I was posed a question last night about the Premier League by a casual American observer. “Why don’t they have a salary cap?” While on the face of it I know that in some ways the comparisons aren’t entirely fair, it certainly is a fair question. My knowledge of the economics of the Premier League isn’t as intricate as that of the NFL; however, I have a reasonable grasp. Being a lifelong devoted fanatic of American football, and a recently converted, but obsessed follower of English football, I now find the fans who annoy me most are those on either side who have no regard for the other one. If only the governing bodies of each major professional league were keen to take notes off each other.

Here’s part one of my series:

I) Parity

Since 2000, fifteen different NFL teams have represented their respective conference in the Super Bowl, and eight teams have won the championship. By contrast, only three teams have topped the Premier League in that span, and only members of the “Big Four” have finished in the top two. I will certainly entertain an argument for the value of sustained excellence; however, I think a neutral observer would prefer to see more teams, cities and fans participate in the thrill of a championship run.

There are many factors that created the financial success and stability of the NFL, and the cap-imposed competitive equality is a major factor. The maximum amount of money each of the NFL’s 32 teams could spend on player’s salaries last season was $128 million. The NFL’s deliciously lucrative TV contracts contributed $116 million to each team’s bank account, before a ball has been kicked, or thrown as the case may be. The labor dispute on the horizon between the team owners and the player’s union will be mostly about how to distribute an obscene amount of money amongst hundreds of millionaires.

If only the Premier League had such worries. There is no possibility of a Leeds United situation in the NFL. Sure, it’s possible that teams may relocate cities, or certain teams may fold, leading to the creation of a new franchise. But these unlucky teams and cities end up being replaced by markets that are even more lucrative (cough, Los Angeles, cough), and the overall financial health of the league is unlikely to be in question in the next decade.

Of course, the Premier League’s promotion/relegation system, a fixture in the worldwide game of football, is an entirely foreign concept in American sport. The totem pole/pyramid of the Football League down to Conference and non-league sides is a terrific, living, breathing, sporting meritocracy, where a new or old club is afforded success on its ability, acumen and luck. The NFL has its fair share of almost purely mediocre franchises, such as the Detroit Lions, where the ludicrous management decisions have been sustained by the rest of the league’s success, in what could conceivably be a misguided study in psychological torture of a mass population.

Premier League chief executive Richard Scudamore rejected the notion of a salary cap, suggested by UEFA.

“If you say 60% or 50% can be capped on wages, what it really does is absolutely lock in the natural order,” he told BBC Radio Five’s Sportsweek programme yesterday. “It would help the big clubs far more than the small clubs. If you have a small club who have got a benefactor, or who have got other ways of raising money or ways of funding, at least it gives them a chance to compete.”

Incredibly, the Premier League has a valid criticism.  Such a cap, tied to club revenue, would keep clubs within their means, rather than deficit spending themselves into massive debt.  But, it’s also implicitly unfair, as 60 percent of Man United’s turnover is far greater than 60 percent of Hull City.  It would calcify the existing order.

One alternative is a firm, legitimate salary cap for all clubs.  It would create parity, as it did in the NFL.  But, for such a system to be implemented, it would have to come at the expense of relegation.  Man United is not going to agree to a system that would see them at risk of relegation and financial ruin.

The NFL regulation may be too radical, but the Premier League should consider tow facets of the current system in place in Major League Baseball.

The first is the luxury tax.  There is no salary cap in American baseball, but there is a luxury tax – a set amount for payroll.  If a team spends above the luxury tax amount, they pay into a common fund, distributed to less fortunate clubs.

So, for instance, the Premier League could set the luxury tax threshold for payroll at £100m per year.  Chelsea’s payroll is £148.5m.  The difference is £48.5m.  Chelsea could pay a tax on the difference of 50 percent, so £24.25m.  That money would then be redistributed to the bottom clubs.  The tax could also increase for repeat offenders who repeatedly overspend.

The luxury tax would curb spending, but in a way palatable for clubs.  It would not stunt a big club’s ambition or enforce socialistic parity.  It would merely increase the cost of anticompetitive extravagance, to the benefit of other clubs.  Manchester United can still flex its financial muscle, but other clubs have a better chance to compete.

Another baseball innovation that the Premier League should consider is the apprenticeship period.

Baseball players are not natural free agents at the beginning of their careers.  Major League clubs hold their restricted rights for their first six seasons of Major League service.  The club dictates the player’s salary within league standards, for the first three years of the contract.

During the second three years, the player and club go to an arbitrator to agree on a salary.  A player may also sign an extended contract, often at below market value, forgoing another year of free agency in exchange for more money.

This could be key to breaking the Premier League oligarchy.

With young talent so cheap, teams would feel less pressure to sell young players.  Everton could keep Wayne Rooney for a few years, rather than selling him to Manchester United.

A low budget club with a smartly developed brood of youngsters and well-bought veterans could compete for the Premier League title.

It’s not a radical adjustment of power.  Generally, teams that spend well will still do well.  The Boston Red Sox and New York Yankees are still favorites to win the American League every season.

However, occasionally, there is a season such as 2008.  The Tampa Bay Rays went to the World Series with the second lowest payroll in MLB.  The three highest paying teams – the New York Yankees, the New York Mets and the Detroit Tigers – all missed the playoffs.

Similarly, Manchester United and Liverpool would challenge for the title every year.  But, every so often, a club such as Middlesbrough would rise to knock them from the pedestal.

The Premier League doesn’t need a massive NFL-style overhaul.  A softer touch in the manner of MLB may be just right.

FA chairman David Treisman mentioned introducing a salary cap, to combat the “very tangible dangers” of the current financial climate.  Premier League clubs have a combined £3 billion of debt.  But, is wage expenditure really the most prominent issue?

Yes, players make an absurd amount of money for wearing short pants and playing a kid’s game.  However, wages are not driving debt.

In the 2007-8 season, Kaka was the highest paid player in the world, earning just over £7m in salary per year.  John Terry, the highest paid player in England that season, earned roughly £6.5m.  It’s not a small sum, but, in an environment where a middling player, such as David Bentley, commands a £17m transfer fee, it’s not a particularly significant one.

Moreover, if compared to American sports, football salaries are, if anything, undervalued compared to the revenue earned by Premier League clubs.
There are far more significant debt factors.

American purchases of Manchester United and Liverpool, funded by credit, saddled those clubs with hundreds of millions of debt.  Arsenal assumed hundreds of millions of debt with the construction of the Emirates stadium.  Chelsea spend profligately, funded by an oil-rich sugar daddy.

A salary cap might earn the FA brownie points with embittered fans (and owners), but it’s not a sensible mechanism to combat debt.