Replace the salary cap with a luxury tax
Roar Pro By LT80, 21 Jul 2010 LT80 is a Roar Pro
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- Brett Finch, Jeff Lima, Melbourne Storm, NRL, Rugby League, Ryan Hoffman, wigan
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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.
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- Brett Finch, Jeff Lima, Melbourne Storm, NRL, Rugby League, Ryan Hoffman, wigan
July 21st 2010 @ 10:19am
mushi said | July 21st 2010 @ 10:19am | Report comment
The problem with the luxury tax is it requires an ownership model to avoid the very thing that the cap is in place to stop – clubs hitting the fincail wall ebcuase they pay to retain/chase a premiership.
The NRL have predominantly community based clubs, yes there are a few privatized clubs but most of these are expected to run as at least a standalone break even proposition in the long term.
In the US, where I assume you are getting the luxury tax idea from, most of the clubs are play things of billionaires who see owning an Ferrari as being about as status defining as having a mechanical toothbrush.
These guys burn their money, not the revenues of the league, when they pay for these players over the cap. Local clubs don’t have such luxury which means when it all goes pear shaped we either need to sell the clubs or sell part of the league.
I think everyone needs a very deep breath and couple of bad boy Wu-Sa’s and wait for the next TV deal which will give a direct increase in the cap.
It is also worth noting the NBA, which operates under this system, just ahd a team ripped out of a city with a pretty deep Basketball history, has had a strike and is looking down the barrell of another strike.
July 21st 2010 @ 12:04pm
Dan said | July 21st 2010 @ 12:04pm | Report comment
By community based clubs I take it you mean that they are propped up by leagues clubs… which do what to the community?
have we all forgotten about the mass panic in the sydney clubs about the NSW gvt’s hike on pokie money?
July 21st 2010 @ 4:30pm
mushi said | July 21st 2010 @ 4:30pm | Report comment
Nope talking about the ownership structure i.e. are they effectively a co-operative owned by the community they service. And by community I’m using the definition of people with common interest or goals ie the supporters of the club.
July 21st 2010 @ 10:35am
Barry said | July 21st 2010 @ 10:35am | Report comment
“wait for the next TV deal which will give a direct increase in the cap.”
Mushi – you’re not Gallop in disguise are you….just kidding, although “wait for the deal” is the NRLs stock standard response and a good indicator of the sort of reactive management style that they’ve adopted.
I agree with you about clubs going to the wall and as I said in an earlier post the NRL can’t afford to have large areas of Sydney un-represented. However at some stage there needs to be some onus on club CEOs to run their clubs successfully. If Roosters, Dogs, Eels, Panthers (as examples) can run successfully and find income streams in the Sydney market without private ownership why can’t some of the others ?
This problem has been 12 years in the making since SL. Back then there was no competition for NRL talent and the $$ we paid our players was on a par with other sports. The only danger was ESL which was largely a retirment fund for older players. Now we have ESL, rugby in Aus, France and Japan and even AFL offering over and above what the NRL can pay. The NRL has done nothing proactive to identify or mitigate this risk. The cap has increased $400k in 12 years and we wonder why we’re behind the 8-ball.
The problem of waiting for the deal is that it will allow the NRL to solve the problem short term but what’s the plan for 10 years time…?
July 21st 2010 @ 10:40am
oikee said | July 21st 2010 @ 10:40am | Report comment
The plan so to speak is get a commission so we can have a plan.
July 21st 2010 @ 12:07pm
Dan said | July 21st 2010 @ 12:07pm | Report comment
and who will be on the commission? same faces, different business cards…
they need to get a sports administrator in who has no affilliation to Rugby League, but has an EXCELLENT track record in sports managment. this will bring fresh ideas to the game, and have no SL/ARL bias, which lets face it is still crippling our game. I’m thinking somebody from one of the US sports, they’ve always been good at milking every last corporate, sponsor and TV dollar out of thier games…
July 21st 2010 @ 4:26pm
mushi said | July 21st 2010 @ 4:26pm | Report comment
Okay so we know there is a huge revenue event looming and we know that the cap tied to revenue.
To me it seems like we are stumbling in the dark pulling our pud if we are coming up with plans without knowing what that revenue number looks like.
July 21st 2010 @ 4:50pm
mushi said | July 21st 2010 @ 4:50pm | Report comment
To expand:
What grand plan can we construct today that isn’t entirely reliant on knowing how much money we are likely to have?
I would be stunned beyond belief if we can design anything approaching an intelligent solution for what is effectively a budget without having the faintest idea what the revenue number is. A budget with just expenses is a wishlist.
As to competing with Europe well in the long run, if rugby league grows, it is actually impossible. Europe has a bigger population and an economy some 16 times ours, trying to go toe to toe on top line salaries is an exercise in futility.
