Section E3: Salary Cap Regulations - League 1
1.0 PURPOSE OF THE SALARY CAP
2.0 UNDERLYING PRINCIPLES OF THE SALARY CAP
3.0 SALARY CAP LIMIT FOR 2015
4.0 SALARY CAP RELEVANT INCOME
5.0 NON-SALARY CAP RELEVANT INCOME
6.0 SALARY CAP QUALIFYING COSTS
7.0 NON-SALARY CAP COSTS
8.0 SALARY CAP BREACHES
9.0 THE AUDITING AND MONITORING PROCESS
11.0 PENALTIES FOR LATE OR NON-SUBMISSION OF THE
SALARY CAP RETURN AND/OR RELATED INFORMATION
12.0 PENALTIES FOR BREACHES OF THE SALARY CAP
13.0 APPEALS AGAINST THE DECISION OF THE RFL BOARD
PURPOSE OF THE SALARY CAP
1.1 The principal purpose for the League 1 Salary Cap is to restrict clubs’ main item of expenditure (players’ costs) to try and ensure, as far as possible, the long-term financial survival of rugby league clubs.
1.2 The secondary purpose is to improve the competitiveness of the competition by restricting, to a finite level, how much one club can spend on its playing staff.
1.3 As financial reporting evolves over the years and different circumstances or transactions occur, it is clearly impossible to legislate for every possible eventuality. Consequently, the spirit of the rules and their objectives should take precedence over any technical interpretations.
1.4 In all matters of interpretation or judgement, the RFL will adopt policies that are consistent with the aforementioned definition of the purpose of the Salary Cap.
1.5 Further, clubs that would wish to establish certainty over any issue should contact the RFL’s Head of Salary Cap and Registrations (‘HSCR’) who will provide a written judgement on the appropriate accounting treatment of any particular item, as regards the Salary Cap.
UNDERLYING PRINCIPLES OF THE SALARY CAP
2.1 For the avoidance of doubt, the underlying principles in the completion of the Salary Cap Return are the normal conventions used in the preparation of accounts. In particular, costs and expenses should be accrued to match against the revenues receivable in any year.
2.2 In addition, retrospective adjustments will not be permitted. Therefore, all invoicing or Directors loan write-offs must be completed by November 30th in the year in question, for it to be included within the Salary Cap Return. Errors of omission, whether discovered by the HSCR or disclosed by the club during the course of the audit and the associated dialogue will be allowed until the HSCR has determined that the individual club’s process has been completed.
2.3 In matters of contention, the RFL will be guided by the treatment accepted by HMRC as to items that may be capital or revenue in nature. However, while this may assist the RFL in determining an issue, it would not bind the RFL, particularly where such a treatment may in fact be tax effective but, nevertheless, is in conflict with the primary purpose of these Salary Cap rules.
SALARY CAP LIMIT FOR 2015
The Salary Cap, finite upper limit, for 2015 is £250,000 for League 1 (excluding payments to players detailed under Section 7 – Non-Salary Cap Costs).
Notwithstanding the above, no club may spend in excess of 50% of their Salary Cap Relevant Income on Salary Cap Qualifying Costs, subject to the following provisions:
1. Clubs will submit to the HSCR, by 1 November 2014, their budget for 2015;
2. the HSCR will scrutinise this budget and agree a figure which represents 50% of Salary Cap Relevant Income (to be known as the Club Agreed Salary Cap);
3. a club may exceptionally seek in writing a dispensation from the RFL to spend in excess of 50% (to be known as the Club Agreed Salary Cap) provided that
such a dispensation will not be granted unless the HSCR is in agreement that the club can afford to spend in excess of the finite upper limit and/or50% of Salary Cap Relevant Income on player wages, having regard to the club’s financial history, the level of debts at the club, a liquidity assessment of the club and an assessment as to club’s overall club development strategy.
For further clarification of what constitutes a breach, please refer to Section 8.
SALARY CAP RELEVANT INCOME
4.1 Where contra deals have been entered into with suppliers, the “income” may be included within the return, provided that relevant VAT invoices have been raised.
4.2 Where the term “profit” is used in any heading falling within Salary Cap Relevant Income, clubs are reminded that this is the gross profit relating to a particular commercial activity, i.e. income less all direct costs. For clarity, the term “direct costs” should, in this instance, include the purchase price of goods sold but excludes all overheads and salaries of staff employed in a generally administrative capacity.
4.3 All amounts should be shown net of VAT.
4.4 Salary Cap Relevant Income shall be divided into 19 separate headings as detailed below:
4.4.1 Central Distributions – These distributions should be accounted for on an actual basis taking into account the various distributions from the RFL.
