Replace the salary cap with a luxury tax
Roar Rookie
By LT80, 21 Jul 2010 LT80 is a Roar Rookie
- Tagged:
- Brett Finch, Jeff Lima, Melbourne Storm, NRL, Rugby League, Ryan Hoffman, wigan
With news this week that Brett Finch, Ryan Hoffman and Jeff Lima will be leaving Melbourne to play for Wigan in the English Superleague next year, only the most ardent and uncritical supporter of the salary cap will deny that “something” has to change.
Much has been written about the deficiencies of the current system.
One important point to understand is that the functioning and role of the salary cap as the main equalisation method in the NRL is unlike that in other football leagues such as the AFL and NFL, both of which contain a player draft.
While a draft system works by attempting to build up the weaker teams to the level of the stronger teams, a salary cap tends to go partly in the other direction by also bringing down the stronger teams in the process. However a draft is unlikely to fly in the NRL as it goes against the idea of district football, which has been a part of rugby league since it’s inception in this country.
So what is the answer?
Firstly, NRL administrators need to reconsider or dispense altogether with certain strongly held ideas about how the competition should be run.
1. Equal spending – The NRL believes all clubs should spend exactly (or very nearly) the same amount on player salaries each year. This rigid insistence on equal spending has led to an inflexible and unresponsive system.
The cap is by necessity set at the level dictated by the poorest clubs, which creates frustration and temptation for the more affluent. The NRL need to allow for some degree of difference in the wage bills of the clubs.
2. Premiership roundabout – The NRL believe that a good competition is one in which every team has a chance of winning the grand final each year.
Although an initially enticing idea, upon reflection is this really such a good thing? Because a competition in which last year’s wooden spooner is a contender for this year’s premiership must also be one in which last year’s premier may end up with the spoon this season. Is this lack of continuity from year to year really something to aspire to?
Where is the place for premiership dynasties of the past? The dominant eras that made the likes of St George and South Sydney the famous clubs they are today?
A better solution is for the NRL to introduce a luxury tax in place of the salary cap. A luxury tax would operate something like a “soft” salary cap. Clubs would be allowed to exceed the threshold ($4.5m for example), but would have to pay a tax (25% perhaps) on their excess payments back to the NRL. These funds would be used to assist poor performing clubs.
In spending this money, the emphasis should be on providing long-term benefits like improving junior development and increasing club membership, rather than simply for buying players.
The luxury tax could be used in conjunction with meaningful concessions for long-serving players to promote club loyalty, and perhaps concessions for local juniors to maintain and bolster the idea of club district identities.
The benefit of the luxury tax is that it would be a more flexible and responsive system, while still maintaining a way to foster an even competition over the medium term.
It’s plain to see that the NRL salary cap is not doing what it is supposed to be. Sadly, it is doing too much.
Rather than spreading the talent around the league, it is spreading it offshore and to other sports. A luxury tax system might just be the way to address the problem.
Enjoy sports? Enjoy a bargain? All Sports Online has your favourite sporting brands at up to 70% off. Online only, premium quality sporting goods and merchandise at discounted prices. Get a deal now.
Do you have what it takes to become a sports writer? Write for the roar
Rugby League articles
- An open letter to Channel Nine (107)
- Gallop and some of his precious Sydney NRL clubs must go (101)
- The NRL is back baby! (65)
- The NRL’s scariest players (56)
- The NRL needs a vision (52)
- Federal Court has it wrong on sports broadcast copyright (48)
- Bulldogs setting benchmark for Sydney’s NRL clubs (46)
- Rugby league’s new era: where to now? (29)
- Federal Court has it wrong on sports broadcast copyright (53)
- An open letter to Channel Nine (112)
- The NRL’s scariest players (56)
- Is the All Stars match increasing the divide? (25)
- Channel Nine needs NRL-cricket ODI compromise (36)
- The NRL needs a vision (52)
- Explore:
- Brett Finch, Jeff Lima, Melbourne Storm, NRL, Rugby League, Ryan Hoffman, wigan
Hanzo said | July 21st 2010 @ 2:43am | Report comment
A couple of good points but if a club doctors it’s books to stay under the salary cap, what’s to stop them from doctoring their books to stay under the luxury tax threshold?
