Salary Models and Contract Negotiations

Session Overview: Salary Models and Contract Negotiations

  • The session specifically shifts focus from general budgeting (the subject of the previous session) to the intricate structures of player salaries and the mechanics of contract negotiation in women's football.

  • Key objectives include:

    • Analyzing common structures for player salaries.

    • Exploring the impact of regulation, including wage caps, tax laws, and financial sustainability rules.

    • Examining how clubs manage disputes within different jurisdictions.

    • Developing skills to balance financial sustainability with the need for a competitive salary office to attract and retain talent.

  • The instructor's background is in forensic accounting and academia, with prior experience working on numerous financial disputes.

Strategic Foundations: Defining Objectives and Identifying Limitations

  • Step 1: Identifying Organizational Goals

    • Success in salary management begins with defining what the club is trying to achieve.

    • Common organizational aims include:

    • Aiming to be the "best payer" in the league to attract top talent.

    • Focusing on staying afloat and avoiding relegation.

    • Operating strictly within a predefined budget.

    • Beating a specific local or historical competitor.

    • A frequent mistake is "jumping in" without a clear strategic starting point, which leads to long-term financial issues.

  • Step 2: Understanding Limitations and Barriers

    • Money remains a major primary limitation in women's football.

    • Regulatory Impact: General and football-specific regulations impact decision-making.

    • Profit and Sustainability Rules (PSR): Current Premier League rules focus on profit. Some teams have circumnavigated this by selling women's teams to holding companies or moving assets to affect the stability of decision-making.

    • Talent Acquisition: The ability to afford the right talent at the right time is a structural barrier.

    • Political and Social Influences: Recent trends show that politics, Corporate Social Responsibility (CSR), and Equality, Diversity, and Inclusion (EDI) policies act as limitations. If women's football is viewed solely through the lens of "equality initiatives," it can create legal and financial barriers to growth.

    • Affiliation Restrictions: In Europe, European Union (EU) or UEFA-level regulations have stipulated that men's clubs wishing to play in European competitions must also invest in women's football. Some clubs interpret this as setting up a full women's team, while others treat it as a CSR investment initiative. The National Women's Soccer League (NWSL) in the US is unique because very few teams are affiliated with outside men's organizations, whereas most of Europe follows an affiliated model.

Case Study: Startup Phase Operations and Prioritization

  • Participant Contribution on the Startup Phase:

    • A participant from a club in their first year in a national league described the "limbo" state of startups, noting a lack of historical data to guide decisions.

    • Because investment arrived late, the club had to prioritize creating a professional standard for players and staff over marketing and merchandise.

    • Strategic Choice: Avoiding marketing spend in a year where a rebrand is planned for the following season (100% efficiency loss if spent early).

  • Forecasting Difficulties: Modeling and forecasting are significantly harder for startups due to a lack of historical data from previous years to base projections on.

The Importance of Support Infrastructure

  • Administrative and Professional Systems:

    • Investing only in "assets" (players) is identified as a poor decision if the support system is not in place. Necessary experts include those capable of handling:

    • Visa Procedures: Specifically for players moving from outside Europe or from the USA.

    • Tax Management: Complexity arises from inter-jurisdictional movements and the fact that player moves often do not align with standard tax years.

    • Performance Stressors: Poor administrative handling of personal logistics (banking, housing, taxes) acts as a direct performance stressor for athletes.

  • Evolution of the System: This issue was prevalent in men's football in the 1990s. Women's football has been somewhat slow to adopt these support systems, often viewing them as unnecessary "big model" expenses rather than essential infrastructure.

Multi-Club Ownership Models

  • There is a mass influx of multi-club ownership in women’s football.

  • Economies of Scale: Independent women's clubs are finding it too expensive to operate in isolation. Sharing resources across multiple clubs helps manage the administrative load.

  • Example Organizations:

    • Kineska

    • Mercury 13

    • Prux

    • Bay Collective

  • This model allows shared front-office operations, scouting, and infrastructure, which is vital for clubs moving from amateur to professional status.

Financial Decision-Making Tools and Cost Classification

  • To make informed salary decisions, clubs must distinguish between different types of costs:

  • Cash vs. Costs (Accrual Accounting):

    • Cash and costs are not the same. Money may leave the bank (cash) at a different time than when the expense is recognized (cost).

    • Rent is often paid in advance (cash first, expense later), while electricity is used then billed (expense first, cash later).

  • Cost Categories for Decision Making:

    • Relevant Costs: Costs that change based on a specific decision (e.g., opting for Player A at X salary vs. Player Y at Y salary).

