As England were boarding the plane home from Japan days after a World Cup final defeat by South Africa, a significant story was surfacing back in England. Saracens Rugby Club (Saracens), the reigning Premiership and European champions, were hit with a 35 point deduction and a £5.36m fine for breach of the Salary Cap Regulations.
How does a salary cap work?
Premiership Rugby became one of the first UK sports to introduce a salary cap in 1999 with the aim of ensuring the financial viability of all member clubs, as well as providing a level playing field across the league. The level of the salary cap is determined by the Premiership Rugby Board, made up of the 12 member clubs for each season, and is intended to be proportionate and aligned to the growth of the clubs.
There is no restriction on an individual player’s salary under the Salary Cap Regulations but the collective salaries of all the players must be within a specified limit. The Salary Cap Regulations define “salary” broadly, making clear that this includes payments to players’ family members, agents or related companies. For clubs, the Salary Cap Regulations cover payments made to a player by directors of the club (and their family members), shareholders, sponsors, officers or employees of the club. The breadth of the Salary Cap Regulations mean that a wide range of payments (e.g. bonuses, pensions, image rights, payments made in connection with media work or off-field activities) would be included in the calculation of a club’s compliance with the salary cap.
However, the Salary Cap Regulations permit each club to nominate two “excluded players” whose salaries do not count for the purposes of salary cap calculations. Clubs are also rewarded for developing home grown talent who feature for their senior club team, as they are entitled to receive up to £50,000 per home grown player, which acts as credit to increase the club’s salary cap.
What are the charges brought against Saracens?
The charges brought against Saracens relate to:
- the club’s alleged failure to disclose payments to its players in the 2016-17, 2017-18 and 2018-19 seasons via joint ventures established between the club and certain players; and
- the club exceeding the cap permitted under the Salary Cap Regulations in the 2016-17, 2017-18 and 2018-19 seasons.
Following a nine-month investigation, Premiership Rugby referred the above charges to an Independent Panel to determine whether Saracens had breached the Salary Cap Regulations. The Independent Panel upheld all of the charges against Saracens but stipulated that the points deduction only applies to the current 2019-20 season and has no effect on any other domestic or European competition.
In reaching its decision, of which the full details have not been made public, the Independent Panel rejected Saracens’ argument based on competition law and found that the salary cap operates in a pro-competitive manner by “promoting the objectives of ensuring the financial viability of Clubs, controlling inflationary pressures, providing a level playing field, ensuring a competitive league and enabling Clubs to compete in European competitions.”
What happens next?
Representatives from the other Premiership clubs have made various public statements including demanding that Saracens be stripped of all titles from the relevant seasons and that they should be automatically relegated. Others have pointed to the private settlement agreements entered into by Bath and Saracens with Premiership Rugby in 2015 and called for the latest sanctions to be aligned with the previous approach. However, it is worth noting that neither Saracens nor Bath were found to have committed a breach of the Salary Cap Regulations in 2015.
Should any of the other Premiership clubs decide they want to pursue legal action against Saracens, claims could potentially include:
- breach of contract (i.e. the Salary Cap Regulations) – sporting regulations are generally interpreted by the courts as a contract between the governing body and the member clubs;
- unjust enrichment; or
- a tortious claim of causing loss by unlawful means.
If a club does opt to pursue a claim against Saracens, it will have to show the losses it has suffered were directly caused by Saracens allegedly breaching the salary cap. Such losses could potentially include:
- lost prize money as a result of finishing lower in the Premiership table during the relevant seasons;
- lost sponsorship money due to finishing lower in the Premiership table during the relevant seasons;
- reduced TV earnings; and
- indirect losses incurred as a result of Saracens undermining the integrity of the competition and its attraction to sponsors.
Any claim brought against Saracens will face the challenge of proving that the clubs have suffered loss and that Saracens has caused their loss. Premiership Rugby have not yet made public the details of what will happen to the £5.36m fine once it is paid by Saracens but if a set amount of the fine is distributed to the 11 other Premiership clubs, proving loss may become even more difficult for any clubs wishing to pursue legal action against Saracens.
Under Regulation 13.1 of the Salary Cap Regulations, any dispute between the clubs in relation to these regulations would be decided by private arbitration. However, the appropriate forum for any potential claim would depend on the particular claim brought by a club against Saracens.
With the news that Saracens have opted not to appeal the sanctions imposed by the Independent Panel, it is expected that Premiership Rugby will soon release further details of the sanctions imposed, especially in light of the fact that this is the first significant breach of the Salary Cap Regulations in English rugby. It remains to be seen whether any of the other Premiership clubs decide to take individual or collective legal action against Saracens but it is clear that the Independent Panel’s decision has already had a significant impact on English rugby and clubs’ approach to financial fair play.