I have read several recent articles suggesting that salary caps are being considered in European professional football leagues. For example, Goal.com reported last month that FIFA vice-president Jack Warner had recently called for a salary cap to “level the playing field” in domestic European leagues. Then, a couple of weeks ago, the New York Times ran a profile of former footballer Michael Platini, now head of UEFA, and his quest for salary caps in Europe. Platini has a power grab in mind that would involve amending EU competition law to let him get control of football. According to this article:
His ambition is to level the playing field between rich teams, those with television contracts and billionaire owners, and the small fry who rely mostly on fan support.
He would like to rein in teams like Real Madrid, which spent $433 million this summer just to buy the rights to four superstars, and the big name teams from the high-level English Premier League. Some of these, like Chelsea and Manchester United, are bankrolled by sugar daddies from Russia, the United States and the United Arab Emirates, who pour in two to three times the teams’ income to make them great — or so they hope.
These articles trot out the same old story that has been used in North American sports leagues for years: spending on players is out of control, and competitive balance is suffering as a result of payroll imbalance. The only solution is a salary cap, and then all will be right in the world.
Yeah, right. Unfortunately, economic theory predicts that salary caps will have no effect on competitive balance. According to the standard model of league behavior, a salary cap results in lower pay to players, higher profits for teams, and no effect on imbalance on the field. If you are looking for a reference to this prediction, see “Cross-Subsidization, Incentives, and Outcomes in Professional Team Sports Leagues” by Rodney Fort and James Quirk (Journal of Economic Literature, Vol. 33, No. 3 (Sep., 1995), pp. 1265-1299). Like the reserve clause and reverse-entry drafts, salary caps make teams richer at the expense of players. Personally, I would rather see more money in the pockets of players, and less going to billionaire owners.