Kurt said | July 21st 2010 @ 4:11am | Report comment
What he said.
LT80 said | July 21st 2010 @ 6:21am | Report comment
Nothing really. Whatever system you go with will have this risk. Personally I wouldn’t be too concerned if the NRL scrapped the salary cap altogether (I know many will not agree).
But the point of the luxury tax isn’t to solve the problem of clubs complying with the rules, it’s saying that there are better ways to keep the competition even – rather than punishing the successful clubs, make the focus more on building up the struggling ones.
Maybe at the margin there would be less incentive to cheat a luxury tax, because the rewards would not as high as it is in the current salary cap system.
Dogs Of War said | July 21st 2010 @ 4:52am | Report comment
It needs more. Something to entice the players, so lets say you allow a system like this, but in exchange players would have to allow the salary cap auditors to be able to go over your tax return to ensure that it’s above board. Cause if it wasn’t, then it would be a criminal matter, which would be a great deterant to getting involved in that sort of situation. To get the players to agree, you would have to allow a decent carrot to be offered. Raising the salary cap by at least 500K, with a luxury tax limit of say another $1mil on top (so effectively increasing the salary cap of the top teams by $1.5mil max).
I can see you have modelled it on the NBA style luxury cap, though they don’t allow for things like long service leave. So I am not sure how this model works with those sorts of variables included, though they have many variables themselves which wouldn’t work in the NRL. There would still be a need for variables to be included, as really it will only be the clubs which don’t have the financial clout which will suffer the most. Not to mention those less financial clubs would come to rely on these handouts much more, lessening there need to actually improve there game.
I don’t think there are any easy answers. The IC is needed soon, so they can actually review how salary caps work in all different sports, and find how to best use features from these to improve the NRL’s one which really lacks any rewards for developing players.
LT80 said | July 21st 2010 @ 6:34am | Report comment
Fair points, and you’re right there’s no perfect solution. At least this suggestion will enable clubs to legally keep premiership winning sides together for more than a couple of seasons, which is what many (most?) supporters want to see.
Robbo said | July 21st 2010 @ 8:12am | Report comment
Personally I would scrap the cap altogether – or at least raise it by 30%.
Given Gallops near religious addiction to the salary cap that isn’t going to happen.
The Luxury tax is a great idea. Rich clubs would not be able to afford going to much over the cap and it would put much needed funds back into the game.
Barry said | July 21st 2010 @ 8:29am | Report comment
Can’t scrap the cap – Brisbane would end up stockpiling players and winning 20 comps back to back.
From memory the cap was 3.8 mill after SL war ended meaning it’s only gone up about $400k in 12 years ridiculous.
NRL keeps saying that there isn’t enough money in the game for the cap to go up – rubbish. The Storm found the $$ – so did the Bulldogs + every other team that has had salary cap rumours. The cap punishes progressive, successfully run clubs to drag them down to the same level as the poor performers – not a successful business model in any industry.
But in the NRLs defence they absolutely can’t afford any of the Sydney clubs to go broke. Say the Sharks went broke and folded then we have the entire ‘Shire’ without an NRL team – a free hit for soccer, rugby and AFL. The luxury tax idea sounds like a good way for the NRL to re-distribute wealth and prevent this happening. The only drawback is if clubs become dependent on the successful teams to prop them up.
I like the idea of discounts for service. Say it’s 5% for 5 years + 2% each season thereafter, that can only be applied to that players contract. So you get 15% discount for a player after 10 years and 25% after 15. This provides benefits to clubs who develop and identify young talent and promotes loyalty and one club players and hopefully reduces the drain to SL.
For instance if a player enters a clubs system at 16, by the time he’s 21 the club gets a 5% discount that’s not counted under the cap. By the time he’s 26 the discount is up to 15% and if he lasts by the time he’s 31 the club is getting 25%.
Mals said | July 21st 2010 @ 8:47am | Report comment
Good points Barry. Discounts for continuous service to a club should be bigger than they are presently. I would like to see discounts for local juniors coming up through the ranks into their NRL team. This would give an advantage to clubs with big catchment areas e.g. Penrith, Brisbane, Newcastle etc. but it would also make clubs such as the Roosters, Cronulla etc. work harder on supporting their district clubs & perhaps forge stronger ties with country areas i.e. NRL would give them a nominated country area. “Bush footy” needs greater investment & talented country kids can benefit from clear pathways to senior league.
mushi said | July 21st 2010 @ 9:49am | Report comment
Melbourne found the money by defrauding their owners barry not from legitimate sources.
