Third-year BSc Economics and Politics student, Pravin discusses Premier League salaries during the COVID-19 pandemic in his Economics of Coronavirus blog.
Pravin wrote his blog in response to our call-out for Economics of Coronavirus competition entries earlier this year, and was announced as the competition winner – his prize to have his blog featured on the Discover Economics website, promoted to Financial Times subscribers. Congratulations, Pravin!
Premier League salaries during the pandemic, by Pravin Steele
The initial response of Premier League clubs and players to the financial threat posed by the suspension of the football season met widespread criticism. Several clubs announced plans to use the government’s Coronavirus Job Retention Scheme (CJRS) to furlough non-playing staff, whilst around the same time the Professional Footballers’ Association (PFA), the union representing professional footballers, rejected the PL’s proposal of a 12-month 30% pay cut for all players. Critics argue is it is wrong for government money to be spent on non-playing staff salaries, when clubs could cover this cost simply by reducing players’ salaries, which seem exorbitant at the best of times.
Following this public outcry several clubs reversed their decision to use the government’s scheme. A league-wide agreement on player salaries has been abandoned, and each club is deciding wages individually. Two questions are worth exploring:
- Are demands for players to accept pay cuts fair?
- Are pay cuts desirable from a societal point of view?
Some of the players’ defenders argue that salaries and financial obligations vary significantly between PL players. This is true. According to the Global Sports Salaries Survey (GSSS) the average annual pre-tax wage for players at the top five highest-paying clubs was £5.6 million in 2019. This figure excludes significant performance-related bonuses. At the other end of the scale, the average wage at Sheffield United (lowest in the PL) is £700,000. It is also likely, as Wayne Rooney pointed out, that some players “will be under even more pressure to support” their families as more people face economic hardship.
However, whilst the PFA’s decision to reject a uniform pay cut is understandable (their purpose is after all to protect player interests), PL players could take this hit. Assuming a worst-case scenario of a six-month pay cut (I personally find the prospect of a longer disruption to sport too terrifying to contemplate), let’s consider what would happen to the average post-tax earnings of a player in the lowest-paid team, Sheffield United, for the six-month period. A 30% cut would translate into an overall fall from £193,572 to £137,922. This is sizeable but could probably be borne without necessitating a major lifestyle change.
Player pay at selected Premier League clubs
|Club||Average annual pay (£m)|
Source: Global Sports Salaries Survey 2019
Some claim PL footballers are unfairly scrutinised by the public. It is true the focus is disproportionate, given PL footballers make up less than 2% of the millionaires in the UK. Yet to some extent football should welcome this increased pressure, considering the factors it stems from. Firstly, footballers are more famous than many rich people because football is probably the most popular sport in the UK. Secondly, football clubs are expected to play a wider social role and become ‘embedded’ in their community. The fact PL ticket prices are below market equilibrium prices is one result of that. Away tickets are capped at £30 and although they are expensive, most clubs’ home tickets could probably be sold at higher prices than they are due to the enormous demand. Regardless, a recognition of the extra focus on PL stars should not lead us to demand less of footballers, but rather to demand more from other wealthy people.
This is linked to another defence: criticism of players is unfair due to their charity work. PL players have made a larger charitable contribution since the pandemic began. In addition to individual player and club campaigns, players recently donated £4m through the ‘Players Together’ initiative, which partners with NHS Charities. This is perhaps under-appreciated, particularly by players’ most fierce critics. Nonetheless, it should not be linked to the debate over wages. 150 players are currently involved in ‘Players Together’, implying an average donation of £26,667. This is less than 1% of the average PL salary. The ability to make such donations would certainly not be affected by a wage reduction.
On the topic of clubs using the CJRS to furlough workers, it is important to note that clubs may experience serious financial damage as a result of Coronavirus, but would be entitled to use the CJRS regardless. The government does not require businesses to prove they are suffering financially, only that jobs cannot be done at this time. Yet there is a moral argument that businesses should only use the scheme if they cannot use alternate means to protect jobs.
Unemployment has high social costs, so player pay cuts should be implemented if they are necessary to ensure non-playing staff keep their jobs. Yet job losses have so far not been discussed. The current debate is over whether clubs should cover financial losses through furloughing and the CJRS, or player pay cuts. Both of these cost the government money – either directly or through lost tax revenue. The desirable outcome for society is the one which costs the government less money, as this money funds essential services.
To determine the lost tax revenue from a pay cut, let’s consider a scenario where a six-month 30% pay cut was imposed on players, and clubs did not furlough staff or covered wages of furloughed staff themselves. The total wage bill for six months is £800m, according to the 2019 GSSS. An effective tax rate of 45% is used. Players earn considerably over £150,000 (point at which the highest tax rate kicks in), so the vast majority of their income is taxed at 45%. National Insurance contributions are excluded for simplicity. A 30% cut would lead to a fall in income tax revenue from £360m to £252m over six months: a reduction of £108m. Since this translates into a £216m revenue loss over 12 months, the PFA’s claim that a 30% pay cut would cost the government over £200m is correct.
To determine the government cost of furlough, imagine a ‘maximum-government cost’ scenario in which all clubs furloughed all non-playing staff for six months and claimed the maximum amount allowed under the CJRS: £2,500 a month per worker (ignoring National Insurance and pension contributions for simplicity). Based on their annual reports, each club employs 426 permanent staff on average. Unfortunately only six clubs specify the numbers of playing and non-playing staff. Using the number of players registered with the Premier League will not help as it excludes some players, including female players. Let’s therefore assume the number of players employed by each club equals the average number employed by the six clubs who provide data: 83. These clubs currently occupy a range of different league positions, so should comprise a fairly representative sample. Thus the average number of non-playing staff is 343 (i.e. 426 – 83). The cost to the government to support one club over six months would equal 343 x 2,500 x 6 = £5.145m. Supporting 20 clubs would cost £102.9m. Note that many employees’ salaries are probably not high enough to qualify for the maximum amount of £2,500, so the calculated value of £102.9m is an overestimate.
This result shows that despite the criticism directed towards clubs and players, cutting players’ wages by 30% would in fact cost the government more than if every club used the CJRS to furlough non-playing staff. Opponents of the players ought to recognise this. The ideal outcome, which costs the government no money, would be for clubs to fund furlough themselves and pay players as usual, so income tax receipts are not harmed.
The focus should therefore be on whether clubs can use their savings to get through this crisis. Using the CJRS or cutting pay should be considered only as a last resort, but this was not how clubs initially approached it. Liverpool and Tottenham, for example, rushed into it. The fact they subsequently backtracked shows furloughing was not in fact required at that time. They seemed to have realised their savings could be used to pay salaries – perhaps not surprising given they reported pre-tax profits of £42m and £173m respectively for 2018-19. This is where the PFA are most persuasive – in stating that players will only accept pay cuts if clubs prove they are financially necessary, as otherwise “the benefit of players paying non-playing staff salaries will only serve the business of the club’s shareholders”.
From the point of view of society, the desired outcome is for PL clubs to use their savings or contributions from their very wealthy owners during this pandemic. Failing this, the CJRS and pay cuts should be used if they are genuinely needed to safeguard non-playing employees’ jobs and guarantee clubs’ financial safety. The optimal balance between use of the CJRS and pay cuts depends on which option costs the government the least amount of money. This balance varies between clubs depending on the salaries of players and number of non-playing staff.
In conclusion, we are right to be sceptical of claims a pay cut would be ‘unfair’ to players or that their charitable contribution gives them a free pass. However, in the ongoing disagreements between clubs and players, the public should side with the latter.