This is why I often say be careful what you wish for, if rugby league genuinely takes off overseas the NRL will eventually be relegated to a second or third tier competition. You only need look at soccer in Latin America and Africa – massive producers of talent, the cream of which plays offshore in more lucrative markets.
Likewise competing with union in Australia for equality in the top 15 players is madness – we need to be able to pay 400 elite athletes with the top ~60 to 80 odd taking a disproportionate share. They need to pay ~150 athletes with the top 15 to 20 getting the disproportionate share.
It doesn’t take Einstein to see that we need to make very large multiples in revenue of Union to bridge that gap and you have to question if that is achievable on a sustainable basis.
What we need to do is acknowledge that our weapon is depth and ensure that their number 300 guy is better than there number 150. But any plan to better sue that weapon can not be formulated until we have an idea on what we have to spend
July 21st 2010 @ 5:37pm
oikee said | July 21st 2010 @ 5:37pm | Report comment
Agree, and the only way back if you try to go head to head with other codes is to drop the salary cap. Not only will it destroy codes, it will create a top heavy comp.
We seem to be plodding along nicely with minimal cash. I dont think we really need a war chest either, we need the people running the game to be able to sell the game to new markets.
July 21st 2010 @ 10:48am
Barry said | July 21st 2010 @ 10:48am | Report comment
No offence oikee but I knew someone was going to say that…but at the moment that seems like another NRL “let’s wait and see what happens…” from all the fanfare earlier in the year are we any closer to seeing the IC actually happen ?
From all reports the QLDers are holding it up and if they’ve got vested interest in the IC not happening then fair enough…but I haven’t heard what the NRL is doing to convince / coerce / threaten the QLDers into signing on. I sometimes wonder if the QLDers aren’t just scapegoats here. It’s hard to imagine some of the NRL / ARL headline hunters giving up their offices so easily and just sitting back, doing nothing and blaming the QLDers.
July 21st 2010 @ 11:15am
oikee said | July 21st 2010 @ 11:15am | Report comment
The commission is supposed to be up and running come November. The commision will be negociating the next t/v deal.
The clubs need to bring in fresh CEO’s, a classic example is the Dogs, gone from the doghouse to penthouse.
The problem with the QRL is the dinosaurs running the QRL. Look, the game needs fresh ideas, (hope you agree) with these old crocks running rugby league, we cant move forward, now these old crocks refuse to let go. The QRL are telling you one thing, but behind the scenes, they refuse to budge, because this is the way they have always run the game.
Ross, Livermore came out the other day, now this guy is 65, going on 80, and said he was not going to step down. ???
Right there, you have a problem, we need new blood, these blokes are so far out of date, even there milk sours before they get home.
Look, we need to tell them, yes your done a fine job, but its time gentlemen.
Same as the Broncos, yes Bruno, you have keep the club afloat, even a goat could, but its time we had a CEO who’s only mission is to grow memberships, the rest will take care of itself, just like it has with Bruno in charge.
July 21st 2010 @ 11:20am
Sam H said | July 21st 2010 @ 11:20am | Report comment
Very interesting and original idea LT80.
Economically taxing activity beyond a certain point is a more efficient way of raising revenue / changing behaviour than applying an absolute cap on the level of activity.
However as you and others have pointed out there are a couple of underlying issues which make this sort of thing difficult in practice.
1. The NRL is committed to the principle of absolute equality. If they weren’t we would already have a much more reasonable set of long-service concessions etc.
2. You’d still face the same issues with enforcement.
3. You’d still face the same issues with the ability of most clubs to pay. Clubs that wanted to pay extra to be competitive but couldn’t necessarily afford it would endanger their bottom lines by paying the extra money for the player salary plus the X% NRL surcharge.
Given that apart from in the cases of a couple of genuinely rich clubs with big revenue streams the NRL would just be making its club grant money back anyway, in effect you’d be just as well off raising the absolute level of the cap for everyone to a level where only the biggest clubs could spend the maximum amount.
I still think the best way to address the issues with the cap is with more generous concessions based on years of service with a club. Ofcourse, you’d have to figure out some system of transfer payments to reward junior clubs for developing the talent – otherwise you get the situation where the Storm can claim long-service concessions for a bunch of guys they ripped out of Queensland at 16 years old without contributing anything extra to the junior leagues which developed them.
Good to see people thinking outside the square on this though! Certainly a big contrast to the NRL’s inflexibility on the issue, and the equally reactive complaints of Gould et al to the effect that the cap should be scrapped altogether. The middle ground is wide and sensible but the fans seem to be the only ones occupying it.
July 21st 2010 @ 12:12pm
Dan said | July 21st 2010 @ 12:12pm | Report comment
raising the absolute level of the cap for everyone to a level where only the biggest clubs could spend the maximum amount.
