La Liga Squad Spending Limit makes sense

La Liga has finally announced this week the official wage budget for each of the 42 clubs (La Liga 1 & La Liga 2). Let us explain a bit in detail what is this and why it was introduced for the first time in the early 2010s. 

The origins of the squad spending limit

LaLiga clubs by 2013 were facing an overall debt to public institutions, and to some football players of c.700 million €. Most of the debt was related to clubs not paying the taxes related to hiring an employee (a football player) – meaning Social Security and National Health Insurance payments.

There were some clubs that, due to a bad run in the league and a confirmed relegation, had decided to stop paying player’s salaries. 

These two actions needed an immediate action plan from the organiser of the competition – LaLiga – as requested by the Spanish Sports Ministry and the Spanish HMRC.  

What’s included in the Squad Spending Limit?

Once the scenario is set, LaLiga explains the Squad Cost Limit as the formula that takes into consideration the sum of all the following pieces; player’s wages and image rights, agent costs, amortisation, National Insurance Cost, license compensation and other related costs.

This overall figure has to break even with the limit that La Liga has established for each club when looking at; last season’s end-of-year profit (loss), confirmed sponsorship and endorsements for the upcoming season, realistic forecast of season ticket sales and match-day income and sales (profit) on player transfers. 

Therefore, there are certain identified scenarios that may affect the final limit that is activated at the end of the Summer transfer window. A capital increase from the major stakeholders can be used for player signings, but must be spread equally for the upcoming 4 seasons; profits made on player sales are forecasted looking retrospective to the past three years, and 30% of this average sales can have a positive effect on the final budget. If some of the sales have been produced, 100% of this profit can be included.

End-of-year results are key, as they affect directly the final figure – they are the last input of the equation and are included entirely (100%) on next year’s Squad Cost Limit. This means that if a club made a loss by June 30th, they will get a direct impact with the same amount to their particular budget. 

Club examples and last 5-year trend

FC Barcelona is the club that comes to everyone’s mind now that the scenario and the formula rationale are introduced. Yes, there are sanctions implemented in case a club is not able to adjust to the figure given during the season. La Liga always provides these figures to clubs by the first week of September. The Blaugranas, in particular, have used various routes to try and comply with their limit given.

Pay-day loans, in exchange for future income (the famous “leavers”), requested players to renew their contracts (and some of them, reduced their salaries) and spread the cost (wages + amortisation) over a longer period; but the most unpopular opinion has been the sale or non-renewal of some of their stars (Lionel Messi left and never came back).

La Liga has gone from €656.5M in 2019/20 to €270M in 2023/24 when establishing FC Barca’s limit. This 40% drop is the highest amongst the clubs in LaLiga that have not been relegated in this period.

It’s biggest rivals have managed to expand beyond this limit – with a stadium development in between – going from €641M to €727.4M. The graph below shows the trend of some of the teams for the past 5 seasons. 

source: Internal elaboration with data from La Liga’s official website.

Clubs like Villarreal have followed stable growth, thanks to being on top of the player sales ranking – since the 2019 summer, they have made sales for almost €250M. Not forgetting how they managed to win their first European silverware back in 2021.

The situation of Valencia, covered here before, shows a dramatic fall from almost €200M to €85M for this campaign – since Summer 2021, the club has sold talent for €170.5M without being able to spend it again on the pitch. They have invested only 20% of the previous sales into acquiring new players. The current popularity of the owner – Mr Peter Lim – and their board of directors is warm amongst the fans of Mestalla. The new stadium and its refurbishment have been a question mark since the acquisition of the club from Meriton Holdings.

Continuing what was exposed in earlier articles, La Liga has focused its efforts during past seasons in trying to have profitable members – each football club is a limited sports company – above flashy stars playing at a cost. This is a decision very difficult to balance, as we have already spoken about the migration of some of the best players to what are considered lower leagues elsewhere in the world (Canales to Liga MX, or the Saudi League).