All 47 clubs in League One and League Two have cast a vote on implementing a salary cap for teams in the two divisions and the financial controls are set to take effect immediately.
An EGM was held on Friday by all stakeholders of the EFL where a proposal for salary caps of £2.5m in League One and £1.5m in League Two was passed by the clubs.
The EFL believes that the salary caps would help address issues arising over club sustainability and financial stability, especially in light of the Covid-19 pandemic which sent finances and market values crashing around the world.
Expenditures including wages, players’ bonuses, agent fees, image rights and other fees paid directly or indirectly to registered players all form part of the salary cap, while bonuses accrued from promotion and progress in cup competition are excluded, and income from players leaving on loan are deducted.
Measures have also been put in place to ensure compliance with the directive and if a club exceeds the salary cap by 5%, they would face a penalty for every £1 by which they exceed the limit. The EFL also revealed that ‘transition agreements’ have been incorporated for relegated or promoted clubs and players on longer-term contracts.
Announcing the decision, EFL Chief Executive David Baldwin said: ”The term ‘salary cap’ is an emotive one, creating the impression of a restrictive measure, but we are clear in our view that this is neither the objective nor the likely effects of these changes to EFL regulations.
“The financial impact of Covid-19 will be profound for EFL clubs and today’s vote will help ensure clubs cannot extend themselves to the point that could cause financial instability.”
Additional talks with the clubs for extra financial measures are ongoing, while Championship clubs are also in discussions over implementing a salary cap of £18m which could come in effect ahead of kickoff of the 2020/21 season on September 12.
Having voted to end the 2019/20 season prematurely owing to the complications from the COVID-19 pandemic, several clubs in League One and League Two face an uncertain future and projections suggest that as many as 15 clubs face the prospect of going out of business.
There is a collective deficit of £200m due to coronavirus and many stakeholders including Newcastle manager Steve Bruce have urged richer Premier League sides to fund a rescue package for their struggling counterparts to help soften the blow.
However, the Professional Footballers’ Association are against the timing and abrupt nature of the decision, maintaining that consultations should be made with the union before such drastic measures are announced.
In a statement to club executives on Friday, the PFA said: ”The report has raised concerns that the proposed salary cap is being rushed through, without proper consideration or consultation.
”Like everyone involved in football, we want to see sustainable clubs at all levels. We absolutely understand and appreciate the huge economic pressure that clubs have come under due to the COVID-19 crisis.
”However, we have significant reservations about the measures being proposed and the speed at which these are being implemented.
”The introduction of a salary cap in English football represents a seismic change. It is a change that will have far-reaching and significant impacts right across the professional game. We must take the time to ensure that these are properly considered and understood.
”We have been surprised and disappointed at the level of consultation and engagement around these proposals so far.
” The EFL has a legal obligation to consult with the PFA and the Professional Football Negotiation and Consultative Committee (PFNCC), over any potential changes to a player’s conditions.
This consultation has not happened, and as such, we are gravely concerned that any cap brought in will be unlawful and unenforceable, which will ultimately be detrimental to everyone involved.”
Salary caps are a common feature of the American sports industry, with major professional leagues like the NBA, MLB, NHL, and NFL all having varying degrees of salary caps. It is, however, relatively uncommon in European football and it is unknown how this would affect the future of the English game.