4.4.2 BBC TV fees – Income should be accounted for as actually received.
4.4.3 Gate Receipts – Income should be accounted for as actually received.
4.4.4 Gate Receipts – Shared – Income relates to cup and friendly games. For home clubs, income should be shown net of the away club’s share of receipts but before deducting match day expenses. For away clubs, income should be the actual share of receipts.
4.4.5 Season ticket sales – Although the majority of season ticket sales will be made during October to February, the total income from all season ticket sales should be apportioned evenly over the number of home league games during the season. The proportion equivalent to the total number of home games played to the end of the quarter should be shown in the return.
4.4.6 Sponsorship Income – Where sponsorships relate to the main club sponsor(s), kit and player sponsors then the associated income for the year should be spread equally over the playing season. For other sponsorships - such as match and ball sponsors - the associated income should be shown in the period in which the matches were played.
Please note that income deriving from the owners/directors of the club for this purpose will be deemed to be classed as an Owners’ Contribution.
4.4.7 Distributions via the RFL - excluding Challenge Cup prize money which is dealt with under Section 5. Other income should be accounted for when received.
4.4.8 Advertising Revenue – Advertising revenue should include all forms of advertising including pitch branding, hoardings, scoreboard and programme. Where advertising relates to individual matches, the associated income should be shown in the period in which the matches were played. Otherwise, the associated income for the year should be spread equally over the playing season.
4.4.9 Profit on programme sales - Profit/ (loss) on programme sales relates solely to the sale less the cost of producing programmes. Programme advertising income should be included in “Advertising Revenue”.
4.4.10 Profit on hospitality sales – The associated income should be shown in the period in which the matches were played. (See Section 14 ‘Definitions’).
4.4.11 Profit on merchandise sales – Profit on merchandise sales should also take into account stock movements, damaged and obsolete stock as well as sales and production costs. (See Section 14 ‘Definitions’).
4.4.12 Profit on lotteries and similar activities - Profit on lotteries and similar activities relate to income, less prizes, from activities run by the club such as raffles, golden gamble, guess the score and club lotteries. Agents’ fees should be included within “Other Overheads” and not netted off against income. It should be noted that lotteries, which are run independently from the club, should not be included in this category. Any receipts from independently run lotteries should be shown under “Donations”.
4.4.13 Profit on other commercial activities – Clubs should identify the individual income streams that are not included in other categories.
4.4.14 Donations - Donations from other sources should be included as and when received.
4.4.15 Investment income - Investment income relates mainly to interest receivable on deposits held at banks or other financial institutions and should be included as and when received.
4.4.16 Other Salary Cap Relevant Income - Clubs must provide an analysis of all items of income and expenditure included under this heading.
4.4.17 Bad debts – Any debts relating to income for the year, which will not be recovered by the club, must be netted against income for that period, as soon as the debt becomes irrecoverable. (See Section 14 ‘Definitions’)
4.4.18 Owners/Directors Contributions – Where a club director or owner (which may be a corporate or charitable entity) has decided to write off or capitalise all or part of his loan with the club, a signed personal letter to that effect must accompany the Salary Cap Return - otherwise, no income shall be deemed to arise from such an event. Clubs are reminded that, in the interests of equity, retrospective arrangements will not be allowed.
4.4.19 Management Charges – Any management charges raised by associated group companies must be netted against income.
NON-SALARY CAP RELEVANT INCOME
5.1 Sale proceeds from the sale of assets.
5.2 Transfer fee income received.
5.3 Any Challenge Cup prize money as per the schedule issued from time to time should be excluded from income providing the following is observed:
5.3.1 The prize money is paid to the players within 60 days of receipt by the club.
5.3.2 Any excess of bonus over prize money received and paid out by the club is classed as Salary Cap Qualifying Cost.
5.3.3 Any excess of prize money over bonus paid out may be included as Salary Cap Relevant Income.
For the avoidance of doubt, any payments paid out by clubs prior to receipt of prize money, cannot be retrospectively or notionally set off against prize money.
SALARY CAP QUALIFYING COSTS
Salary Cap Qualifying Costs shall be divided into five separate headings as detailed below:
6.1 Player contract payments:
6.1.1 All guaranteed payments as stated in the player’s contract;
6.1.2 Any termination payments and payments in lieu of notice;
6.1.3 All signing on fees.
6.2 Player match Payments:
6.2.1 Any remuneration based on appearances;
6.2.2 Any remuneration based on match results;
6.2.3 Any bonuses.
6.3 Player benefits
6.3.1 All accommodation costs paid by the club including rent, council tax bills, telephone bills, heating and any other relevant costs. Where a club owns a house then the “rent” shall be deemed to be the “rating value”;
6.3.2 All payments made to players’ agents by the club;
6.3.3 All payments for private medical cover of a player’s family or other persons connected with the player (premiums for players are to be excluded);
6.3.4 Provision of cars for players, amount to be based on taxable benefit to the player, which will also include car fuel benefits where applicable;
6.3.5 Cost of all travelling expenses paid to, or on behalf of, the player. Such expenses will include all airfares and relocation costs of non-British players, irrespective of whether they may be subject to income tax.
