League One clubs vote for a £2.5m salary cap... so how will this affect Ipswich Town?
PUBLISHED: 14:56 07 August 2020
A £2.5m salary cap has been introduced for League One today following a vote by member clubs. STUART WATSON takes a look at the implications for Ipswich Town.
Why was a salary cap proposed?
The lower down the pyramid you go the less TV income there is, meaning clubs are heavily reliant on gate receipts. Covid-19 obviously put a premature end to the League One and Two seasons, and has put real uncertainty over when clubs will be able to welcome back fans through the turnstiles, meaning many will be struggling to cover their biggest outgoings – player wages.
It’s been a wake-up call for football and sparked calls for the game to finally embrace a more sustainable financial model.
That’s what led to this hurried salary cap idea.
Why did it get voted in?
Third-tier clubs with bigger revenue – the likes of Sunderland, Portsmouth and Ipswich – argued it’s unfair to stop them spending within their means. They lobbied hard, trying to convince others this could cut League One adrift from the Championship (whose wage cap will reportedly be a far greater £18m), and had support from Oxford United.
Self interest ruled though. Clubs with smaller revenue streams have, understandably, seen this as an opportunity to level the financial playing field.
There is a fear that this cap could actually bring the opposite of what it sets out to achieve, instead emboldening clubs with smaller revenues to over-reach in an attempt to hit the upper end of the salary cap and compete.
What does it replace?
League One’s version of Financial Fair Play – known as Salary Cost Management Protocol (SCMP).
Last season, as a newly-relegated Championship club, Ipswich Town were permitted to spend 75% of their annual turnover on player wages.
This coming season that grace period would have been over and they would have been restricted to spending 60% of their annual turnover on player wages in line with the rest of the division.
Town’s turnover during their last two seasons in the Championship was between £17-18m, with relegation estimated to have cost them in the region of £6-9m.
Working on those figures – and this is a rough estimate due to the fact that Town’s accounts for the period ending June 2020 aren’t yet available – their turnover in League One will have been around £10m.
It’s understood that the Blues’ wage bill, slashed after relegation, was around the £5-6m mark last season. That’s an estimated 50-60% of annual turnover being spent on wages, therefore meaning they would have been well prepared for another year of SCMP.
What is the new system and how will it affect Town?
Some of the details are a little hazy and the devil will be in that detail, but here is what we have been able to glean so far.
The new flat salary cap will be set at £2.5m for League One clubs and £1.5m for League Two clubs.
That figure will include basic wages, taxes, player bonuses, image rights, agents’ fees (Town forked out £325k on them over the last two transfer windows) and ‘any other fees and expenses paid directly or indirectly to all registered players’ (so things like relocation costs).
Confirmed exemptions are ‘payments directly linked to a club’s progression in cup competitions or promotion’, while any income generated from players going out on loan is deducted from the club’s salary cap calculation.
This is yet to be confirmed, but it’s previously been said that exemptions will also include wages paid to players aged 21 and under, plus management and staff salaries.
Even taking into account those exemptions, it’s still going to need a significant drop in annual wage bill for Town in the long run.
“It’s an issue we’ll have to address – it will put restrictions on us,” admitted Town’s general manager of football operations Lee O’Neill recently.
What’s the punishment for breaking the cap?
The EFL says an ‘overrun’ concept is included whereby a club’s total squad salary payments can exceed the cap by up to five per cent without punishment.
Over and above that, a financial penalty would be payable for every £1 in excess.
Clubs exceeding the ‘overrun’ will be referred to an Independent Disciplinary Commission, although the EFL ‘will monitor the cap on a real-time basis throughout the season’ and saud ‘where breaches do occur, sanction guidelines are in place to be considered as appropriate by an independent Disciplinary Commission’.
Does that mean Town are under pressure to sell players?
No – the authorities know it’s going to take some of the division’s bigger spenders time to get their wage bill down, so they’ve built in some transitional measures.
Basically, all contracts signed before the salary cap’s introduction will be treated as the league’s current average – that’s £1,300 a week (£67,600 pa).
So even though, for example, James Norwood earns more than five times that amount, the remainder of his two-year deal will be treated as £1,300 a week for the salary cap purposes.
The majority of Town’s first team squad will be on more than £1,300 a week, so when those deals start to expire it will be very hard to for the club to offer them anywhere the near the same terms that they are currently on.
That’s why the club rushed to take up the 12 month extension options on Tomas Holy and Jon Nolan recently.
The likes of Luke Chambers, Kayden Jackson, Alan Judge, Emyr Huws, Gwion Edwards, Freddie Sears, Andre Dozzell, Teddy Bishop, Toto Nsiala, James Wilson and Janoi Donacien are all now in the final year of their current contracts.
And what’s this about squad size restrictions?
Oh yes, that’s another thing. This is yet to be officially confirmed, but it’s been widely reported there will now be a limitation on the number of senior players you can have in your squad.
To start with it will be 22, then dropping to 21 for 2021/22 and then further decreasing to 20 for the season after that.
Crucially, players aged 21 or younger do not count towards the limit.
How will that affect Ipswich?
Town currently have 17 players aged over 21, so there is scope to add five more senior players to the squad during this summer transfer window should Paul Lambert desire.
However, the club will need to keep half an eye on the future because there are seven players in the squad currently aged 21 who will count as senior men next year (taking the total number up to 24).
Those seven players are Flynn Downes, Luke Woolfenden, Andre Dozzell, Barry Cotter, Ben Morris, Ben Folami and Harry Wright.
Aaron Drinan (22) is a player over 21 who would take up a valuable squad place, though he is also out of contract next summer.
Will this limit who Town can buy this summer?
No. With a rudimentary calculation of 17 current senior players all being treated as £1,300 a week earners, Town’s declared wage bill will be £1.2m for salary cap purposes.
That £1.3m wriggle room would allow them to keep what they have and still go out and sign four or five senior players on around £5k a week if they so wished – very good money for this level.
Get promoted and that won’t be a problem. Stay in League One though and swathes of out of contract players would likely have to be released next summer (or be convinced to sign on much lesser terms), leaving Town in a bun fight for replacements who will be offered similar money by everyone.
Some might argue that sort of reset would not be a bad thing.
In summary, if Ipswich don’t spend this summer it won’t be because of the salary cap, but because owner Marcus Evans is limiting his losses after a bruising year for a business empire that is all based around live events such as conferencing and hospitality (and football).
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