What Tax Increases Will Do To The Premier League's Biggest Clubs
The United Kingdom has raised taxes on any income higher than £150,000 to 50 percent beginning in April of 2010. This raise in income tax is to relieve some of the economic pressure in the UK during this global recession and should only affect the top one percent of earners in the country. Unfortunately for the Barclay's Premier League, this tax hike will affect many of its players.
The most direct competition to England's Premier League, in terms of level of competition, television rights and commercial success, comes from Spain's La Liga, Italy's Serie A and Germany's Bundesliga. The top tax bracket in Spain takes 43 percent of total income, 45 percent in Italy and 42 percent in Germany.
This means that the average player in the Premier League, who is earning £1.08 million, stands to lose approximately £70,000 to his counterpart in Spain. Couple the greater earning power of Spain, Italy and Germany with the recent development of Spain's La Liga is arguably the greatest league in the world, and the Premier League finds itself struggling to attract the world's best players.
Wage rates amongst the biggest spenders in the Premier League have been astonishingly high for the better part of the 2000s. With the purchases of Chelsea by Russian billionaire Roman Abramovich in 2003 and Manchester City by Abu Dhabi royalty Sheikh Mansour bin Zayed Al Nahyan in 2008, wages have become more and more inflated.
Players losing out on seven percent of income to La Liga will likely mean that in order to attract some of the world's brightest talent back to the Premier League, teams will have to raise wages even further to compete.
The past transfer window saw some of the quietest activity from the big four that has been seen in years. Manchester United's biggest signing was £16 million Antonio Valencia from Wigan, Chelsea's big buy was £18 million Yuri Zhirkov from CSKA Moscow, Liverpool had £20 million Alberto Aquilani from Roma and Arsenal signed Thomas Vermaelen from Ajax for £10 million.
To put that in perspective, the British transfer record belongs to Manchester City when they bought Robinho from Real Madrid for £32.5 million. In this slow close season for English teams, Real Madrid spent £227.9 million. In the same season, Barcelona sent £37 million and La Liga's second leading scorer, Samuel Eto'o, to Inter for Zlatan Ibrahimovic.
It's not that money wasn't being spent in the economic downturn, it's not that players were content to stay where they were. It's that players don't want to lose their hard earned money. According to Xabi Alonso, the reason for his transfer from Liverpool to Real Madrid was a monetary one.
Amidst the quiet transfer window in England, there was one team splashing the cash. Manchester City spent £108 million on Emmanuel Adebayor, Carlos Tevez, Joleon Lescott, Gareth Barry, Roque Santa Cruz and Kolo Toure. Spending more money than the competition is one way to beat the tax hike.
Overpaying seems to be the only way to keep hold of those superstars dreaming of Spanish sunsets and an extra million pounds in their bank accounts. Chelsea had a Premier League leading £172 million payroll for the 2008/09 season. City's payroll has exceeded £100 million for the 2009/10 season and is likely to increase when the transfer window re-opens in January.
However overpaying is not an option for 18-and-a-half of the teams in the Premier League. City's fortunes are relatively bottomless, Sheikh Mansour bin Zayed Al Nahyan has a personal fortune just short of £18 billion and access to a family fortune of £560 billion. All the while, Chelsea owner Abramovich is worth a meager £8 billion. Chelsea can run with the free spending City but the wages will eventually catch up to Chelsea while resources will still be in great supply at City.
Which leaves City virtually unhurt by the tax raise. Paying over the top has not been an issue since the arrival of Sheikh Mansour bin Zayed Al Nahyan and it's likely to continue to be one of the major perks of joining the City revolution.
The other alternative to beating the tax hike is to rely on young players through scouting and developing talent from within. This is where Arsene Wenger's frugal attitude for the past three seasons may not seem so crazy after all. Wenger has cultivated a team of young stars in the making and hasn't spent over the top to do it. If players are ultimately going to force a move to countries with lower taxes, why spend so much to get them in the first place?
Wenger and Arsenal may be forced to sell their collection of young stars once their reputations exceed their wage packets, but doing so at a substantial profit would allow Wenger to reinvest and start the process over again.
In realistic terms, the tax hike will create a greater emphasis on youth academies and reward clubs that are able to groom and develop their own players rather than buying talent. This would make Arsenal amongst the favorites to succeed in the taxation era of the Premier League. And clubs with a history of not being able to develop their own, like Chelsea, more susceptible to falling on hard times.
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