Special report: Why the salary cap is broken ? and how to fix it
Any change to the salary cap will create winners and losers but the way it is at the moment clearly is not working
By Daniel Schofield, Deputy Rugby Union Correspondent 9 May 2023 ? 10:00am
If there is one word that sums up the current Premiership Rugby salary cap, it is ?counterintuitive?. The word comes up time and again in conversations with leading figures in English rugby. The salary cap, as one prominent chief executive says, is ?riddled with contradictions?.
A system designed to produce England internationals punishes clubs who produce too many. A system designed to control costs has an in-built inflationary mechanism while two clubs have gone to the wall this season.
If the ultimate goal is to produce a sustainable league which provides a successful England team and Premiership clubs challenging in Europe then, on recent evidence, it is failing. So what are the key issues?
Do not grow English
Clubs being incentivised to produce as many England internationals as possible is at the very heart of the Professional Game Agreement between the Rugby Football Union and Premiership Rugby. At least, that is the theory.
In practice, as Jack Willis recently referenced, England internationals are far from the attractive proposition that they should be. ?Being an England player... is not appealing to clubs at the moment because you are away for half the season and [the club] don?t really get the financial benefits for it,? said Willis, who signed for Toulouse after Wasps went bust. ?You kind of get caught in between in that zone, you are almost less valuable to them.?
This is because of several flaws in the salary-cap system. On top of the baseline ?5 million cap, clubs receive ?50,000 for every home-grown player in their squad and an additional ?40,000 for every player provided to England?s Elite Player Squad (EPS). Clubs then receive an additional ?5,000 for every England match they play in.
These should all act as incentives for clubs to produce as many England internationals as possible. However, the maximum credit a club can claim for a single player is ?80,000. This means if a home-grown player plays in every England Test over a season, the club will be compensated only ?30,000 for their absence.
It leads to a perverse situation where Northampton Saints, for example, will receive as much credit for Fraser Dingwall, an EPS member unused by England, as they did for Lewis Ludlam, who played in every Six Nations match this year.
Let us say the average England international is paid ?300,000 by their club. As they will miss at least half the league fixtures through Tests and mandatory rest periods, the club will have to budget for a replacement but will have only an extra ?30,000 in cap relief to do that.
Meanwhile, they continue to pay ?270,000 for an international who may play only 10 or 12 games a season. There is also a maximum cap of ?600,000 in the home-grown credits and ?400,000 for EPS players so the more England players a club provide, the less money they have to replace them
?Purely from an economic point of view, it is counterintuitive to produce players for England, lose them and not be able to replace them within the cap,? one club executive said. ?The way the system is set up, it is not financially sensible or viable for clubs to produce English players. It does not reward them. It actually penalises them.
?There?s lots of intangible benefits to producing England players but it costs you competitive money within the cap to have a large number of England players in your squad. The more you develop yourself, the more you get penalised from a cap point of view.?
If a club has one or two England players, the financial hit can be absorbed within the cap. However, for teams who find a ?golden generation? coming through their academy at the same time this poses a significant challenge.
This can be seen as a major causal factor in the Saracens salary cap scandal and the disbandment of Exeter?s England contingent.
Leicester Tigers and Sale Sharks, who have a host of young players all pushing for England recognition, will have to face the same challenge in due course.
It is clear to see why clubs are not falling over themselves to sign England internationals who come on to the market, particularly as they no longer qualify for the ?50,000 homegrown credit once they leave their academy club while 50 per cent of the EPS payment is shared with the former team.
This leaves individuals such as Willis and England wing Anthony Watson in an invidious position. Any club wanting to sign Watson may get only around ?25,000 in cap credit for a player who could be available for only eight league games in a World Cup season. So you have the ridiculous situation where a world-class English winger is struggling to find a home in the Premiership.
If you were a club chief executive with purely utilitarian motives, you would look to have 12 academy players in your senior squad to claim the maximum homegrown credit, hoping one or two of them get called up to the Elite Player Squad without getting an England cap. You could then fill the rest of the squad with cut-price non-international South Africans and Pacific Islanders who are available all-year round.
Indeed you could say some clubs have already cottoned on to that idea. London Irish, in spite of their flourishing academy, had 25 non-English qualified players in a squad of 50, while Exeter will have more active Wales internationals than they do England players in their squad next season
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Marquee players: a fallacy
When the late Lord Myners produced his comprehensive report into the salary cap in 2020, he concluded that the marquee player rule, which exempts a player?s salary from the overall cap, served no positive purpose.
?The marquee-players exemption completely cut across the objectives of equality and competition and creates unhelpful inflationary pressure on wages. The time is ripe for a review of their continued usefulness,? he wrote
The architect of the bank rescue package during the 2008 financial crisis was also clear that his recommendations should ?not be viewed as a menu of options from which to pick and choose?.
