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Graham MacAree | December 19, 2012

Appearance tyrannises over truth

Cost control in the Premier League

The Premier League have announced a 'deal in principle' to introduce new rules designed to control costs, marking the end of an era in which clubs frequently incurred massive losses. But although the time of financial doping is coming to a close, it remains entirely unclear whether the move will make English football any fairer.

Cost control in the Premier League. On the face of it, it's an attractive proposition. One merely has to look at Manchester City, staring at a cumulative loss of nearly £300 million over their past two seasons despite participation in the Champions League and topping the table in 2011/12, or Chelsea, who made their first profit of the Roman Abramovich era last season after a decade of massive spending, to realise that money dominates the English game.

And the heavy spenders who succeed aren't even the worst of it. The lower divisions are a graveyard of clubs who reached for the stars and fell short. Bradford City, the minnows who beat Arsenal in the quarterfinals of the League Cup last week and currently the lowest ranked former-Premier League side, are in League Two primarily because they overplayed their hand in the top flight and paid a hefty price. Portsmouth's overspending has been catastrophic, we haven't seen Leeds United in the Premier League for the better part of ten years and even the likes of Aston Villa have fallen from European grace thanks to an over-inflated wage bill around the turn of the decade.

Seeing of Chelsea and Manchester City leverage their hyper-rich owners into a competitive advantage is thoroughly disheartening for everyone else. Why not strip that away?

So far, the challenge looks straightforward. We should aim to prevent a repeat of Portsmouth, where a club desperate for short-term success spends so much on a fleeting moment of glory that they began imploding under their self-imposed burden almost immediately. We should also try to stop 'suger-daddy' clubs from turning the Premier League into their own little playground. Seeing the likes of Chelsea and Manchester City leverage their hyper-rich owners into a competitive advantage is thoroughly disheartening for everyone else. Why not strip that advantage away?

Tuesday's announcement that 18 of the 20 Premier League teams have agreed in principle to cost-control measures would seem to be a step in the correct direction. Although there's not a concrete plan in place, the BBC is reporting that two schemes are under consideration — a 'break-even' rule reminiscent of UEFA's Financial Fair Play initiative and a cap on the amount that a club's wage bill can increase year over year.

Who were the dissenters? Heavy spenders Manchester City, who lost £98 million last season while winning the Premier League are not a surprise to see on here. But those expecting to find Chelsea, the other major villain on the trophy-buying front, saying 'no' to the proposal will be surprised to see that it is in fact 13th place Fulham protesting against the plan.

Mohamed Al-Fayed — Ian Walton / Getty Images

Fulham are, on the face of it, a club that would only stand to gain from these new regulations. They're not heavy spenders — their wage bill places them comfortably mid-table although they're losing money and reliant on the generosity of their owner, Mohamed Al-Fayed — the windfall that they're about to receive from the Premier League's massively improved television deal, which comes into effect next season, means that they're hugely unlikely to fall afoul of the proposed break-even clause.

And for that matter, why would a team like Chelsea support a cost-control scheme? The West Londoners have a deserved reputation for spending implausible, sometimes even foolish, sums on players in their pursuit of silverware. That their shopping spree has paid off handsomely should make the club even more resistant to attempts to curtail Roman Abramovich's sporadic forays into transfer market madness.

Yet the Blues were key players in pushing for FFP in Europe, and they're clearly not against a similar plan in the Premier League. And that should worry people. If Chelsea support the proposal, it's because it's in their best interests to do so, rather than out of some new-found sense of altruism and sportsmanship.

While 'smaller' clubs seek to level the domestic playing field, the dominant parties will attempt to maintain their advantage at all costs. This is not an unwinnable position — should Liverpool, Manchesters United and City, Chelsea, Arsenal and Tottenham unite in opposition to cost-control measures, they only need one of the smaller clubs (Fulham, in this case) to join them before the proposal gets shot down. But they didn't do this.

*Sale of Highbury flats (£156 million) not included.

Why?

The obvious answer is that cost-control benefits the 'big' clubs as much if not more than the smaller ones. Take the break-even rule, for example. If clubs could only spend exactly as much as they brought in, Table 1 describes how much money would have been available for each Premier League side in 2011, the most recent date for which the Guardian provides detailed figures.

Under a break-even system, the top four clubs (the old big four) are able to spend almost as much as the rest of the league combined. Add Manchester City and Spurs to that list and you have the top 30 percent of clubs spending 60 percent of the league total. Let's imagine a break-even clause was introduced for the 2010/11 season, however. How would it have changed things?

We'll have to make some assumptions for what's essentially a back-of-the-envelope sketch. Let's ignore all other considerations but wages in terms of spending (transfer fees, which should be a major consideration, are out, alas — although it's reasonable to assume that they're closely correlated with wages), and let's assume that if teams follow the break-even rule, their wage bill would be an exact function of their turnover. We can then compare actual spending in 2010/11 with what might have happened in our alternative scenario (see Table 2, which compares each team's share of overall turnover with their share of the total wage burden).

Mid-table and lower sides don't appear to be benefiting at all under the new scheme.