6.4 Payments/(receipts) for players on loan
6.4.1 Loanee club - Cost should include any payments for the use of the player’s services to the loaning club. Any match payments payable to the player should be included within “Player match payments” above;
6.4.2 Loaning club - The club loaning the player should record the player’s usual contract within “Player contract payments” above and record any associated income from the loanee club as a negative cost within “Payments/(receipts) for players on loan”. Not withstanding the above, in the case a club loaning any players who are under 21 (see 7.3 below) it is not permissible to record any associated income as a negative cost as the play’s contract payments do not count towards the club’s Salary Cap costs.
6.5 Employee Benefit Trust Charges
6.5.1 For the avoidance of doubt, all payments into the trust relating to the Salary Cap Year in question or liabilities/obligations/expectations to the trust for that year should be recorded in the year as Salary Cap Qualifying Costs. In the absence of information regarding obligations to the trust, the HSCR reserves the right to estimate such an obligation and enter a notional amount in the club’s Salary Cap Return.
Note also the following relevant provisions:
6.6 Dual Roles
6.6.1 Where an employee of the club is employed in a capacity other than as a player, and plays one or more first team games (excluding friendlies) in a season then he will be considered a player and as such remuneration payable by the club for the other duties shall also be included as Salary Cap Costs.
6.6.2 Each club may have an allowance of up to £20,000 for each player who acts as a Community Development Officer in a project or role approved by the RFL Community Development department. Such approval must be sought and registered at the beginning of the competitive season and must be counter signed by the Community Development department again at the end of the relevant season.
6.7 Payments to relations/associates
6.7.1 Any payment made to any relative or associate of a player or any other person, which, in the opinion of the HSCR, relates to the player’s services (past, present or future) to the club.
6.8 Payments to corporations in which the player has an interest
6.8.1 Payments to corporations in which the player has a direct or indirect beneficial interest, payments to partnerships in which the player is a member and payments to trusts from which the player may have any kind of beneficial interest.
6.9 Loans to players
6.9.1 Advances or loans made to players, retirement benefits and termination payments made at the expiration of a contract. In respect of loans to players, for whatever reason, any balances outstanding at the year end will be charged to Salary Cap Qualifying Costs. Where such loans have been made throughout the year, albeit having been repaid, but are considered, in the opinion of the HSCR, to have been an attempt to circumvent these Salary Cap rules, these will also be chargeable.
Notwithstanding the above, clubs are reminded that any loans to players should be notified to the RFL in accordance with Operational Rule C1:2 (‘Registration & Transfer of Players’).
6.10 Payments to players from sources external to the club
6.10.1 Any payments to players made by organisations or individuals who are connected with the club by issue of shareholding, mutuality of directors or sponsorship agreements, save where the club can demonstrate to the comfortable satisfaction of the Operational Rules Tribunal that such payments are bona fide payments arising out of a bona fide contract of employment for work unrelated to a player’s playing obligations to a club, the burden of proof being on the club.
6.11 Dual Registered players
6.11.1All dual registered players which are a cost to the club are to be listed on the salary cap return Nb. Those who are U21 are not a salary cap qualifying cost.
6.11.2 The amount ‘charged’ to the club’s ‘Salary Cap Qualifying Costs’ i.e. the value to appear on the club’s salary cap return, will be predetermined via the following classification of player which will be confirmed by the RFL to the club upon receipt of the relevant dual registration form:
|Resulting Classification of Player||Salary Cap Cost per appearance|
|£60,000 - £100,000||B||£2000|
|£40,000 - £59,999||C||£1500|
£20,000 - £39,999
Actual Costs Incurred
E.g. Should a player with an SCV of £70,000 play via a dual registration for their partner League 1 club on three occasions during the season then £4500 (£1500 x 3 appearances) is added as a salary cap qualifying cost on the salary cap return.
The player’s notional charge can be obtained from the RFL prior to the clubs entering into the ‘Dual Registration’ arrangement if requested.
6.12 Any other payments
6.12.1 Any other forms of expenditure incurred by a club, which the HSCR, in his absolute discretion, may deem to constitute Salary Cap Qualifying Costs, having regard to the spirit of the Salary Cap resolutions passed by the RFL.