And you will never guess what Premiership Rugby did next. Yep, it acted like a seven-year-old in Woolworth?s by ignoring Myners? explicit recommendation.
The principle of the marquee player rule was that it would allow clubs to bring in high-profile rock stars to put bums on seats and raise the overall standard of the league. Former All Black Charles Piutau, the first ?1 million player, who will shortly leave Bristol Bears, is the poster boy of the policy. Certainly, the Bears have benefited from Piutau?s talent to help swell their average gate, but the knock-on effect across the league is debatable.
?It is a fallacy, marquee players don?t drive bums on seats,? Sale chief executive Sid Sutton said. ?Results drive bums on seats.?
What is beyond debate is that marquee players have driven up wages at the top end of the market. A marquee player?s salary may sit separate to the cap but once his wages become known within the club, every high-end international will come knocking at the chief executive?s door asking for parity.
While this has led to a feast for the top 10 per cent, it has led to a famine for the ?squeezed middle? with clubs across the league reducing squad sizes to account for the wages of their high earners.
?If you get a superstar that?s being paid four times as much as the average player, that?s not great for team culture,? Sutton said. ?I can?t think of any benefits to the marquee rule.
?If you?ve got a budget to put the best team together ? and forget the salary cap for a moment ? and you?re spending ?800-900,000 of that budget on one player then that?s got to squeeze somewhere else within a 45-man rugby squad.?
Increasingly, the marquee slots are used less for those stardust foreign signings and more to subsidise their highest-earning England player.
Ongoing tensions
Wasps and Worcester Warriors have gone bust. London Irish and at least a couple of others are wobbling on the precipice. The Covid recovery loans are coming down the mountain like a boulder. And yet the Premiership salary cap will rise from ?5 million to ?6.4 million for the 2024/25 season. Discuss.
?I just don?t think the game is in a position post-Covid to increase the costs,? Sutton said. ?While some clubs may well be in a position to do that, my preference is that we all start to collectively cut our cloth accordingly. One of the most important parts of having a successful league is to make sure it?s competitive. Why we are adding that additional layer of cost is something that doesn?t quite make sense yet. It?s counterintuitive.?
Here is Pat Lam, the Bristol Bears director of rugby, to present the case for the defence with Exeter the only English representative in the Champions Cup semi-finals in the past three years. ?For English rugby to be sustainable and marketable you can?t be seen as the fourth-best competition,? he said. ?You aim to be the first. I believe the Premiership had that at one stage. But if the England team is not winning and English clubs aren?t at the forefront of European competition it?s very difficult to say your competition is one of the best.?
Bristol, coincidentally, are funded by Steve Lansdown, whose estimated net worth is around ?1.9 billion. Yet to underline Lam?s point, multiple agents have confirmed that Benetton, the Italian United Rugby Championship side, have a bigger budget than any Premiership side. Ultimately, the choice is success or sustainability.
Premiership Rugby insiders are keen to push back on the idea that there is a chasm with the wages on offer in France, where the cap is ?9.4 million. That is a hard ceiling and accounts for all their academy players, who are not counted within the Premiership cap.
Solutions
Any change to the salary cap will create winners and losers. Raising the salary cap will increase the competitiveness of English sides in Europe at the cost of stretching already straining club finances. Revamping the credit system could risk the competitive balance of the league. Removing the marquee-player rule will hit the wages of the top earners, which could make France more attractive as a possible destination.
What everything needs to come back to is knowing what the priorities are.
Astonishingly, there is no form of mission statement in the Professional Game Agreement that has determined the direction of English rugby over the past eight years.
?If you bring it all the way back and got all the vested parties in the room and you write down on the post-it note what you want, most answers would be we want as many good English players in the Premiership and by design available for selection and for England,? a club chief executive said. ?The current system does not achieve that.?
That some clubs feel they are punished for producing too many England internationals is perverse. As Sutton says: ?It drives your recruitment policy in a very different way.?
Unlike in France, which imposes a hard cap on the number of foreign players via the Jiff rule, the Premiership ? because of the presence of Kolpak players ? has to operate an incentive rather than a deterrent for clubs to produce as many English players. So the maximum credit limits on what clubs can claim for home-grown and EPS players should be removed, or at the very least significantly raised so there is the budget to replace England internationals.
Alternatively, relief could be provided if the RFU provides more direct funding to clubs of its frontline players. It would be a step towards far greater collaboration between union and league. Talks are already being held.
There is next to no justification for the continued existence of the marquee-player rule. Even if you need to give clubs three or four years to let certain contracts unwind, Myners? recommendation should be acted upon straight away.
None of this directly benefits the players, at least at the top end. Low salaries are a problem and a minimum wage with a benevolent fund for former players, key demands of the Rugby Players? Association, should be incorporated in the next Professional Game Agreement.
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