SALARY CAPS AND EUROPEAN UNION COMPETITION LAW

Salary caps have long been a familiar feature of professional sport in the United States, especially in the National Football League (NFL), where they are part of a comprehensive regulatory framework designed to ensure competitive balance, financial sustainability, and collective fairness.

In Europe, however, the application of such caps, particularly in association football, raises significant legal questions under European Union (EU) competition law. As financial disparities between football clubs continue to grow, especially within the top tiers of European football, the debate over the legality and desirability of salary caps has re-emerged with new urgency.

Under Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), any agreement that restricts competition or constitutes an abuse of a dominant position is generally prohibited. Salary caps, by their very nature, can be seen as horizontal agreements between clubs that limit the capacity of wealthier teams to offer higher wages to attract top talent. This can distort the labour market and impede the free movement of players across Member States. In this sense, salary caps raise immediate concerns regarding their compatibility with the internal market.

However, not all restrictive rules are unlawful per se. European case law, particularly the landmark Meca-Medina judgment (Case C-519/04 P) has recognised that certain sports rules, although restrictive, may be justified if they pursue legitimate objectives and are proportionate and necessary to achieving those objectives. In the context of salary caps, the most commonly invoked justifications are the preservation of competitive balance, the protection of the financial integrity of clubs, and the long-term sustainability of professional leagues.

These objectives may, in principle, be recognised as legitimate under EU law. This reflects a ‘rule of reason’ approach, under which the restrictive effects of salary caps may be weighed against their potential benefits for the integrity and sustainability of sport.

For such rules to withstand legal scrutiny, however, they must satisfy the proportionality test. This means they must be suitable to achieve the stated objectives, go no further than necessary, and avoid unduly undermining the economic rights of clubs or players. A rigid or excessively low salary cap that prevents clubs from investing in talent, or that suppresses player wages without adequate justification, may fail this test. Moreover, alternative mechanisms, such as luxury taxes or enhanced revenue-sharing models, could be considered less restrictive means to achieve the same goals.

The English Premier League recent proposal to introduce a salary-related ‘squad cost ratio’ rule, set to come into effect in the 2025/26 season, offers a timely illustration of these tensions.

Under the proposed rule, clubs would be restricted to spending no more than 85% of their total revenue on player-related costs, with the threshold lowered to 70% for those competing in UEFA competitions. Additionally, the League is exploring an ‘anchoring’ mechanism that would link the maximum allowable spending to the revenue of the club finishing last in the League table, reportedly at a multiple of around 4.5 to 5. This anchoring system aims to ensure that spending remains tied to the League’s overall economic ecosystem, thereby addressing the widening financial gap between richer and smaller clubs.

UEFA has also adopted a cost control framework under its new Club Licensing and Financial Sustainability Regulations, in force since June 2024. Article 94 of the Regulations requires that a club’s squad cost ratio must not exceed 70%. This ratio, defined in Article 93 and Annex K, is calculated by aggregating spending on player and head coach salaries, amortisation of transfer fees, and agent-related costs, and dividing this by adjusted operating revenue and net transfer results.

In practice, this mechanism functions as a salary cap in all but name. A breach of the 70% threshold automatically triggers a financial disciplinary measure under Annex L, calculated as a percentage of the overspending. In cases of significant breach, additional disciplinary sanctions may be imposed, pursuant to Article 29 of the Procedural Rules governing the UEFA Club Financial Control Body. These may include the withholding of UEFA revenues, restrictions on player registrations, or even exclusion from UEFA competitions. Whilst the system allows for limited flexibility in reporting periods, its growing stringency reflects the UEFA firm commitment to financial discipline, although the compatibility of such measures with EU competition law may still be subject to future legal scrutiny.

These developments at the UEFA level are mirrored by the English Premier League ongoing efforts to strengthen financial governance domestically.

