At the heart of clubs’ financial concerns, the player wage bill represents, in the vast majority of cases, their largest expense. While some leagues are trying to control it by introducing, for example, a salary cap, as in rugby — where the total wage bill is capped at 60% of the projected budget and, more strictly, at €10.7 million maximum — the majority of professional clubs that file for bankruptcy do so because of poor management of player salaries. The teams at Six Sports Management worked with a first-division rugby club to define a strategy for optimizing its wage bill. Here are our key takeaways.
Is it possible to control your wage bill?
The answer is not as straightforward as it may seem, and ultimately comes down to the following question: can you remain competitive in a hyper-competitive environment if your wage bill is lower than that of your competitors?
To remain competitive with a lower wage bill, a club must be able to differentiate itself from its competitors through benefits other than financial compensation. In the TOP 14, it is estimated that Stade Toulousain can sign certain players for up to 30% less than other clubs would have had to pay, simply because… it is Stade Toulousain. Over the years, the club has become a benchmark in world rugby, both in terms of sporting performance and player development and exposure. These are powerful arguments for a club that is constantly looking to attract the best players in the world despite limited financial resources. Despite having a squad full of international-class players, Stade Toulousain does not necessarily reach the salary cap imposed by the French National Rugby League regulations every year. Controlling the wage bill while remaining competitive therefore appears to be possible.
In practical terms, what levers can be used to optimize the wage bill?
While we have seen one example of a lever for optimizing the wage bill based on the bargaining power between employer and player, not every club is in a position to adopt such an approach. Other, much more tangible levers can be used to optimize the wage bill, and they can be identified by looking at the components of the calculation:
Wage bill = Σ (player × gross salary × employee and employer social contributions).
1. Squad composition
The first lever for optimizing the wage bill is effective squad management, which is a key performance factor. The challenge of building a squad is twofold: never being short of a player of sufficient quality in any position during the season, while minimizing the number of employees in the squad to keep costs under control.
Squad composition must therefore be carefully planned in advance and should raise several questions:
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How many players do I need in each position to ensure sufficient rotation?
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Among these positions, which can be covered by the same player? Where can I recruit a single player who could potentially cover injuries in two or even three positions?
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At each position, what type of player can I afford to recruit? While having two “star” players in the same position can be counterproductive, the squad must also be able to rely on academy players as replacements.
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Among my young players, which ones can I realistically expect to play for the first team in the coming seasons, and on what timeline?
2. Contract structure
This last question is crucial because it brings us to a fundamental issue in wage-bill management: contract length. While there is a genuine distinction between football and other sports, where transfer fees are virtually nonexistent, contract length remains a real bet.
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On the one hand, the club is betting that the salary it pays a player for his current level will be undervalued relative to his future performance.
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This potential gain must be weighed against the possibility of a drastic decline in the player’s performance, in which case he would become overpaid, or against the emergence of another highly talented player within the squad who must also be given a substantial salary if the club wants to retain him, even if he plays in a position that is already covered.
Contract strategy is therefore critical: how long should the contract be to secure the player’s arrival, ensure squad stability in the medium term and remain competitive, without putting the club in a financially difficult position if the performance of one or more contracted players changes?
To optimize, you therefore need to anticipate… and make a reasonable bet.
3. Gross salary
Like any employee, the primary element of a player’s contract is the compensation he receives for his work. But how should an appropriate salary be determined for a player?
Here is an example of the work we carried out in professional rugby, taking into account the specific characteristics of the sport: the development of an indicative salary grid designed to estimate the salary that should theoretically be awarded to a player if our principles were followed. It was structured as follows:
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We started with a key component of compensation in professional rugby: the salary cap available to the club. In the case of the club we were working with, the club reached its cap every year, which helped inform our thinking.
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We then worked by position. Each position has a different level of value on the market. In rugby, second-row forwards, for example, are among the most highly valued players because they are relatively scarce. We therefore assigned a valuation coefficient to each position, ranging from -10% to +20%, depending on the value we believed should be attributed to each position on the market. We then divided our salary-cap amount across the different positions, applying the relevant coefficient to each. This allowed us to determine a wage budget for each position, to be allocated among the players occupying it.
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We then had to allocate this average salary among individual players within each position. A series of variables was defined — such as star versus rotation-player status, experience, length of service at the club and JIFF status — resulting in adjustments to the average salary established. Kickers and captains were also allocated a portion of the salary cap to reflect the additional value of their roles within the team.
By following these different steps in building a squad, balanced according to the various criteria identified in collaboration with the sporting staff, the model we developed makes it possible to maximize squad quality within a fixed wage-bill constraint.
This is an ideal scenario, however, operating within a framework that remains unique to each club, shaped by its sporting and financial convictions and by a market analysis that is necessarily empirical and based on a limited sample.
4. Social contributions and taxes
Part-time academy contracts, expatriate tax regimes, salary-cap transfers in the context of player moves, benefits in kind, variable compensation… There are many different ways to optimize the social contributions and taxes associated with player activity.
Being able to identify the right mechanisms to maximize a player’s net salary for the same amount paid by the employer can therefore become a significant competitive advantage, particularly when operating under a constrained wage bill.
What are the limits to wage-bill optimization?
No optimization model, whether a salary grid or recruitment guidelines, can actually guarantee the optimal ratio between wage bill and sporting performance. Optimization strategies are ultimately subject to the market.
Trying to fit a player’s salary into a predefined box will always run up against the positioning of his other potential suitors. For this reason, a model should first and foremost be informational. It should enable recruiters to make informed decisions.
Offering a salary above the level recommended by the model should signal the need for compensation elsewhere in the squad, meaning that the salaries of other players should be positioned below their theoretical market value. A balancing mechanism should therefore make it possible to maintain the overall wage bill while individual salaries fluctuate around the target that has been established.
Furthermore, sports regulations can sometimes impose significant restrictions on player remuneration, and clubs need to understand and master these rules to avoid finding themselves in breach of regulations. Tax and social-contribution regimes imposed at state level can also create genuine competitiveness challenges for clubs in an increasingly international and mobile market.
Six Sports Management supports professional clubs in their strategic thinking, particularly in their efforts to rethink their business models and differentiate themselves from their competitors through disruptive economic mechanisms.
Are you considering ways to optimize your wage bill? Get in touch with us.