The Last Word: Salary cap can bring a level playing field

Parachute payments sum up madness of football finances by encouraging clubs to overspend

No wonder Norwich City's majority shareholders, Delia Smith and her husband, Michael Wynn-Jones, were in celebratory mood last week. Earning promotion to the Premier League must have felt like winning the Cookery Book of the Year award, Celebrity Masterchef and three Michelin stars for the Carrow Road pie stall all in one night.

Running a football club, especiallyin the Championship, is a costly business, but for once the queen of the kitchen could put Norwich City's financial concerns on the back burner. At a conservative estimate, winning promotion to the Premier League should be worth at least£100 million to the club.

Just being in the top flight will bring in some £40m next season from TV money and "merit payments", which are paid according to finishing League positions. Ports-mouth, the least successful club in the Premier League last season, earned £31.8m; this year, income has risen substantially following a new and more lucrative TV deal.

There is also additional TV money to be earned from cup competitions, as well as revenue from merchandising, sponsorship and ticket sales. If the very worst happens and the Canaries fall out of the sky after only one season, they will receive parachute payments of £12m a year for the next four seasons.

The bonanza should be enough to secure any club's future, but recent experience shows that is not necessarily the case. Sheffield United, who had one year back in the Premier League four seasons ago, lost £18.6m in the year to June 2010 and are now set to swing the axe following relegation to League One. Since the turn of the century, Leeds United, Charlton Athletic, Southampton, Sheffield Wednesday, Leicester City and Norwich themselves have all had spells outside the top two divisions after losing their Premier League status.

Football's problem is that, whateverthe level of a club's income, the temptation to spend more than you can afford appears to be irresistible. Increase the income and an apparently inevitable result is that you will increase the level of debt. Parachute payments were meant to soften the blow of relegation from the Premier League, but the danger is that they simply encourage clubs to commit to even more spending.

The difficulty for any ambitious club is that at almost every level of the game there are owners prepared to sustain big losses. Manchester City lost £121m for the 12 months leading up to the end of May 2010. Chelsea lost £71m over a similar period, despite winning the Premier League and FA Cup. Some Championship clubs lose several million pounds every year without even taking transfer fees into account. Crawley Town, who have just won promotion to the Football League, paid a reported £275,000 for one player last summer.

How do you compete with such spending power? The temptation is to take risks in the hope that you will strike gold. If you decline to join the merry-go-round and refuse to overspend, there is the danger you will fall into a downward spiral. Of course no club should commit to expenditure they cannot afford, but the unfortunate truth is that unless you spend heavily you are unlikely to be competing on a level playing field.

Football has always had its haves and have-nots. However, the fortunes available from television in the modern era have raised the stakes and the wealth gap is greater than it has ever been. A healthier redistribution of the riches would benefit the game overall, though only if it encouraged a more reasonable use of resources. Where was the sense in Sheffield United spending £12m a year on wages for a team who were not good enough to keep them in the Championship?

Operating a free-for-all has failed to curb the excesses. It is probably too late for football to consider adopting some of the practices in American sport, where draft systems and pooled merchandising revenues ensure a better spread of wealth, but salary caps could be a solution.

Dave Whelan, the chairman of Wigan Athletic, has advocated salary caps for several years and has discussed the idea with other Premier League clubs of similar stature. The suggestion is that clubs should be allowed to pay more than £20,000 per week to only two players.

It is an eminently sensible idea, though it is hard to see the wealthierclubs going along with it. Salary caps have operated in League Two, with clubs not allowed to spend more than 60 per cent of their revenue on wages, but there appears to be little appetite for following suit further up thefood chain.

If our game cannot help itself, the solution may have to come from outside. Some do not like the idea of Uefa "interfering" in our affairs, but we should be thankful that European football's governing body are trying to do something through their "financial fair play regulations", which will require clubs to balance their books. Whether they will be effective is another matter: the suspicion is that clubs wanting to circumvent the regulations will find a way of doing so.

Until the whole issue of football finance is properly addressed, however, the problem will not go away. Delia and company should enjoy next season while they can.

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