NON – SALARY CAP COSTS
7.1 In accordance with the rules set out under section 5.3, the cost of player bonuses can be excluded from Salary Cap Qualifying Costs.
7.2 The value of any player bonuses paid out of any prize money paid by the RFL to the club shall be excluded from Salary Cap Qualifying Costs, provided such payments have been made to players and provided that any sums in excess of these figures shall count as Salary Cap Qualifying Costs.
7.3 Costs for those players under 21 who are eligible to play in the academy teams are to be excluded from the Salary Cap Qualifying Costs. For the avoidance of doubt, this means players need to be under 21 years of age on August 31st in the year prior to the Salary Cap Year in question. However, there is no credit granted against Salary Cap Qualifying Cost for U21 players loaned out to other clubs (see 6.4.2 above).
7.4 Employer’s National Insurance on player salaries is to be excluded from the Salary Cap calculation.
SALARY CAP BREACHES
A Breach shall occur if a club spends in excess of the limits set out in Section 3 above in the Salary Cap Year in question.
8.2 For the avoidance of doubt, a club’s Salary Cap position can be reopened for a period of up to the preceding five years in the event that the HSCR and/or Compliance Manager is presented with new information from whistleblowers or other sources which alters the status of previous conclusions. The penalties available are as set out under Section 12 of these rules for each year in which a breach has occurred and may, at the discretion of the Operational Rules Tribunal, be applied on an accumulated basis. For the avoidance of doubt, the penalties set out at Section 12 shall apply rather than those that would have applied to the breach had it been detected in the year in which it occurred. The imposition of the penalty will be applied to the year in which the information becomes available or if this is after the end of the regular playing season (i.e. after the play-off games commence), will be applied to the following season.
THE AUDITING AND MONITORING PROCESS
9.1 The HSCR will be appointed by the RFL and will be line managed by the RFL Executive.
9.2 Clubs are required to complete and submit a Salary Cap Return covering the first six months of the Salary Cap Year by June 30th of the year under review to the HSCR.
9.3 Clubs are required to complete and submit a Salary Cap Return covering the complete twelve months of the Salary Cap Year by December 31stof the year under review.
9.4 In the first instance, the Salary Cap Return should be emailed by the due date with the appropriately signed hard copy to be received by the RFL no longer than seven days after the deadline.
9.5 All the club’s directors must sign the Salary Cap Return confirming its completeness and certifying that no other payments have been omitted from the Salary Cap Return to players from other sources including related companies, companies within the same group, companies with mutual directorships or sponsors.
9.6 The accuracy of the Salary Cap Return is the responsibility of the club and it is strongly recommended that an appropriately qualified accountant should complete the Salary Cap Return.
10.1 The HSCR will normally undertake the club audits during February and March in each year, although in certain circumstances ad hoc visits may be considered necessary.
10.2 The HSCR, in conjunction with the RFL Finance Department, will report the findings of all the Audits to the Compliance Manager.
10.3 The Compliance Manager (and any of his investigators he instructs to do so) may, following a review of the HSCR’s report, request further information from the club before reaching any conclusions.
10.4 Although the RFL may, from time to time, issue reminders as to the timetables, the non-issuing of such a reminder is not an acceptable explanation for the non-submission of the Salary Cap Return.
PENALTIES FOR LATE OR NON-SUBMISSION OF THE SALARY CAP RETURN AND OR RELATED INFORMATION
11.1 Failure to comply with the requirements in this Section 11 may result in the following sanctions;
11.1.1 The withholding of RFL central funds until such time as the completed Salary Cap Returns are received;
11.1.2 A fine of £100 for every week late.
11.2 A failure to submit a Salary Cap Return within 2 months shall constitute a Category 4 Breach.
11.3 If the budget has not been received within one calendar month of the deadline, the club may forfeit the right for a dispensation to spend more than 50% of its Salary Cap Relevant Income and the RFL will be unable to agree a Club Agreed Salary Cap. A failure to submit the club’s budget within 2 months of the specified deadline shall constitute a Category 4 Breach.
PENALTIES FOR BREACHES OF THE SALARY CAP
12.1 Any club who has committed a Category One Breach, which shall constitute at the end of the Salary Cap Year a salary cap overspend of between 0.01% and 1.99%, will suffer a fine of up to 100% of the financial breach or the Prize Money Penalty whichever shall be the greater, save where the breach has, in the opinion of the Operational Rules Tribunal, been as a result of circumstances for which the club bears no fault or negligence. In those circumstances, the Operational Rules Tribunal shall have the discretion to reduce the penalty in part or in full.
