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Former Chester director Paul Baker offered the following guide to readers of the Devachat forum following Chester's inability to re-sign loanee Craig Lindfield due to wage cap problems:
Outline explanation of the Football League salary cap - How the cap is calculated:
The salary cap works by setting clubs two percentage levels that must not be exceeded by the club. These two levels are set against 'relevant' income and 'related' expenditure.
'Relevant' income: This income does not include loans or any other income that is generated by incurring any debt (i.e. directors' loans). The main areas of relevant income include:
- Distributions from the League and FA
- TV monies
- Grant funding
- Prize monies
- Basic awards
- Match revenue
- Season ticket sales
- Gate receipts
- Commercial income
- Club shop gross profit income
- Catering gross profit income
- Etc…
Other revenue
- Net transfer income
- Revenue from the stadium
- Gifts and donations from lotteries and other third-parties
- Donations and investment from Supporters’ Trusts
- Equity cash injections (issuing share capital)
Expenditure is split into two categories, players' wages and total salary costs.
Players' wages: These are all the payments due all players registered and on-loan with the club under the terms specified in their contract and includes:
- Bonuses
- Appearance fees
- Employers' National insurance
Total salary costs: Total salary costs take into consideration the monies paid out to non-playing employees of the club.
Calculation: Players' wages must not exceed 60% of 'relevant' income and total salary costs must not exceed 75% of 'relevant' income. Typical example: A club with £5,000,000 'relevant' income would have a budget of £3,000,000 for playing staff, and an overall budget of £3,750,000 for salaries.
Budgeting Preparations for the forthcoming season have to be outlined to the FA in July when an initial budget must be submitted. This is followed up by an interim report in December and a final report the following July. During the course of the season, management accounts must be submitted for review on a bi-monthly basis and are checked against the statutory accounts.
The Football League are able to inspect the clubs accounts at any given time. Statutory Accounts Accounts filed at Companies House following either an audit or review by an independent accountant. Exceeding the cap If the contract of a player being transferred to a club pushes the amount paid on salaries over the threshold, the Football League will refuse the registration of the player.
