League One and League Two “Squad Salary Cap” – All you need to know

“Squad Salary Cap” has to turned into one of the keywords in the mouths of League One and League Two club fans. So, here is a comprehensive guide to answer most of the questions one might have about the concept.

What is “Squad Salary Cap”?

League One and League Two Clubs have agreed to implement the new measures to replace existing Salary Cost Management Protocols (SCMP) from August 7th, 2020.

The Caps have been currently fixed at £2.5million for all League One clubs and £1.5million for League Two Clubs.

Squad Salary Cap has been a subject of a lot of debut around the football circles over the past few years with clubs like Bury, Bolton, Morecambe, and many others frequently featuring in the news due to the inability to fulfill financial commitments.

Worldwide Pandemic has made the debate even louder and in March following the UK government’s call to shut all sporting events, clubs started discussing to enforce it in June.

A looming season without fans forced many of the clubs who were against the Squad Salary Cap to change their minds.

According to reports 22 out of 24 League Two clubs were in support of a cap, with just two against in today’s vote.

What does the Squad Salary Cap cover?

The Squad Salary Cap that came into effect covers all of the expenses a League One or a League Two bears for a player to play in League Matches

That includes the following

  • basic wages
  • taxes
  • bonuses
  • image rights
  • agents’ fees and
  • other fees and expenses paid directly or indirectly to players

What Squad Salary Cap doesn’t cover?

Squad salary cap doesn’t cover the following

  • Bonuses linked to a Club’s progression in cup competitions
  • Bonuses linked to the promotion

What happens if a player goes out on loan under Squad Salary Cap?

Any income generated from a player going out on loan is deducted from the Club’s Salary Cap calculation.

How is Squad Salary Cap calculated?

The cap covers the entire squad wages, taxes, bonuses, image rights, agents’ fees, and all other expenses and is calculated on a real-time basis.

EFL will verify and prevent clubs from signing players that would see them breach the restrictions.

In case a Club goes over the cap (£2.5m for League One or £1.5m for League Two) then they will be punished.

How do Squad Salary Cap fines or sanctions work for League One?

EFL has created a concept of an ‘overrun’ till the total squad salary payments exceed the Cap by up to 5% (£125,000) and clubs will be fined according to the amount of overrun.

This fine is named as “luxury tax”.

Overrun is currently classified into 3 categories.

Zero to Two percent (£1-£50,000)

For every £1 over the cap the club will have to pay a luxury tax of 50p.

Example: If a club currently has a Squad Salary Cap of £2,549,999 then they are £49,999 over the cap and they will have to pay £24999.5.

Two to Four percent (£50,001- £100,000)

For every £1 over the cap the club will have to pay a luxury tax of £1.

Example: If a club currently has a Squad Salary Cap of £2,575,000 then they are £75,000 over the cap and they will have to pay £75,000.

Four and Five percent (£100,001- £150,000)

For every £1 over the cap the club will have to pay a luxury tax of £3.

Example: If a club currently has a Squad Salary Cap of £2,650,000 then they are £150,000 over the cap and they will have to pay £450,000.

Above Five Percent

If squad salary cap exceeds by 5% then it is considered a breach and EFL have set sanction guidelines in place to consider appropriate punishment.

An independent Disciplinary Commission will determine the punishment according to the rules set in place.

The EFL has also said there will be serious consequences for intentional misconduct.

How do Squad Salary Cap fines or sanctions work for League Two?

The same concept of ‘overrun’ will be applied to League Two clubs in a similar way mentioned above. 5% would equate to £75,000 in the case of League Two as cap here is £1.5million.

Zero to Two percent(£1-£30,000)

For every £1 over the cap the club will have to pay a luxury tax of 50p.

Two to Four percent (£30,001- £60,000)

For every £1 over the cap the club will have to pay a luxury tax of £1.

Four and Five percent (£60,001- £75,000)

For every £1 over the cap the club will have to pay a luxury tax of £3.

Above Five Percent

Club will be forced to face sanctions according to the sanction guidelines.

What is luxury tax according to Squad Salary Cap?

The EFL has termed the fines collected from League One and League two due to the overrun of their cap according to Squad Salary Cap as ‘luxury tax.’

The luxury tax (total amount of the fine) will be redistributed to clubs who comply with the restrictions.

How will Squad Salary Cap affect the players who are currently on huge contracts at League One and League Two clubs?

Existing contracts for players will be included as part of the squad salary cap and players will not be forced to take cuts.

The total contribution of individual wages of contracts exceeding cap and signed before August 7th will be capped at an amount agreed by all the clubs in the division.

