Luxury Tax and Competitive Balance in Football – Continued
UEFA president Aleksander Ceferin has renewed his call for a luxury tax system in football. Sports Shorts previously covered the role luxury tax has played in the NBA and the extent to which this could be applied in the game of football in Europe, following similar comments by Ceferin in 2017.
In summary, a luxury tax system would involve the imposition of a cap on the amounts that teams can spend on player salaries (and perhaps transfer spending too) in each season. If a team exceeds the cap, they pay a tax for every dollar, pound or euro spent above the cap. The revenues generated by the tax are then distributed amongst compliant teams who do not exceed the cap.
Luxury Tax is still needed
UEFA has already identified the need to ensure competitive balance in European football, by implementing the Financial Fair Play (“FFP”) rules in 2011. Ceferin is an advocate for FFP but believes there is a need for a more stringent and straightforward system that translates to fairness between teams on the football pitch.
Ceferin’s suggestion is for UEFA to ease up on the FFP rules and focus its efforts on implementing a luxury tax, which would revolutionise the game while protecting competition. The luxury tax system in the NBA has had a positive impact on balancing competition in the NBA.
The crux of the luxury tax system is to require a club to pay a tax, if they exceed thresholds imposed on how much can be spent on wages (for example), into a communal pot, which is then distributed amongst opponents who have not exceeded the limit. Researchers Olugbenga Ajilore and Joshua Hendrickson analysed the effect of luxury taxes on competitive balance in MLB (Major League Baseball) in the USA, and the results suggest that “the introduction of a luxury tax has reduced the competitive inequality of teams”. When discussing the English Premier League, British academic, Rob Wilson commented that “the league is built on the principles of competitive balance and uncertainty of outcome […] it’s the competition that drives interest“.
A long process
Talk of implementing a luxury tax system dates back to at least 2009, with UEFA acknowledging the need to tackle competitive imbalance in football at the time. The possibility of introducing a luxury tax seems to be a longstanding topic of discussion in football, but ultimately it may never get further than being the subject of idealistic conversations. Ceferin claims UEFA is “open to any and all reforms that would serve the good of game” and that “some kind of luxury tax would be do-able“.
There are a number of factors, which could hinder the implementation of a luxury tax in European football. For example, in England, the Premier League’s top clubs have fans across the world and, according to one commentator at least, these fans “just want to watch the top three or four teams rather than the whole league“.
The imbalance in revenue and wage bills is becoming clearer: Brighton & Hove Albion FC reported a wage bill for the year to 30 June 2018 of £78,000,000, while Manchester United reported a wage bill of £296,000,000 for the same period.
For the first time, revenues from the sale of overseas broadcasting rights are being divided according to league position, rather than being divided equally between all member-clubs. This will further alter the dynamic between clubs.
Continued discussions indicate that UEFA are at least seriously considering the idea of a luxury tax. If UEFA do implement such a tax, it could revolutionise the game in Europe, ensuring there is competitive balance in the game, which will ultimately make European football more attractive in the long-run.