Changing Tax Regimes Could Shift the Balance of Power in European Football

This is a reposting of a piece that I particularly like from a few weeks back. As always, comments are appreciated.

It is generally tough to empathize with people who make tens or even hundreds of thousands of dollars per week while being adored by millions to play a sport. This is especially true while the world is in the midst of a global economic crisis and on a day where headlines scream about 10% unemployment in the US.

However, despite it all, footballers are still people. Many of them have the same problems as everyone else, such as mortgage bills, car payments, bar tabs and dinner bills in the thousands of dollars, demanding model and pop star girlfriends… Well, perhaps in some cases problems are slightly different, but it is nonetheless conceptually easy for the average Joe to grasp the following point; some professional athletes, including soccer players, make career decisions based more on potential paychecks than opportunities for trophies.

Based on this less than shocking revelation, and due to some upcoming changes in the tax regimes of the host nations of what are arguably the top leagues in the world, the balance of power between the most successful leagues in Europe may soon shift. Even for those not facing the perils of the top-earners tax bracket, it is not difficult to imagine what could happen to a salary getting a 43% to 50% haircut before the direct deposit to checking occurs. And that is exactly what is going to happen to foreign players in Spain and England, respectively, starting next year.

England already taxes top earners at 40%, but its scheduled change to a 50% rate is nonetheless fairly dramatic. An even more dramatic change is scheduled in Spain, where due to the so-called Beckham Law passed in 2004, foreigners in the top bracket are only taxed at a 24% rate currently. This law was passed to attract high earners in all fields to the country. However, the top rate of 24% rate is scheduled to increase to 43% early next year. Though the Spanish law will not work retroactively, it is not difficult to imagine that a year that has seen players the caliber of Alonso, Ibrahimovic, Kaka, Ronaldo, Benzema agitate for moves to Spanish clubs would be less likely in the future under a less competitive wage scheme. Many recent articles have focused on the claims of the Spanish Primera that it will strike if this potential change occurs as scheduled. However there has been less analysis on the good result which could come of it.

This good result is namely the potential for greater parity between leagues. As can be seen in American sports leagues such as the NFL, the NBA and some extent Major League Baseball, some degree of parity can be good. It creates the potential for more clubs and fan bases to go through their seasons believing that they have a chance at the ultimate prize, and can ultimately lead to more teams with championship trophies over time. With the dominance of English and Spanish teams in the cross-border Champions League the past few years, it may be refreshing to see clubs from other nations, such as Germany or Italy, or even Portugal or Holland, return to the podium. And this may be possible if there is less incentive for top players to immediately go to Madrid, Manchester, Barcelona or London as soon as one of the big clubs come knocking.

Therefore, despite the excesses of athletes which so many find appalling, particularly in tough economic times, this may be a case where greed, for lack of a better term, is good. If players think twice about going to England or Spain due to their tax regimes, greater parity may be the result throughout Europe, with the end result being a more interesting, and more competitive continental structure.