The proposed cap would complement the existing Profitability and Sustainability Rules (PSR), which currently allow clubs to incur a maximum of £105 million (around Sw. Frs.    million) in losses over a rolling three-year period. The new system is intended to offer a more forward-looking approach to financial regulation, reducing excessive risk-taking and enhancing the League overall balance and competitiveness. At the same time, the Professional Footballers‘ Association has expressed concern about the potential impact of these rules on player earnings and labour rights. It is clear that any salary cap must be designed with care, taking into account not only financial objectives but also fundamental legal rights under EU law.

Comparing this situation to the US context highlights important structural and legal differences. In the NFL and other major US Leagues, salary caps are typically enshrined in collective bargaining agreements negotiated between League management and players’ unions. These agreements provide legal certainty and shield the arrangements from antitrust liability under US law, given their collective nature and statutory exemptions. The US model also operates within a closed-League system without promotion or relegation, with strong central governance and comprehensive revenue-sharing, which helps to equalise economic power amongst franchises.

By contrast, European football operates within an open system, where clubs compete for promotion and face relegation, with vastly divergent revenues and limited redistribution.

Moreover, the EU legal framework provides for strong protections of competition and worker mobility, meaning that salary caps not grounded in collective bargaining or lacking adequate justification may be particularly vulnerable to legal challenges. The recent Lassana Diarra case (Case 650/22), as well as the EU Court of Justice analysis in the Diarra and Super League (Case  C-333/21) judgments, have only reinforced the requirement that any sporting regulation affecting economic freedoms must be clearly justified, necessary and proportionate in its effects.

In this context, the French model offers an instructive comparison, highlighting the diversity of approaches to salary regulation in European sport.

In France, the possibility of implementing salary caps is explicitly recognised under national law. Article L.131-16, 3° of the French Sports Code empowers delegated sports federations to adopt regulations concerning the legal, administrative and financial conditions that sports clubs must meet to participate in competitions. These regulations may include provisions requiring a minimum number of locally trained players in team rosters, as well as absolute or relative limits on the total remuneration paid to athletes by each club.

This legal basis has enabled the Ligue Nationale de Rugby (LNR) to enforce a binding salary cap in professional rugby since 2010, combining fixed ceilings with flexible mechanisms, and supervised by a dedicated Salary Cap Manager and disciplinary body. Clubs are required to declare all forms of payments and benefits granted to players, and it is the Salary Cap Manager who ensures compliance with the financial ceiling, based on both documentation and investigations.

The legality of such caps was confirmed by the French Conseil d’État in its Montpellier Hérault Rugby ruling (11 December 2019, No. 434826), which held that these measures pursue legitimate objectives—namely financial stability and sporting equity—and do not constitute a disproportionate infringement on constitutional economic freedoms, such as contractual liberty or freedom of enterprise.

In contrast, no formal salary cap exists in professional football in France. However, financial regulation is firmly enforced through the Direction Nationale du Contrôle de Gestion (DNCG), the body responsible for monitoring the financial accounts of professional clubs. The DNCG is empowered to take a wide range of regulatory and disciplinary actions when a club’s financial situation is deemed unsustainable. These include prohibiting player registrations, restricting recruitment, denying promotion, or imposing relegation.

This ex post control mechanism, based on annual budget assessments and strict accounting oversight, aims to ensure financial integrity rather than impose direct spending limits. Whilst it differs from a salary cap in form, in effect,  it serves similar objectives of financial discipline and sustainability, leaving greater discretion to the regulator on a case-by-case basis.

Ultimately, whilst salary caps may help address financial imbalances and ensure sustainable competition, their implementation in Europe must navigate a complex legal and economic landscape. The contrast between the US and EU approaches and, within Europe, between the English Premier League, UEFA, and the France rugby and football systems, illustrates the diversity of regulatory models available. Any cap mechanism must be justified, proportionate, and, ideally, negotiated with player stakeholders, especially player unions. Otherwise, it risks falling foul of the EU competition rules and fundamental economic freedoms.

We advise, at the national, European and international levels, on all aspects of the financial regulation of sport, including association football, and further information is available from Dr Estelle Ivanova by emailing her at ivanova@valloni.ch.