    • Sunk Costs: Costs that cannot be changed by future decisions (e.g., the original purchase price of faulty gym equipment). These should be ignored in future decision-making.

    • Opportunity Costs: What is lost by choosing one path over another (e.g., the performance value of Player B if Player A is signed instead).

    • Incremental Costs: The differences in total costs and revenues between two alternative courses of action.

Regulatory Regimes and International Differences

  • League Variation:

    • WSL (Women's Super League): Historically had a "soft cap" based on a percentage of revenue. However, the definition of "revenue" was often unclear, sometimes including men's team revenues in the calculation.

    • NWSL: Utilizes Collective Bargaining Agreements (CBAs) and salary caps. Recent player movement to Europe forced the NWSL to rethink squad cost rules entirely.

    • NCAA (National Collegiate Athletic Association): Amateurism rules in the US mean players must maintain eligibility, preventing them from receiving any salary.

  • Legal Jurisdictions: European law regarding the "restriction of trade" prevents certain salary/wage limitations that might be legal in the US (NHL/NFL models).

Salary Structure and Contract Components

  • 1. Base Contract:

    • Based on experience, age, and impact.

    • Incorporates performance metrics (appearances, goals, assists, clean sheets).

    • Includes and adheres to a "Salary Floor" (Legal minimum wages or living wages).

    • Annual reviews are recommended to manage inflation and the rapid growth of expectations in the women's game.

  • 2. Incentives and Bonuses:

    • Individual Bonuses: Match wins, goal contributions.

    • Team Bonuses: League position, cup wins, Champions League qualification.

    • Cautionary Note: Team success bonuses must be aligned with prize money. In some competitions, the prize money is "pitiful," and offering high bonuses can create an expense headache for the club.

    • Reverse Incentives: An anecdote mentions a loan deal where a club's loan fee was reduced if they played an academy player for more than X minutes, incentivizing athlete development.

  • 3. Benefits Packages:

    • Health and medical coverage (crucial for ACL rehabilitation).

    • Career and education support (scholarship, coaching licenses).

    • Maternity policies (moving toward universal standards but still vary by club).

    • Retirement planning and career transition (e.g., PFA education programs in England).

  • 4. Player/Image Rights:

    • Endorsements and commercial sponsorship are primary revenue drivers in women's football.

    • International duty provisions are a major consideration in contract length and availability.

Dispute Resolution and Sustainability

  • Disputes are becoming more common as the industry grows.

  • Resolution Hierarchy:

    • Litigation: Very costly; involves criminal and civil courts.

    • Alternative Dispute Resolution (ADR): Generally faster and cheaper.

    • Arbitration: The standard norm in football.

    • Mediation/Conciliation: Neutral third parties facilitating dialogue.

    • Expert Determination: Similar to arbitration but focused purely on technical numbers.

  • Financial Warning Signs (The "Red Flags"):

    • Review of UK clubs shows that most involve high losses because wages have increased faster than revenues.

    • In the Premier League (Men's), nearly every club has red flags indicating financial instability, except for Manchester City (currently undergoing reporting disputes).

    • In the Championship (UK), many teams are "technically insolvent," meaning they have negative equity.

    • Many women's teams are affiliated with these insolvent men's teams, making them vulnerable to the ownership group's financial health.

Valuing the Modern Athlete: Beyond the Pitch

  • On-field Value: Contributions to wins, losses, and team stats.

  • Off-field/Commercial Value:

    • Social Media Presence: Investors (like Alexis Ohanian with Angel City FC) look at following counts (e.g., Alex Morgan and Megan Rapinoe having several million followers).

    • Demographics: A player's ability to reach a specific growth demographic makes them more lucrative to commercial partners.

    • Clubs often pay more than they should to "catch up" with the market, creating an upward spiral that challenges long-term financial stability.

Questions & Discussion

  • Question (Jesse): If a player is on contract and gets loaned, do they get a new loan contract? Do they take a wage cut?

  • Response: The contract remains with the original club. The loan deal is a separate agreement between the parent club and the loaning club. The parent club might pay 40% and the loaning club 60% of the wage, for example. The player usually does not get less, but the distribution of who pays changes. In some cases (e.g., Rashford moving to Barcelona in the men's game), a player might take a pay cut to facilitate a move they want for experience.

  • Question/Comment (Jamie): A startup doesn't have an alumni network to leverage yet.

  • Response: That is a long-term goal. While not relevant to Day 1 of a startup, building those links with player associations (like the PFA) early on provides cheaper access to support networks for the players.