costs in wages - there may be the possibility that they reduce ticket prices for fans and thus a "hard cap" could be beneficial even to consumers (i.e. match-going fans), though whether this would play out in practice remains to be seen and is debatable, to say the least. A key point to note, is that whilst a "hard cap" does reduce costs which would improve profitability of clubs, the reality that a "hard cap" is more effective at reducing player wages than it is at enhancing profitability of clubs. On the other hand, a "soft cap" would probably be more effective at helping clubs' profitability as wages would be adapted better to clubs' turnover. Critics of a "hard cap" might even argue that reducing the wages of big clubs might just help them make enormous profits, and potentially expand the gap to smaller clubs. As with a "soft cap", there also lie questions about enforceability.
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