Do we want a league of cronulla sharks or a league of melbourne storms? setting the salary cap breaches a side for a moment, can anybody deny that they have been the best side for the last 4-5 years? if your answer is yes, then we should be looking at how we can make the sides at the bottom play like the melbourne storm, not how we can make the melbourne storm “competitive” (or anti-competitive) with the bottom placed side.
July 21st 2010 @ 1:54pm
Sam H said | July 21st 2010 @ 1:54pm | Report comment
They’ve definitely had the best side on paper. They’ve also played some of the most consistently dour, negative football of any team over the past 5 years. I’d say the cynical off-field attempts to cheat their way to Premierships also translated into their pretty dire style of play. No way known have they been anything like the best side to watch recently.
To be honest I find the argument that the Storm somehow empitomise the evils of the salary cap pretty ridiculous. They cheated, flagrantly. And to cap it off they played negative football. They shouldn’t be role models for anyone.
July 21st 2010 @ 4:53pm
mushi said | July 21st 2010 @ 4:53pm | Report comment
Dan that assumption is that no one else would have used their newly available cap resources that came from the revenue fairies to poach any of these players. Melbourne didn’t keep their great team intact because they nobly stuck to free market economics they did it because they knew everyone else was constrained and out bid them illegally and in secret.
July 21st 2010 @ 12:04pm
Gareth said | July 21st 2010 @ 12:04pm | Report comment
I think it’d be unwise to have anything less than a 100% luxury tax, and even then it may not be enough of a deterent. The worry with any kind of soft cap or abolition of the cap altogether is that one club would assemble a team something like the Maroons of the last five years. Given how comfortably they can dispose of another representative side, imagine what they’d do to a club side? Even if you’re paying overs for a side like that, I don’t see a downside to it. Players of that calibre would have the turnstyles spinning, the minor premiership and premiership would both provide a steady revenue stream, sponsorship deals would be more lucrative, you’d get more televised games – I feel like everything would just upscale to match the increase in payments.
I don’t really want a competition where there’s two or three contenders and then a revolving door of minnows making up the numbers, and if that’s the price of keeping a handful of fairly forgettable former rep footballers, then I’ll gladly pack their bags, raise a glass of warm beer and wish them bon voyage. I might even suggest that if their team mates weren’t so selfish and greedy, they’d probably still have a contract.
July 21st 2010 @ 12:19pm
Dan said | July 21st 2010 @ 12:19pm | Report comment
it is interesting to note that the majority of the QLD spine is the Storm’s spine, and when you look at the players that have come and gone out of the storm side over the years, it is the spine that you build from that makes you successful. this applies to QLD also, the storm’s dominance in the club comp and QLD’s dominance of the SoO comp are linked
I liken this to Spain’s success in the football world cup. most of that side all play together for Barcalona, they play week in – week out together. Almost all of the QLD side is made up of Broncos and Storm players, they mesh together very easily because two lots of say 40% play each week together. periods of NSW dominance all co-incided with periods of dominance by NSW (and Canberra) clubs.
I think that it is foolish to think that the NRL hasn’t had long periods of domination by clubs, look throught the list of minor premiers (moreover, the top 4 sides) and grand finalists through the years. the same names keep popping up… why? they all roarting the cap?
July 21st 2010 @ 2:29pm
Gareth said | July 21st 2010 @ 2:29pm | Report comment
And that’s all the more reason why a hard salary cap is a necessity. There are plenty of quality outside backs and forwards in every team – but in the positions that matter, a lot of clubs really struggle. Just look at the NSW origin team and the revolving door of halves, or the fact that Ennis and Farah are the only genuine options at hooker.
Without a hard cap, a lot of money would be thrown at the game’s premier halves and hookers, and they’d all end up in the same teams. Who would that leave for the teams struggling financially?
July 21st 2010 @ 1:04pm
Paul J said | July 21st 2010 @ 1:04pm | Report comment
I think we need to stick with a salary cap, forget a luxury tax or a draft.
I agree with what Mushi and a few others have said…
1. We need a salary cap so clubs don’t go broke trying to ‘buy’ a premiership, like Leeds Utd in the EPL.
2. We need a salary cap so every fan of every team can feel their team has some sort of chance of playing finals footy every year. I believe most fans would hate to see a repeat of the St George 11 year premiership run.
3. A salary cap also makes the game more valuable to sell to the networks. We need 8 competitive games, not like pre- 5 years ago when Souths would lose every damn game, sometimes by 60 points.
As Brett said the cap is based on the club grants. If we can get an independent commission and a much better TV deal the suggestion is that the club grants go up to $6 million and the cap goes up to $6.5 million.
The minimum wage for an NRL player can be $80K, the top players like Thurston and Hayne could be on $800K. The NRL would reduce the number of players going elsewhere dramatically.
Problem is, it won’t happen until the new TV deal in 2013. The NRL can not afford to until then, unless the IC decides to give more to the players in the interim.
