Here's how La Liga’s Economic Control and Squad Cost Limit work

Summer is traditionally a time for football transfers Itrsquos when clubs strengthen and make the necessary adjustments to their squads ahead of a new season and itrsquos a period of excitement and fresh hope for fanbases But how does this process work from behind the scenes What must a club do when signing a player in order to register the new arrival with LaLiga What is involved in the Economic Control and Squad Cost Limit rules that have been approved in LaLiga Here comes a look at how the LaLiga transfer market works from withinEconomic Control is a regulatory framework that was selfimposed by the LaLiga clubs and SADs public limited companies launched in 2013 with the clear objective of guaranteeing the sustainability of the competition and of the clubs themselves through financial reviewThis framework applies in the top tier which is LaLiga Santander and in Spainrsquos second division of LaLiga SmartBank too so all participating clubs must abide by the same rules LaLigarsquos Economic Control is preventative and coexists alongside retrospective measures such as UEFArsquos Financial Fair Play The clubs know how much they can spend in advance making it easier to stay within the limits and preventing the creation of unsustainable debt Looking at the five major European leagues this measure differentiates LaLiga from the others when it comes to the transfer marketWhen making signings one of the pillars of Economic Control is particularly important that of the Squad Cost Limit SCL This is in other words the amount that each club can spend on their squad It should be noted that the squad is made up of Registrable and NonRegistrable parts The Registrable squad refers to the players with shirt numbers 1 to 25 the head coach assistant coach fitness coach and other coaches with similar roles However there are also players who arenrsquot assigned to a particular squad of the club or some who have already departed but who still account for a cost such as a compensation So the NonRegistrable squad encompasses the other players and coaches at the clubThis framework isnrsquot only concerned with the salaries of these professionals but with various other factors too such as variable payments image rights payments agent fees amortisation of transfer rights loans costs social security contributions compensations 2537 of the purchase option price when itrsquos quite likely to be carried out license fees and other remunerations As such any new player a club wishes to register must fit within the clubrsquos SCLLooking at all the factors that make up the SCL the limit for each club corresponds to a simple equation budgeted nonsporting expenses are subtracted from the budgeted revenues taking also into account the debt repayments as well as the losses to be recovered The remaining sum is the SCL of the club in questionWhen a club or SAD signs a new player they send all the documentation to LaLiga who will authorise or reject the registration of the player based on the rules and on the SCL at the date of the application There is a Valuation Body that using reports from independent experts and following the rules set out in the policy framework can revise any particular operation for example to ensure that a deal is in line with market values andor economic trends This guarantees that all registrations of players by LaLiga clubs are in line with Economic Control Only in this way can it be ensured that all of the teams are competing with the same rules and that there is no form of financial doping Above all this ensures the sustainable growth of LaLiga clubsThe application of Economic Control in LaLiga and the responsibility of the clubs have already produced undoubted benefits From 201415 to 201920 the combined equity of clubs rose by 25037 Meanwhile debt owed to public bodies has gone down from euro650m in 2013 the majority overdue to just euro17m in 2021 all up to date Furthermore complaints from players over nonpayment have fallen drastically from euro89m worth in 2011 to euro15m worth in 2021 with most of the current objections stemming from conflicting interpretations of criteria rather than unsubstantiated failures to payIn the time since the introduction of Economic Control the positive offthepitch results have been accompanied with success on the field of play as 17 of the past 26 European titles in this time have been won by Spanish sides All players who ply their trade in LaLiga know that they are in a competition that is very strong in a sporting sense and at the same time stable financially That is a double achievement one that is even more impressive in the recent times of the Covid19 crisisWhich bodies play a role in establishing the SCLWhen a club or SAD sends the documentation for a new player the managing body of LaLigarsquos Economic Control is in charge of authorising the registration request Furthermore LaLiga is also responsible for approving the SCL of each club In order to make these decisions there are some specialised bodies and tools that act as guarantors of the just compliance with the rules There is a team of analysts in the Economic Control department at LaLiga there is a Validation Body and there are technological appliances software BIampA AI etc Nothing is left to chanceThis is all done to reassure clubs that the rules are being followed to the letter To provide further guarantees there is auditing of data and the compilation of independent expert reports In the case of any discrepancy it is possible to go to the Financial Supervision Committee of LaLigarsquos Economic Control to a UEFA Appeals Committee RFEF ndash Spanish Federation or to the ordinary courtsTHE SPECIFICS OF ECONOMIC CONTROLItrsquos clear that the common regulatory framework of Economic Control is robust and that it must be met by all LaLiga Santander and LaLiga SmartBank clubs But not all clubs are the same As such there are some idiosyncrasies based on these different circumstancesWhat happens if a club has exceeded its SCLFaced with this exceptional situation ndash one that has managed to arise following Covid19 and the drastic reduction in revenues ndash the competitionrsquos Economic Control framework looks to the ldquo14rdquo rule In the case of having exceeded the limit clubs are allowed to spend no more than 2537 of a cost that has been reduced beforehand With this a balance is struck between clubsrsquo financial requirements and onfield needs guaranteeing that the exceeded amount is gradually reduced until the point of reaching the required financial equilibriumAn exception during the 202021 and 202122 summer transfer windows saw two additional points added to this ldquo14rdquo rule Firstly if a club above the limit achieves a capital gain from a transfer then 2537 of that capital gain will be added to the ldquo14rdquo calculation Furthermore if a saving is