12.2 Any club who has committed a Category Two Breach, which shall constitute at the end of the Salary Cap Year a salary cap overspend of between 2% and 4.99 %, will suffer (a) a penalty of two (2) points deduction and/or (b) a fine equivalent to 100% of the financial value of the breach or the Prize Money Penalty whichever shall be the greater, whichever of (a) and/or (b) the Operational Rules Tribunal deems most appropriate.
12.3 Any club who has committed a Category Three Breach, which shall constitute at the end of the Salary Cap Year a salary cap overspend of between 5% and 9.99 %, will suffer (a) a penalty of four (4) points deduction and/or (b) a fine equivalent to 100% of the financial value of the breach or the Prize Money Penalty whichever shall be the greater, whichever of (a) and/or (b) the Operational Rules Tribunal deems most appropriate.
12.4 Any club who has committed a Category Four Breach, which shall include at the end of the Salary Cap Year a salary cap overspend which exceeds 10 %, will suffer (a) a penalty of six (6) points deduction and/or (b) a fine equivalent to 100% of the financial value of the breach or the Prize Money Penalty whichever shall be the greater, whichever of (a) and/or (b) the Operational Rules Tribunal deems most appropriate.
12.5 In respect of breaches of the £250,000 finite cap the penalties are as set out on the basis that:
a. 1.99% equates to £254,975
b. 4.99% equates to £262,475
c. 9.99% equates to £274,975
(although if the club has a Club Agreed Salary Cap that is lower than £250,000, the percentages will equate to a lower amount).
12.6 The penalty, whether a points deduction and/or a fine, in any individual case may also be reduced by the Operational Rules Tribunal where the club has provided substantial assistance to the Compliance Manager which results in the Compliance Manager discovering or establishing a breach of the salary cap provisions by that club and/or another club. Save that the reduced penalty may not be less than one half of the minimum penalty otherwise applicable, the level of reduction shall be at the discretion of the Operational Rules Tribunal.
12.7 The penalty, whether a points deduction and/or a fine, in any individual case may also be increased by the Operational Rules Tribunal where the club has failed to co-operate with the HSCR and/or the Compliance Manager and/or where, in the opinion of the Operational Rules Tribunal, any act or omission has had the effect or intention of avoiding, hindering or limiting detection of any breach of the Salary Cap Regulations. Save that the increased penalty may not be more than double the maximum penalty otherwise applicable, the level of increase shall be at the discretion of the Operational Rules Tribunal.
DECISIONS RELATING TO SALARY CAP
Any breaches or alleged breaches of the Salary Cap Regulations shall be dealt with under Section D1 of the Operational Rules.
The following terms when used in these League 1 Salary Cap Regulations shall have the meaning associated to them below:
An irrecoverable debt shall be defined, for the purpose of the Club Return, as being a debt still outstanding three months after the date of the sales invoice. The Salary Cap Auditor reserves the right to provide against invoices raised at the end of the year regardless or not of whether the three month period has elapsed.
Basic contracts shall be deemed to be all contractual payments and any benefits in kind.
Club Agreed Salary Cap
As referred to in Section 3 (and which is set by dispensation by the HSCR).
Where contra deals have been entered into with suppliers the “income” may be included in the return. Allowance of such “income” however will be dependent on the relevant VAT invoices having been raised in the period in question. Invoices raised retrospectively will be disallowed. It is advisable for verification purposes that this “income” is accounted for in a separate nominal account.
This is profit as opposed to income and, therefore, any direct costs need to be netted off the income received, i.e., cost of meals, but not staff. Where match tickets are included in the price, these should be credited to gate receipts for purposes of consistency.
Prize Money Penalty
Where applicable, shall mean that the RFL will not pay part or all of the prize money that would otherwise be payable to the club in the relevant or subsequent Salary Cap Year.
This is Income less direct costs only, with associated costs such as staff wages and other overheads charged to the relevant cost account. In terms of merchandising this would be the sale of shirts, etc, less their purchase price, with the cost of any “giveaways” charged to the appropriate cost account in order to preserve the gross profit margin.
Any variance from the traditional gross profit percentage margin will need substantiating.
As defined in Section 1.5 of these rules.
Salary Cap Qualifying Costs
As set out in Section 6 of these rules.
Salary Cap Relevant Income
As set out in Section 4.
Salary Cap Return
The financial return incorporating the information required by the HSCR in the form specified by the HSCR from time to time which must be provided covering the periods of the Salary Cap Year specified in Section 9 of these rules.
Salary Cap Year
The 12 month period from 1 December in one calendar year to 30 November in the following calendar year (