The BPL Salary Cap and Southampton FC

I have been thinking and researching the BPL salary cap and its effect on Southampton.   (This discussion builds on the discussion from my first posting dated July 30, 2014.)

The base BPL salary cap for 2013-2014 was 52 million pounds.  The base BPL salary cap for 2014-2015 is 56 million pounds.  I think Southampton’s Board have been more in control of this summer’s transfer activities than we might have thought. Except for Lambert and Pochettino, the sales occurred on their schedule and at their price.  Events were timed to maximize the improvement in our long term position given the BPL salary cap rules.

Southampton’s fiscal year ends on June 30 as does Manchester United’s.  Liverpool’s appears to end on May 31.  These dates are significant given when the various transfers occurred.  Pochettino and Lambert went in Southampton’s last fiscal year whereas the Shaw and Lallana transfers were delayed until this fiscal year.  (Possibly the Lambert transfer was not final until July 1, which would make the point even clearer, but I am not assuming that.)  However, the Lambert transfer definitely occurred after the start of Liverpool’s new fiscal year.

Why does this matter?  Because Liverpool wants to avoid violating the Financial Fair Play (FFP) rules so they can play in Europe in 2015-2016.  Any spending that occurred after the close of their fiscal year will only effect their eligibility for Europe in 2016-2017.  Manchester United situation is similar, but complicated by the recently released information that their brand new, very large kit deal is subject to significant reduction if they do not play in the Champion’s League for two consecutive years.  If this reduction hits it could severely cramp their style in the transfer market.

Southampton’s concern is quite different.  Southampton ended last season facing severe salary cap problems for 2014-2015.  (See my earlier posts.) Assuming we were right at the 52 million cap last season, we could only increase spending this season by 4 million unless we increased our commercial income and/or obtained a net positive transfer income.  This means that Southampton needed its transfer income to arrive in the 2014-2015 fiscal year, not in June.  Obviously, Southampton had no control over when Tottenham paid Pochettino’s release fee and the Lambert transfer was rushed through—although, as I indicated, it might have been post-dated to July 1.  On the other hand, despite apparent pressures to get the deals done earlier, Shaw, Lovren, and Lallana were not sold until July.

So where does that leave Southampton with respect to the salary cap?  (I have used FM 2014 as my source for last year’s player salaries.  It was the easiest place to get the information and I have no reason to believe FM 2014 is any less reliable than other sources which would be harder to use.)

Wages Gone

Lallana 2.3 million

Lambert 2.1 million

Chambers .7 million

Shaw 1.3 million

Lovren 2.1 million

Osvaldo 1.8 million (his salary is listed at 3.6, but we only had to pay it for half of last year)

Total wage reduction 10.3 million

New Wages are, of course, harder to find since FM 2015 has not yet been released.  I have simply assumed that all our new players will receive the same salary and that salary is the average of last year’s three transfers:  Wanyama 2.0, Osvaldo 3.6, and Lovren 2.1 which I will round to 2.6.  I think that might be a bit low, but I really have no idea.

At this point we have 3 new players in so that would be 7.8 million so we are spending 49.5 million.  However, if we get the two additional loan players that are being talked about we would be up to 54.7 million.  Further, Cork, Fonte, Rodriguez, and Schneiderlin will all be offered raises.  Lets be optimistic and assuming they all take the new contracts.  This is all guess work, of course, but the increases would have to total at least 6 million and could be even more.  This puts us near 61 million.   This is over the base salary cap of 56 million but, as discussed in my July 30, 2014, post that amount could easily be covered by our current 77.5 million (or 72.5 million if the Lambert transfer occurred in the last fiscal year) net spend.  (That net spend has probably been reduced somewhat by loan fees—assuming we are paying any.)

Given my assumptions we have approximately 67 million net spend left to work with.  What can be done with that money?

The one thing that we cannot do is spend 67 million on transfer fees because that will leave no salary cap room to pay the new players.  Instead, the salary and the transfer fees (and other transfer related costs) must be considered together.  We could, for example spend 50 million pounds on players who are paid a total of 17 million pounds next year.  While this unlikely to occur, the consequence are worth exploring.  This would create a 2014-2015 total player salary of 78 million pounds.  This would probably make Southampton’s wages the 7^th highest in the league.  The consequences for 2015-2016 are particularly interesting because our Salary cap would be 82 million and there would be no need to increase commercial income or obtain a positive net transfer income to pay it.  In other words, once we legally increase our salary cap, that cap stays in place and can be automatically increased by four million for the next year.  This means that next year the owner could kick in cash to increase the team’s spending—something she was not permitted to do this year.

More realistically, we are unlikely to blow the entire 67 million all at once.  And this is where loan transactions become especially valuable.  Assuming, as I do, that we are paying the salaries of the incoming loan players, those amounts increase this year’s salary cap,  but, if we do not take the players on a permanent basis, that increase still remains to spend on someone else next year.  In fact, there might be a salary cap benefit to taking an expensive player on loan that we will definitely not be keeping permanently so long as he can be some help this year. On the other hand, if we want a player on a permanent basis, we can structure the transfer to occur in the next fiscal year so it doesn’t reduce our net transfer income this year.  If my analysis is correct, we are not going to care about the net transfer income in fiscal 2015-2016.

Initially, I was not happy about the decision to sign players on loan.  I did not think we should give up our valuable premier league playing time to aid the development of someone else's player.  I have changed my mind--especially when we have the option to buy the player.  The practice can, and probably will, help the club.  In any case, I have a prediction. Barring relegation, we will buy more than we sell next season—including exercising options on loaned players.