Sporting Markets

The Free Market And The Salary Cap

T. G. George

IN THE ECONOMICS CLASS of the great Mr Wells, you are taught to assess the advantages and disadvantages of the market-based economy compared to a planned economy. The freedoms of the open market that invite effective allocation of resources, or the intervention of the government that provides fiscal support and … you’ll get the gist come Year 11 economics.

I’d like to focus on a different discussion of markets. The two defining markets of the sporting world.

Free market

In both sport and economics, you never quite achieve a completely free market. The closest thing we’ve got is in football. I will specifically look at the English Premier League (EPL).

In the EPL, the amount teams can spend is essentially limitless. For most clubs, the only preventing factor is the price of oil. However, even if the pumps are overflowing, these clubs do not have complete liberty. There is Financial Fair Play (FFP), which forces clubs to pay transfer fees, salaries, and tax bills on time. This bureaucratic framework consists of other rules, such as caps on wages, transfers, and agents’ fees at 70percent of revenue. This may seem restricting, yet within this structure, teams like Chelsea can spend over £1 billion on transfers… in a single year. Even if FFP does come scratching at your neck, a strong legal team can brush them off – just ask Man City.

Manchester City FC

Salary cap

The salary cap in the sporting world is, in a way, a socialist approach. If not already implied in the name, a salary cap is where a limit is placed on how much a team can spend on players. The paragon of salary caps in sports are the top US sporting leagues, such as the NBA, NFL, and NHL. Other sporting leagues, such as the NRL, operate under this system, but with a cap of around $10 million, compared to $224 million in the NFL. Nonetheless, the principle is the same, where the economic power to entice players is equal, and higher revenue teams cannot achieve an oligopoly.

Johnny Manziel Money Celebration

So, which is better?

Before I compare the two, it is worth noting that a league like the EPL, or all of European football for that matter, would be highly unlikely to introduce a salary cap. If it were to be enforced within a singular league, such as the EPL, the top players would simply be lured by the lucrative contracts offered by large clubs in La Liga, Bundesliga, Serie A, or even the Saudi Pro League. This would decrease the quality of football in the EPL, making their clubs less competitive in UEFA competitions and hence eliminating the largest cultural export for the UK. On a worldwide scale, a salary cap would be a logistical nightmare, with the contracts of thousands of registered professionals having to be monitored.

Football Leagues on a European Map

The obvious advantage of the salary cap system is the equality between teams. There is a level playing field where even small market teams from Green Bay, Wisconsin, can compete with teams from New York City. In contrast, in the EPL, you have the ‘Big 6’, which consistently poach the top talents from less financially secure clubs, seemingly preventing any chance at competition. Even within this Big 6, there is a depletion of competition, with Manchester City being champions five of the last six seasons. Since 1992 (the inaugural EPL season), there have been sixteen different teams to win the Super Bowl, and only six different teams to be crowned champions of the Premier League. Evidently, the competitiveness of leagues operating a salary cap is superior, inciting the excitement, unpredictability, and contest that makes sport so enjoyable.

Of course, it would be unfair to dismiss the intense and exhilarating competition of the EPL, which is also enhanced by things such as a relegation system, an entirely new discussion in itself. The absence of a salary cap has been an incredibly fruitful and prosperous system for European football. However, based on the competitiveness that the salary cap brings, my verdict is that it is the better sporting market system.