Many of Europe's football clubs are facing an uncertain financial future: television revenues have nose-dived and the transfer market has all but disappeared. Yet, at the same time, players' salaries have continued to soar. It is against this background that the European football community has been discussing the need to adopt some form of what is seen by many as the most radical form of cost control – salary capping.

The purpose of salary capping is simple. Caps limit the amounts that clubs can spend on players, thereby controlling increases in players’ wages and limiting the risk of clubs spending more than they can afford on players, whilst maintaining the competitiveness of the league. The form of cap currently under consideration by the Football League and by the G14 group of Europe’s 18 ‘elite’ clubs is a scheme in which each club’s spending would be limited to a percentage of its turnover.

Under European competition law an agreement or practice is deemed unlawful if it imposes restrictions on competition in the relevant market and is not given exemption because the restriction is considered to be justified. In the past, the EC authorities have recognised the intrinsic nature and value of sport and have ruled that a UEFA rule will not restrict competition if, without the rule, the various UEFA competitions would lose credibility which, in turn, would devalue the competitions and the clubs and threaten the “very existence of credible pan-European competitions”.

There is, however, little evidence to suggest that a cap in the form currently being proposed would preserve the credibility or value of Europe’s many leagues.

G14 has suggested a cap set at 70% of each club’s turnover. If this type of cap was imposed, although Real Madrid would have to cut their spending to comply with the cap, the cap could have little or no effect on the rest of Europe’s elite clubs. For example, despite their high profile signings and legion of super stars, last season Manchester United only spent around 50% of its turnover on player wages.

In contrast, many smaller clubs gamble in order to compete at the highest level. The average English First Division football club spends 101% of its revenue on players' wages alone. If the proposed cap was introduced, each of these clubs would be forced to slash wages or sack staff to comply with the cap. The position would deteriorate further if revenues continue to drop and some clubs could go out of business in the process.

So, rather than creating competitive balance and preserving the “very existence of credible pan-European competitions”, arguably the very opposite would happen as the effect of a cap would further widen the gulf between Europe’s elite and the chasing pack. Arguably therefore the cap in the form currently under consideration would be a restriction of competition and would not be given exemption, especially as there are alternative courses of action open to clubs to prevent wages from spiralling out of control.

If UEFA is unable to obtain a satisfactory level of support for the proposed cap from clubs, players and unions, it is unlikely that it will make the decision to impose a cap and risk both a strike by players or the scheme being struck down by the competition authorities. If UEFA is unwilling to impose a capping system each national league could impose a salary cap on its own clubs. However, if UEFA is unwilling to impose a cap, the national leagues are likely to be equally unwilling to impose one themselves and have it challenged in the European Courts, especially if the cap risks putting its league at a competitive disadvantage with other European leagues.

Arguably a properly set G14 wage cap could bring down wages throughout football. However, the current proposed cap of 70% of turnover is unlikely to have a significant effect on many of G14’s members and, even if the cap was set at an effective rate, as a gentlemen’s agreement, it remains to be seen how effectively the scheme would be adhered to in what is a highly competitive market place where winning is everything.

Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.