Manchester United and Arsenal are the biggest beneficiaries, with Manchester City and Chelsea hard-hit. But what's fascinating about the above chart is that it shows something very curious happening in the mid-table and lower — those teams don't appear to be benefitting at all under the new scheme. To get a grip on just how much teams might be winning and losing here, it's instructive to take the delta between the 'fair' break-even model, where wage expenditure is 69 percent of turnover in all cases, and what actually happened, then convert the resulting percentage into pounds gained and lost by multiplying it with the overall league spend on wages (£1,355 million).

Table 3, using our admittedly simplistic model, indicates that 13 Premier League teams would have been able to spend less in 2010/11 under the proposed rules than they actually did, including all but one of the 11 lowest income teams in the division. Although Chelsea and Manchester City find themselves losing out big, the former are already taking steps to cut down their wage bill while raising revenue, leaving the defending champions as the only big-spending side to be negatively effected by the break-even scheme.

A sad fact of modern football is that unless one happens to be blessed with a club that's historically been elite, one has to spend money to make money. Only by being an elite side can a club tap into the holy grail of Champions League revenue and major endorsements, and acquiring enough money to break into that elite is fiendishly difficult. No team in the past 20 years has done so without what Arsene Wenger refers to as 'financial doping'.

A break-even rule would mean that the clubs making the most money would be able to spend far more than anyone else. It does prevent clubs shooting up the table thanks to a wealthy benefactor, and it should serve to curb the impulses of certain short-sighted teams that are tempted to spend beyond their means (and it might even reign in Manchester City, at least a little bit), but in doing so it actually codifies the advantage the top sides have over the minnows. It's a tool for maintaining the status quo.

What about the second proposal, one which would allow teams to raise their wage bill by only a fixed amount year upon year? Would that be 'fairer' in terms of preventing stratification? In a word, no. There are hints that the allowed raise would be a percentage of the current wages paid by a side, so let's extrapolate from the 2010/11 figures and assume, say, a 10 percent allowable increase. What happens?

Disparity actually increases with this plan (Figure 1). By the time we're a decade removed from the 2010/11 season, the 'rest of league' figures finally cross £100 million, up £65 million from a starting point of £40 million. But that's nothing compared to the growth the biggest spenders could see — in a geometric progression, one's starting point is everything, and by the time the smaller clubs are carrying £100 million wage burdens the Chelsea and Manchester Cities of the world are pushing the £400 million mark.

Allowing clubs to add some fixed sum (£10 million per year, say) would have zero effect on the wage disparity that exists already, and would actually serve to enforce the current state of affairs even more severely than the break-even rule discussed above. In that scheme, a club which 'lucks' its way into a Champions League spot for a year is allowed to spend that cash on players; a fixed-increase rule would not.

In other words, both plans put up for adoption merely enforce the current state of affairs, stratifying the Premier League as we prepare for the cash injection that the new television deal will bring. This explains why all the top teams save Manchester City, who are still in the process of weaning themselves off Sheik Mansour's riches, are in favour of cost-control — the proposed scheme is a formal endorsement of their place as the giants of the league.

So what's in this for everyone else? Why is it only Fulham protesting about a rule that, on the face of it, will essentially exclude the mid-table and worse sides from ever being able to break into the elite? In pure footballing terms, it makes no sense.

For smaller sides, cost control won't help them compete with the big boys, but it will allow them to make money while giving themselves a ready-made excuse for not spending more.

But football clubs are controlled by owners, and owners by and large want to make money. Starting with the 2013/14 season, money will be pouring into the Premier League at a rate never before seen, and formally restricting wages means that that money can be diverted into other projects. For the smaller sides, cost control won't help them compete with the big boys, but it will allow them to make money while giving themselves a ready-made excuse for not spending more on salaries and transfer fees.

If fans are looking for ways in which this news will make the English game fairer, I might suggest that they'll be looking for some time. The aim from the owners is to make money; the smaller sides save Fulham are comfortable with giving up any dreams of real contention in exchange for being able to turn a profit. Yes, it's being dressed up in the colours of justice, but that's a smokescreen — one which most supporters will fail to see through — for the clubs' true intentions.

For what men say is that, if I am really just and am not also thought just, profit there is none, but the pain and loss on the other hand are unmistakable. But if, though unjust, I acquire the reputation of justice, a heavenly life is promised to me. Since then, as wise men prove, appearance tyrannises over truth and is the lord of happiness, to appearances I must devote myself. Republic, Book 2. 365b

The Premier League has taken Adeimantus' seemingly-wise words to heart. Making a grab for more money while marketing it as a major increase in fairness is brilliant from the public relations perspective. But it remains to be seen whether or not the stagnation these forthcoming rules imply will help anyone but the owners.

About the Author

Graham MacAree

Graham MacAree founded Chelsea blog We Ain't Got No History in 2010 after a life-long love affair with the team, and has headed up SB Nation's Soccer division since April 2011. His specialties include statistical analysis in sports, biomechanics and putting Premier League managers' faces on teddy bears.

About the Author

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Graham watches a lot of football. Sometimes he writes about it, too. British expatriate, Chelsea fan.

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