Hereford United and the Salary Cap

Figures released last summer showed that League Two clubs were estimated to have lost £8 million pounds last season. That's an average of £333,000 for each club.

The total losses were £9M in the previous season so some progress has been made. Some of that drop could be because of the 55% salary cap - better known as Salary Cost Management Protocol (SCMP).

In 2003 The Football League introduced SCMP for League 2, limiting spending on player wages to 60% of turnover. If clubs broke the 60% limit, they were not allowed to register any further players. The limit was reduced to 55% at the start of this season.

Recently Football League Chief Operating Officer Andy Williamson explained what had happened.

"The salary increases in League 2 are much lower than they are elsewhere, so there is evidence that it has worked in terms of ensuring that clubs are sustainable.

"Only one resident League 2 club has fallen into difficulty since the introduction of that salary cap. So it does work."

Finding out the exact terms of the salary cap are difficult. Like much that goes on in football there's an amount of secrecy. But one thing is certain, there are some ways of getting around it if the club has rich directors.

Take the case of a club in a promotion battle, who may want to bring in a player or two which would put them over the 55% wage cap.

"The season we went up, when we were getting close, we increased our spending a bit and that was directors' loans. We knew what we were doing and how we'd cover if it didn't come off," explained Barry Kilby chairman of Burnley.

But not every club has rich directors with the ability to throw money at a problem.

Some detail of how clubs have to deal with SCMP was released several years ago.

It appears a club has to tell the FL about its turnover and salary payments twice a season. The first report is in July, the second is in January.

If a club in League Two, such as Hereford United, was found to be paying more than 55% of turnover in 'wages' then a transfer embargo would be placed on them. That embargo covers 'any attempt to extend contracts, register new players or enter into or extend loan agreements.'

There are two exceptions to the rules which might affect Hereford United. One is the 'bring one in and get one out' rule.

'This will only be allowed where the club's registered playing squad is 24 or less and the salary cost of the player coming in is less than 75% of the player going out'

The other is 'where the club needs to renew the contract of an under 24 player for the purposes of maintaining the compensation value of that player.'

For a club with low turnover, the salary cap can soon bite as has been noted by Gary Peters, recently appointed Director of Football at Edgar Street.

"What we have to do is get it down because I’m sure the league would take action against us," he said last week.

The annual accounts for last season are yet to be published, but they will show reduced turnover from the previous season, the last with Graham Turner in charge.

Turnover year to June 4 2010 was £1,804,852 of which Wages were £936,141

Turnover year to May 31 2009 was £2,023,657 of which Wages were £1,136,268

It's thought turnover last season was around £1.7M. The figure will have included the transfer money from the sale of Mathieu Manset to Reading and there was an excellent run in the FA Cup.

This current season the turnover could drop to £1.2M assuming Harry Pell isn't sold. If correct that implies the wage bill can not be above £660,000. And that wage bill will include an amount paid by the club, as an employer, for National Insurance. So the likely figure paid to the players could be as low as £600,000.

It's well known that the club has a few players still on the books who are being paid far more than the club can afford. Janos Kovacs, Sean Canham and Kenny Lunt together are thought be be costing the club around £200,000 this season which is why Peters is desparate to get at least two, if not all three, off the books as soon as possible. It might also partly explain why Stuart Fleetwood was recently sold to Luton - not only for the transfer fee but also to get him off the books.

Ryan Green, Adam Bartlett, Joe Colbeck, Michael Townsend and James McQuilken will probably take up another £200,000 of the wages budget.

Which leaves Joe Heath, Rob Purdie, Harry Pell, Nicky Featherstone, Delroy Facey and Stefan Stam sharing, perhaps, another £200,000.

And then, as Peters said, there's the £1000 per week for the remainder.

No wonder Peters and manager Jamie Pitman are having to attract loaness and other young players to Edgar Street to 'balance the books'.

Hereford United's gates this season are below the figure chairman David Keyte had hoped for, the club is out of the FA Cup, and whilst efforts to increase off-pitch income continue, there's little extra coming in from that source as yet.

On top of that there will be less money from the new Sky deal from the start of next season.

Tough times at Edgar Street and tough decisions may yet have to be made to keep to the Salary Cap. But at least Hereford United appear to be getting on top of the problem and looking to the future.

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