The Soccer Players' Revolt
It turns out that tax policies have on-the-field consequences.
Aug 10, 2009, Vol. 14, No. 44 • By JONATHAN V. LAST
The English Premier League has dominated European soccer in recent years. Nine of the last 12 Champions League semifinalists have come from the Premier League, and an English team has been in the final for each of the last five years (two played each other for the trophy in 2008). The Premiership's top teams--Manchester United, -Arsenal, Chelsea, and Liverpool--are four of the sport's ten glamour franchises, and the league is easily soccer's richest. Yet over the last few months, star players have been rejecting offers from the Premier League hand over fist.
In January, Manchester City made a £100 million offer for the Brazilian midfielder Kaká. He spurned the overture in order to stay at AC Milan, but then in early June accepted a £68.5 million transfer to Real Madrid. Then Manchester United sold Christiano Ronaldo to Real Madrid. Ronaldo, the highest-paid player in soccer history, had requested the trade and calls playing in Spain "a dream." Looking to fill the goal-scoring gap, United tried to lure the Lyon striker Karim Benzema. In July, Benzema went instead to Real for a £30 million transfer. Desperate to fill the hole, United extended a £25.5 million offer to Barcelona striker Samuel Eto'o and would have made him the highest-paid player in England. He's now on his way to Inter Milan.
Liverpool's Jermaine Pennant left for Spain's Real Zaragoza. Valencia's star striker David Villa simply said no when the English came calling, as did Bayern Munich midfielder Franck Ribéry, Valencia defender Raúl Albiol (who later said yes to Real Madrid), Inter Milan right back Maicon, and the Juventus midfielder Felipe Melo. The only high-profile player to sign with the Premier League this summer has been the defender Thomas Vermaelen, who went to Arsenal.
Why have players been rejecting hefty fees to play in the world's most celebrated soccer league? It's all Gordon Brown's fault. In April, the British government passed a measure that increases Britain's top tax rate from 40 percent to 50 percent. The enormous hike applies not just to wealthy soccer stars (the average base salary for a Premier League player is £1.1 million a year) but to anyone making over £150,000.
When the tax increase first passed Arsenal striker Andrei Arshavin demanded that the team renegotiate his contract, calling the hike an "unpleasant surprise." Ronaldo's agent noted that it would mean an extra £670,000 a year in taxes for the star (who was then still with Manchester United). Arsène Wenger, the manager of Arsenal, matter-of-factly explained that the higher taxes would decimate British professional soccer. "[W]ith the new taxation system, with the collapse of sterling, the domination of the Premier League on that front will go," Wenger told the Times of London. "That is for sure."
The move is part of Brown's effort to soak the rich in order to make up for revenues lost in the recession. Three-hundred thousand Britons will be affected by the increase, which is expected to raise an extra £2.1 billion. Which hardly seems worth the bother, because Brown's plan also involves borrowing some £600 billion over the next five years and bringing Britain's public debt to 79 percent of GDP by 2013.
The result is that Britain's tax rate is now the highest in the professional soccer world. In Italy, players pay 43 percent on income. In Germany, 45 percent. In France, 40 percent. In Russia, only 13 percent. But the real winner is Spain.
Spain's top tax rate is 43 percent. In 2005, however, Spain amended the law to include a provision for high-earning "foreign executives," which would require them to pay only 24 percent. And not only did they create a massive loophole, they backdated it to 2003, which was, coincidentally, the year David Beckham left Manchester United to join Real Madrid. Beckham became the first man in Spain to acquire "foreign executive" status; the tax break came to be known as "the Beckham Law." And it has become an almost insurmountable advantage for Spanish soccer teams. Deloitte Sports Business Group estimates that between the falling pound, the higher British tax rate, and the Spanish tax break, U.K. clubs would have to pay 70 percent more in order to match a player's take-home pay in Spain.
Predictably, no one is happy with the situation. British papers are full of stories lamenting the demise of the Premier League. Also predictably, Britons seem more outraged by Spain's lower tax rate than by the increase in their own.