Such players will be termed as Committed Contract Salary Cap Players, their contracts will be termed Committed Contract Salary Cap in EFL regulations.

Example: If all the clubs in a division agree to set £91,000 per year(reported amount for League One) in wages as the upper limit then any player contracted to their club prior to August 7 who is paid more than £91,000 per year that amount will see only £91,000 per year of their weekly wage count towards the squad cap and such player will be termed Committed Contract Salary Cap Player under transition agreement.

Are there any provisions for Under 24 players under Squad Salary Cap?

Clubs in both League One and League Two will agree on a fixed contract contribution amount on contracts of players under the age of 24.

This amount will determine the amount contributed by Under 24 player to the overall cap.

Example: If clubs in League One agree on a £50,000 per year contribution cap for Under 24 players then the contract value of any under 24 players earning more than £50,000 will be valued as £50,000 while calculating Squad Salary cap.

Are there any Squad size limits in place?

League One and League Two clubs will be limited their squad size to 22 players for the 2020/21 season.

This will be reduced to 21 and 20 in subsequent seasons (2021/22 and 2022/23 season respectively).

Players aged under the age of 21 are exempt from these restrictions.

What happens to clubs Relegated from Championship or League One under Squad Salary Cap?

The squad salary cap will apply immediately to any club relegated from the Championship or League One. This includes 2020-21 season.

Relegated clubs will also see existing player contracts covered by the Committed Contract Salary Cap Players rules.

This will give breathing space for clubs relegated from championship like Charlton Athletic, Wigan Athletic, and Hull City.

Will Squad Salary Cap increase in the future?

The level of the Squad Salary Cap will be index-linked to reflect changes in domestic broadcast revenue. So, Yes and No depending on the increase or decrease in broadcasting revenue.

Will Championship also implement Squad Salary Cap?

The EFL has confirmed that discussions between clubs in Championship are ongoing and the clubs will have their own discussions over controls.

According to reports, there are currently no formal plans for a vote on the subject yet.

EFL statement regarding Squad Salary cap

The term ‘salary cap’ is an emotive one, creating the impression of a restrictive measure but we are clear in our view that this is neither the objective nor the likely effect of these changes to EFL Regulations. The financial impact of Covid-19 will be profound for EFL Clubs and today’s vote will help ensure Clubs cannot extend themselves to the point that could cause financial instability.

Over the last two weeks, the discussions amongst Clubs in both Leagues One and Two have been healthy and constructive, allowing us to reach a clear consensus today and I am pleased that the Clubs have determined to adopt the new approach. We will now work with all Clubs, the PFA, and, where appropriate, other stakeholders to implement the new rules and continue our efforts to bring long-term sustainability to the EFL.

You can read the full EFL statement by clicking here

Professional Footballers’ Association Statement

We are disappointed at the outcome of today’s votes. The EFL has ignored its legal obligation to consult with the PFA and the PFNCC. As such, the legal advice we have received is clear that the salary cap envisaged by the EFL would be unlawful and unenforceable.

The PFA has already served its Notice of Arbitration on the EFL and until such time that arbitration is determined one way or another the new regulations should have no effect.

While we share the league’s commitment to protecting the long-term sustainability of the Leagues, the salary cap proposals voted on today have been rushed through without the proper consideration or consultation.

Arguments for Squad Salary Cap

  • Fan groups can now force owners to decrease ticket prices.
  • This will lead to a competitive League.
  • Clubs can now sustainably build infrastructure and invest in quality staff (playing and non-playing) so long as their revenue is above 2.5 million and 1.5 million for League One and Two respectively.
  • Under 24 player contributions will force clubs to give youngsters a chance.
  • Teams with small/medium popularity will be huge winners.
  • Fan owned clubs can now compete with billionaire owners in the League.
  • Bonuses attached to the promotion will force players to perform better.

Arguments against Squad Salary Cap

  • Cap needs to be based on % of turnover and not wages or salary.
  • Clubs in League One and League two won’t be able to attract high-quality players and they will lose players to foreign Leagues.
  • This will widen the gap between Championship and League One.
  • This is created to profit club owners and executives.
  • Professional Footballers’ Association is unlikely to go down without a fight.
  • Teams with a huge following will be big losers. Example: Sunderland AFC has an annual revenue of £58.69 million according to their 2018-19 financial statements.
  • Cup bonuses can be exploited. Example: A club could pay player and his agent £100,00 just for reaching the second round of the FA Cup.

Are you in favor of Squad Salary Cap or are you against it? Please let us know in the comment section below.

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