made through a player who represents more than 537 of the SCL then a ldquo13rdquo ldquo12rdquo in 202021 and 202122 rule will be applied instead of a ldquo14rdquo In other words 3337 of that saving can be respentOn the other hand for new registrations in the case of having exceeded the limit the player canrsquot gain a salary that will later be increased by more than 3037 And finally if a player has already generated a saving under the 14 or ldquo13rdquo rule from the second saving onwards only the differential ie what he generates in savings over and above the first saving will be taken into accountHow are player swaps calculatedIn the case of a player swap between clubs or SADs these operations are treated as if they were independent operations and as if one signing has been made by one club and another signing by the other club There is an independent Valuation Committee that if needed can review and adjust the values assigned to each transfer by the clubsCan clubs turn to accumulated equity for transfersAs outlined above the clubsrsquo combined equity grew by 25037 between 201415 and 201920 thanks to their good management In exceptional circumstances be they particular to a single club or across the board such as the COVID19 pandemic it has been asked if clubs can use the money saved from previous years Economic Control does allow for the SCL to be surpassed through the use of some accumulated equity provided that it does not fall below the clubrsquos ldquoacceptable ratiordquo threshold This then is a resource that is only available to clubs that are financially speaking stable and that have savings at handAre there sanctions for clubs that donrsquot meet the Economic Control limitsYes There is a penalty system for among other issues exceeding the SCL noncompliance with delivery times missing or incorrect documentation debts with other clubs employees or public administrations and noncompliance with financial indicatorsIf an SAD approves a capital increase can that be used to increase the SCLYes However the percentage that can be used on signings will vary depending on the financial situation of the club From the best to the worst financial indicators they can allocate 8037 6537 5037 or 037 to signingsIndependently of the permitted percentage the entire amount cannot be allocated to signings at least not immediately LaLiga Santander clubs must defer the amount over four years while LaLiga SmartBank clubs must do so over two yearsHow is an amount for notyetcompleted transfers calculated in order to update the SCLThe formula for calculating the SCL is based on budgeted revenues which is an estimation of how much a club expects to bring in To calculate the SCL at the start of a transfer market an estimation is made and to ensure this is as consistent as possible it is based on a clubrsquos activity from previous yearsFor the 202223 season the amount that initially appears in budgets is based on 5537 of a clubrsquos average sales over the last 3 seasons while this amount will increase automatically with each transfer carried out in this window This is a special rule reflecting the current situation in the transfer market but under normal circumstances the general rule is the amount initially appearing in budgets will again be based on 3037 of a clubrsquos average sales over the previous 3 seasons and the amount will then be automatically increased with the transfers carried out but only once this threshold has been reachedWhat happens if the documentation presented by a club is found to differ from the reality of the marketWhen a club sends the documentation to register a new player there is a Validation Body that can make adjustments if the figures presented donrsquot line up with the values of the market or with economic trendsAre there special rules for salary valuationsThere are special rules applied to all indicated cases and based on these a minimum cost for SCL purposes is determined for the player in question regardless of the cost provided in the contract The main special regulations in these cases are if a player comes from one of the top five leagues and played a certain number of matches then at least 5037 of the previous salary is considered it isnrsquot possible to reduce a salary without adding more years to the contract and the maximum salary increase between seasons is 3037 For now this specific part of Economic Control has only been approved for LaLiga SmartBank except for this last point of the salary increase between seasons which also applies to LaLiga Santander exceeded clubsDo relegation assistance payments count for the SCLLaLiga dedicates some economic help to the clubs who are relegated from LaLiga Santander to LaLiga SmartBank with these relegation assistance payments varying based on certain conditions and precedents that are specific to each club From this 202223 season only 6037 in the first year and the remaining 4037 in the second year will be counted for the SCLHow are the losses attributable to Covid calculatedThe losses attributable to Covid can be recovered over 5 years in the following percentages 1537 in 202223 and then successively 2037 2037 22537 and finally 22537 in the 202627 seasonHow is the players in the reserve team involvement calculatedFor players registered in the reserve team or dependent team who apply for a visa to participate in the professional competition they will be counted as a first team player for the purposes of the SCL according to the following criteriabull in case of players already belonging to the club if played more than 3037 of the first team matches the percentage of matches played with the reserve team and the playerrsquos salarybull in the case of newly registered players the amount of the transfer and the playerrsquos salary as well as previous sporting performance national team former club and league etcIs it possible to increase enrolment capacity in advanceThere is an option to increase enrolment capacity by anticipating the realisation of revenue or profit This measure is strictly transitional in nature with a commitment by the club to restore the prior situation during the same season To this end guarantees must be provided in the form of a cash deposit or bank guarantee which must be provided by the shareholder or a third party outside the club but never by the club itself In this sense in the event that the situation is not restored the guarantee will be recorded in the Clubs balance sheet as nonrefundable equity and LaLiga may apply these guarantees to the payment of the Clubs overdue debts In addition there is a limited maximum amount that can be used under this rule 537 of Net Turnover in LaLiga Santander and 1537 in LaLiga SmartBankWithin all these specifics of Economic Control it should also be noted that from 202223 the sum of any capital increase and accumulated equity allocated to increase the SCL cannot exceed 2537 of turnover