Salary caps and competitive balance – fact or fiction?

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Salary caps as agents of competitive balance sound great in theory. All teams strictly regulated to spend the same amount of money must be a sure fire way to achieve equality across the board, right? Apparently, it’s not so simple. Studies have shown that a salary cap has little to no bearing on competitive balance. Of course the structure of a salary cap can differ from league to league but for most people the concept which springs to mind is the ‘hard’ cap and this is close to what the A-League has.

A hard cap is a set level of maximum spending allowed which is not allowed to be exceeded at all but in the A-League an exception is made for Marquee signings. The National Basketball Association (NBA) is a high profile league with a salary cap yet only 8 different champions in the last 30 years. However their salary cap is a ‘soft’ cap which allows teams to spend over the cap as long as they pay a luxury tax which is distributed around to the other teams. There are also allowances such as the ‘Larry Bird rule’ whereby teams are allowed to re-sign their own eligible veteran free agents despite being over the cap.

Major League Baseball (MLB) on the other hand with no cap has more competitive balance than NBA with eight different world champions in the last twelve seasons. The National Football League (NFL)- the most competitive balanced league in American sports – has huge rosters, a low number of regular season games and a playoff system that is not a ‘best of’ series. These factors rather than a salary cap make it almost impossible to hoard the best talent to one team while allowing for more chances of ‘upsets’ by underdogs. If the playoff system were removed from sports and they all used a first past the post system then we could more effectively judge how even a competition the NFL truly is.

The American sports are not the best to use when looking at the situation with leagues of the global game though as the NBA, MLB, NFL, and National Hockey League are all clearly the dominant leagues in their sport and thus attract the best talent from around the world, which with limited places would mean talent is more evenly spread.

Football is played across the globe as the major sport in most countries meaning the talent pool is sizeable and employment options so varied depending on each player’s ability. This means scouting and coaching expertise come to the fore even more so to ensure a squad is assembled which can be competitive.

The English Premier League – arguably the biggest football league in the world – in a case study was shown to have less of a gap between standard of play than the major US sports, not that this is attributed to having no cap but by virtue of not having one it doesn’t seem to affect competitiveness. The threat of relegation incentivises teams to use their resources to be more competitive whereas in a closed system ‘tanking’ has been known to happen as teams look beyond the current season, whereby poorer win/loss records equate to higher draft picks and theoretically better players for the following year.

It is clear the Premier League title has become a three or four horse race in recent years but on game day even the bottom clubs have a chance to earn a point or defeat the top clubs despite massive differences between expenditure and wages. Now the argument that Australians aren’t interested in leagues which may be unfair or see sides dominate due to things such as no salary cap is flawed. There is no evidence to suggest fans only support teams if they have a chance to win the league.

The higher interest of Australian football fans in European leagues over the A-League is testament that dominant teams don’t bother us as much as we suggest. Central Coast Mariners and Gold Coast United are just two examples of teams domestically that despite onfield success have not seen it translate to overly impressive crowd figures. Conversely it will be interesting to see how Western Sydney’s attendances are affected if they continue to struggle as they have in the current season. Performances and a perceived lack of effort may see fringe supporters drop off but brand loyalty in sport is much stronger than in regular commercial industries.

There is an argument to be had that overseas fans of sports with no geographical link to a team are more likely to follow the most successful teams. Manchester United and Barcelona’s popularity around the world attest to this but one could argue that Liverpool buck this trend as they haven’t won a title in the Premier League era yet are still extremely popular worldwide.

Domestically though geography rules. If it didn’t then why not just have five Sydney teams and five Melbourne teams? Assumptions are often made that no salary cap would be disastrous for clubs financially. This is true if club management are incompetent and short-sighted. When a football department or owner lack football nous or expertise, throwing money into the team seems the best way to compensate for this. Salary floors however do encourage clubs to overpay players because they must meet the minimum requirement. Why have a minimum salary if its against the rules to pay every one the minimum? If we were so concerned about teams overspending than removal of the salary floor should be on the agenda before retaining a cap.

Our regional neighbours the J-League and K League have no cap and their average income is not much more than players in the A-League. In J1, the Japanese first division, you still have clubs coming up from the second tier J2 and winning titles within a year or two despite giants like Urawa and Kashima spending much more on wages. Sanfrecce Hiroshima have an A-League-like budget yet won back to back titles in 2012 and 2013. It’s too easy to look at the championship races in Spain, England, and Germany to say “look what happens when there’s no salary cap” but that’s ignoring the vast majority of leagues in the world. It’s also ignoring more important factors such as expertise of the football department, quality of coaching, scouting network, and the market-size of a club.

In Australia and Asia, the talent pool within individual countries and the limit on visa signings are sufficient barriers in themselves to restrict clubs from building dynasties based on salaries alone. Theoretically could Melbourne Victory buy the best two local players in each position? Yes. Is this realistic? No. It’s not realistic because of factors such as top players having national team selection incentives to be playing week in and week out, as well as the draw for elite players to play in Europe or move to bigger Asian leagues for more money. A fringe national team player would not choose to sit on the bench for relatively less money than they could make elsewhere.

The final argument against the cap comes from the A-League itself, the marquee system. The fact a club can pay two players (an International and Australian marquee) whatever they like outside the cap negates any idea of protecting clubs from overspending. Why doesn’t every club utilise the marquee system with signings like we see in the Chinese or Qatari leagues? Because they can’t afford it and the teams know spending $10 million per season on Tim Cahill for example would send them broke rather than to the top of the league. Seeing as though no team this year has a big name suggests that owners and teams are more financially prudent than given credit for.

Adam Howard

Adam is one of the founders of Football Central and the creator of OSAussies.com.  He has followed the career paths of Australian footballers playing in leagues all over the world.  Born in Adelaide and currently residing in Hiroshima, Adam brings a unique perspective to Australian football.  He is an ardent supporter of Australia's domestic competition and national team.

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