New figures have illustrated the full financial impact of the
50% tax band and fluctuating exchange rates on the summer transfer
window, revealing that the cost of an overseas player to English
clubs is up to 70% higher than to their Spanish contemporaries.
According to analysis by the Deloitte Sports Business Group,
which compared the tax situation in the UK with those in Spain,
Italy, France and Germany, the two factors were having an effect on
the ability of the biggest clubs to attract the top-earning
players.
The 50% tax rate will come in next April, and Deloitte said that
a combination of an increase in the top rate and currency
fluctuations means that many European Premier League
players would see pay decrease by a third.
According to agents, most marquee signings will simply demand
that clubs make up the difference so that the players receive the
same net wage. In other cases, where clubs refuse to make up the
difference, players are increasingly likely to opt for Spain or
elsewhere in order to relieve their tax burden.
Additionally, European players are increasingly asking to be
paid in euros, forcing their clubs to carry the burden of
fluctuations in the exchange rate.
According to Deloitte's figures, for a Premier League club to
pay a European player a net salary of €3m (£2.59m) would cost them
€6.8m, taking in the new tax band. In contrast, a Spanish club
would have to pay the same player €4m to deliver the same net
salary.
Given Real Madrid's summer spending spree and the £80m switch of
Cristiano Ronaldo from Manchester United to Real, the twin
financial forces have contributed to the debate over whether the
Premier League has been overtaken by La Liga as the
preferred destination for the biggest players.
"The transfer window opened over a month ago, but Premier League
clubs are yet to make significant acquisitions from overseas. Real
Madrid have already spent a reported €200m on three players from
other big European Leagues [Cristiano Ronaldo, Kaka and Karim
Benzema] but we have not yet seen a significant influx to the
Premier League," said Pete Hackleton, a senior manager with the
Sports Business Group at Deloitte.
"The reduced value of sterling against the euro and the proposed
increase in the top rate of income tax are contributing factors to
this."
The shift also favours English players moving abroad, with the
advantageous tax regime widely believed to have been a factor in
Jermaine Pennant's decision to choose Real Zaragoza, in Spain, in
the wake of plenty of interest after being released by
Liverpool.
Under Spain's favourable tax laws, temporary non-Spanish
residents are taxed at 24%, with minimal social security
contributions, as compared to the top rate of 43% for Spanish
nationals. The Spanish Congress last month voted against abolishing
the special rate.
Arsenal's manager, Arsène Wenger, has been among those who have
highlighted the trend. "The new taxation system, and the collapse
of sterling, means the domination of the Premier League will go,"
he said. "That is for sure. It will be a financial problem for all
the English clubs."
But Hackleton said the strength of the Premier League's
broadcasting deals and redistributive rights agreements means
collectively the clubs are still in a stronger financial position
than their European rivals.
"The lucrative central-broadcasting-rights deals and the
relatively even revenue distribution mechanism for those broadcast
payments mean the majority of English clubs can still compete for
talent with their European peers," he said. "The concern is for the
biggest clubs competing for the best talent, where the reduced tax
rate in Spain gives the likes of Real Madrid and Barcelona a
significant advantage in attracting the best players in the
world."
In the 2007–08 season, total Premier League revenues were
€2,441m, more than €1bn ahead of total revenues for La Liga. The
latest Deloitte review of football finance showed that the Premier
League strengthened its position as the most lucrative in Europe
during 2007-08, largely as a result of the influx of money from the
first year of a new broadcasting deal.