Jeff said | August 2nd 2010 @ 5:41pm | Report comment
‘m not sure that any club would be able to ‘stockpile’ players. Any player wants to play in 1st Team, if they are unable to do this because te club is top heavy with talent, they will quickly move on.
This is where a transfer market should be put into force, at least clubs that invest in their youth policies will get some rewards for the players hat they have educated. Yes, something must be done quickly, this years fiasc has proven this to be fact.
Rodney McDonell said | July 21st 2010 @ 8:49am | Report comment
A very interesting idea and one that i had now heard before.
Brett McKay said | July 21st 2010 @ 9:04am | Report comment
LT, I certainly can’t argue with the need for salary cap reform, but just a few points on what you’ve witten here:
- the main reason a Draft won’t wash in the NRL these days is that it was challenged and defeated in court. In the very early 90s, Terry Hill was drafted to Easts (now the Sydney Roosters) whereas he wanted to play for Wests (now part of Wests Tigers). He fought and won a court battle that argued that the draft was a restraint of trade, and the draft was dismantled the following year.
The ‘district’ element of rugby league hasn’t been a reality for well over 20 years now. Clubs are free to recruit players from where ever and which ever district they can find them.
- the salary cap limit has always been set at a level of approx 500-600K above the NRL anual grant to each club, and this grant is also something that has only increased at a glacial rate since the NRL kicked off in 1998. It’s probably quite true that the less financial clubs are front of mind when the salary cap is set, but the club grant is the major contributing factor. Even for the mooted salary cap increases in coming years is because of a lift in the club grant.
The arguement then becomes whether that club grant reflects a fair and equitable slice of NRL revenue, considering the clubs are key to the revenue coming in. It was reported earlier this year that the NRL spent something like $40M or more on development programs, admin and marketing of the game, but there didn’t seem to be $40M+ worth of ‘product’ to show for it, which in turn begged the question why the club grants were so low considering their ‘return on investment’ (spending v revenue).
LT80 said | July 21st 2010 @ 9:33pm | Report comment
Brett, fair enough the district quotas are long since gone, but I don’t think it’s fair to say there is NO district element. The clubs still have strong ties to the local areas (unlike AFL where they were never district clubs). Perhpaps some more than others. And good point about the “other” $40m…what is this spent on?
Barry said | July 21st 2010 @ 9:15am | Report comment
The problem is that clubs that can generate their own income are held back to the same level as clubs that rely almost entirely on the grant and don’t do anything to help themselves.
The clubs that are reported to be struggling the most are the Sharks and Knights – but both of these clubs have a fairly large area to draw on for supporters and juniors. In both the ‘Shire’ and the Hunter support for the two teams is fairly exclusive. You’d think that if you’ve got a large supporter base and access to junior talent then it shouldn’t be that hard to attract corporate support ???
There are certainly Sydney clubs that operate in tougher circumstances than both these teams, so it’s fair to say that from a management perspective both of these clubs are under achieving and that a lot of other teams are being held back to their level.
oikee said | July 21st 2010 @ 9:33am | Report comment
Great points, and i often wonder why this is happening myself. We all talk about the shire being a league nursery, well why is Cronulla so weak and hardly supported. Winning culture. ?
Jay said | July 21st 2010 @ 9:34am | Report comment
Great idea. The only thing is that I would increase the lux tax to about 30-40%
To ensure compliance, the NRL can set up a trust where the clubs make all payments inlcuding thrid party payments into the trust and the NRL on-pays this amount to the players. All payments from sponsorship, clubs payments, community ambassador payments must be paid to this trust, so the NRL knows how much each player is getting. Any club (and player) getting paid from a different entity would be breaching the rules.
Barry said | July 21st 2010 @ 10:05am | Report comment
Perhaps Mushi – but they also had plenty of external parties that were lining up to hand over cash to players. The charity mob, McManus and others. Even after the cap story broke and sponsors left they had no problem getting new ones on board. They definitely had money to spend over and above the level of the cap.