July 21st 2010 @ 1:10pm
Luke said | July 21st 2010 @ 1:10pm | Report comment
I wrote a similar post about the NRL introducing a luxury cap back in May.
http://litresofink.blogspot.com/2010/05/could-luxury-cap-solve-nrls-salary-cap.html
July 21st 2010 @ 1:21pm
Crosscoder said | July 21st 2010 @ 1:21pm | Report comment
It is dependent on the next Tv deal.The bulk of the monies to sustain the NRL clubs comes from Tv monies.So it is therefore reasonable to say’wait until the next Tv deal”,instead of the “big spender”syndrome.
The NRL should be in a position to announce by mid 2011:
1) the competition will be expanded to 18 teams.
2)the salary cap and grants provided to the clubs will be lifted substantially,thereby ensuring the continued viability of clubs like the Cronullas.
3) there no doubt will be a new deal for longer serving players and 3rd party sponsorships.
4) forget any notion of drafts.Tried before and lost.I await the day an AFL player challenges the draft in court,as the chickens will come home to roost.
5) salary caps are an eveil necessity to protect the clubs from themselves.French ru clubs are talking about caps,English ru clubs are losing money despite benefactors.
I agree with the $6.5m cap and $6m grant suggestion.
Provided the NRL can secure a min $160m pa deal(and i believe it will top that),on 18 clubs that is: $108m to be utilised in grants still leaving $52m for admin/junior development,supplemented by another $15-$20m from sky Nz,and the NRL sponsorship deals which will be millions more,plus merchandising revenue and corp hospitality.
It makes the current $100m deal including NZ look very poor indeed.
July 21st 2010 @ 11:39pm
allblackfan said | July 21st 2010 @ 11:39pm | Report comment
Please don’t take this as a potshot at your code (I like watching NRL, much more preferred than AFL:-)) but looking for $20m from Sky NZ for NRL is pie-in-the-sky stuff.
When the TV rights for Southern Hemisphere were renegotiated, the NZRFU received $20m for the rights (not sure annualyy or over 5 year term of contract) to its domestic 14-team ITM Cup (think NRL without a team from across the ditch). This would indicate that any extra income the NRL may expect to get from NZ will be much lower (around, say, $2m) mark given that Auckland schoolboy rugby (apparently) rates much higher than the so-called-NZ Warriors.
July 21st 2010 @ 2:00pm
Barry said | July 21st 2010 @ 2:00pm | Report comment
An increase in the size of the grant and the salary cap may address the issues of player retention within the NRL but we will still have clubs that can a) generate income over and above the salary cap but aren’t allowed to spend it and b) who develop / grow their own players and get no financial reward for it.
From a playing talent perspective there’s no incentive for clubs to attract sponsorship / membership / income beyond covering the gap between the grant and the cap. The cap will always be set for the lowest common denominator – the successfully run clubs dragged down to the level of the worst run.
It seems to have become a dirty idea that clubs should have dynasties. I disagree. Of course no one wants to see a team dominate for 11 years like the Dragons did…but there’s been a lot of footy since then and the most anyone has won is the Eels’ three in a row in the early 80s. That Eels team would be ripped up after one or two years these days. Sterling would be playing for Manly, Steve Ella would be with the Wallabies and Price and Cronin would have gone to the UK for their pension fund.
It’s tainted now that we know about the salary cap scandal but it’s not been all bad watching the Melbourne side back up each year. It should be noted that even with the salary cap breaches the Storm only won two of the four GFs – meaning that sides who spent significantly less than they did were still able to beat them.
July 21st 2010 @ 2:08pm
spankee said | July 21st 2010 @ 2:08pm | Report comment
Abolish the cap. Establish a free market. Why should the clubs need to be protected from “themselves” Let them go broke, if they cannot spend in a sustainable manner. This will encourage the clubs to establish revenue streams outside of the club grant system. Rugby League was founded on the basis that the players get a cut of the proceeds. The players that leave to play overseas or change codes, are enacting this historical right, upon which Rugby League was founded.
If a club cannot prove it’s liquidity the Monday after the Grand Final, kick them out, they do not deserve to be there. Why should every part of the business be “professional” except the business side of it.
“But the players will chase the big money at the bigger clubs,” I hear all of the “smaller” club supporters say. Just bring back transfer fees, give the player a 15-25% cut of that fee, this equates to a form of luxury tax on big money signings.
If a 2 tier competition evolves, foramlise it. This concept works elsewhere, it’s called 2nd division (Championship, Serie B, Nationwide Series, you get the idea.)
July 22nd 2010 @ 7:49am
mushi said | July 22nd 2010 @ 7:49am | Report comment
Thankyou soccer wake me up when you’ve effected cultural change in Australia to allow your flawed model to work.