Saracens salary cap scandal: rugby powerhouse toppled by lack of transparency

It is safe to say that Saracens, rugby union’s reigning English and European champions, have had an interesting few months.

Since being found guilty of a breach of the Premiership’s salary cap regulations, Sarries have had to contend with:

• an initial 35 point deduction and £5.36m fine;
• the resignation as chairman of long-term financial backer Nigel Wray;
• confirmation that they will be relegated to the Championship at the end of the season;
• the resignation of Wray’s replacement (Edward Griffiths) after less than a month;
• and the revelation that a further 70 point deduction would be imposed to ensure that they will definitely finish bottom of the 2020 season Premiership table.

Only now are observers able to take a breath and try to make sense of the catalogue of punishments dished out to Saracens. The most logical starting point for that exercise is to consider the full Decision of the Disciplinary Panel which imposed the original punishment (35 point deduction and £5.36m fine) for the club’s historic breach of salary cap rules, which has been published in full here.

The Disciplinary Panel’s decision

In a decision spanning over 100 pages, the Panel (which included a former Supreme Court judge and a high-ranking QC) dealt with a myriad of different arguments from both sides.

The factual background is that Saracens’ owner Nigel Wray and other connected entities had entered into a number of side commercial ventures (interest free loans for property development, purchase of shares for above true market valuation, corporate appearance work) with Saracens players over the years, in addition to those players earning a salary from the club.

Premier Rugby Limited (the Premiership’s governing body) alleged that these deals were essentially additional benefits to the players, and should therefore be treated as ‘salary’ for the purposes of calculating Saracens’ compliance with the league’s salary cap (which would mean that the club had breached the cap in three consecutive seasons).

PRL’s salary cap manager described Saracens’ behaviour as “a concerted and deliberate attempt to create structures that supposedly take that reward outside the ambit of Salary”, adding that such attempt was “misconceived”. Saracens, meanwhile, argued that the deals were genuine arms-length commercial transactions, unrelated to the players’ position as employees of the club, and should not be counted as salary.

In an interesting preliminary point, Saracens tried to challenge the salary cap regulations on the basis of EU competition law, but this was unsuccessful – the Panel finding that the regulations had neither the object nor the effect of preventing, restricting or distorting competition (indeed, the Panel’s view was that the salary cap operates in a pro-competitive manner).

It is perhaps unsurprising that Saracens’ astonishing recent success in Europe (they have won the European Champions Cup three times in four seasons) somewhat undermined their argument that the salary cap was having an adverse effect on the ability of English clubs to compete internationally!

On the main substance of the case, the Panel found that each of the deals entered into were correctly treated as salary by PRL’s salary cap manager, being in many cases transactions which would not have happened (or would not have taken the form they took) if the individuals involved were not Saracens players. Saracens had therefore breached the salary cap in three successive years, by a combined total of £2,139,723.97.
On sanction, the Panel fined Saracens the sum of £5,360,272.31 on the basis of the agreed penalty scales in the regulations (due to the financial wealth of the club’s backers, no reduction was considered appropriate).

The Panel was actually quite lenient on the club as regards points deduction, holding that the total of 70 points which the regulations would have imposed was disproportionate - partly on the basis that it would almost certainly result in relegation, ironically. Instead, they found that a 35 point deduction would be “sufficient to mark the seriousness of the breaches”.

While this approach may seem reasonable on the face of it, it is surprising in light of the Panel’s view that the club was guilty of “very serious” breaches, as well as a “continuing, flagrant and reckless failure to comply with its obligations to consult and co-operate” with the salary cap manager – and even more so given that the Panel accepted that it was arguable that a discretionary increased points deduction (i.e. above 70 points) would have been appropriate, had PRL sought one.

Subsequent woes

The decision of the Panel was a huge blow to Saracens’ on-field ambitions for the season, but not necessarily a knockout - their prowess is such that, had the original points deduction stood, the club would by now be on minus seven points (after only nine games), and second bottom Leicester Tigers might be looking nervously over their shoulders. However, subsequent developments have seen any hope of immediate salvation diminish.
The decision of the Panel relating to Saracens’ historic salary cap breaches raised the question of whether Saracens were complying with the salary cap in the here and now. As it happened, the club failed to provide proof of immediate cap compliance, and as a result it was decided on 19 January that the club would be automatically relegated from the Premiership at the end of the current season, regardless of where it finished in the table – a punishment the club accepted.

Just nine days later, Premiership Rugby took the decision to apply a further deduction of 70 points to Saracens to ensure they will finish bottom of the table, “in order to provide clarity for clubs and supporters”. Add to this the musical chairs being played at boardroom level, and it is enough to make the head of any Saracens supporter spin.

Lessons learned

What lessons can Saracens, their rival clubs and indeed other sporting businesses subject to similar financial regulations (I’m looking at you, FFP) learn from this whole sorry affair?

Primarily, the case shows that a continued breach of a rule of this sort can have a devastating cumulative effect. The Panel found that Saracens “must have known that there was a risk that at least some of the transactions” in question might constitute salary.

Had they been more transparent in their reporting and only been punished for any one of the individual salary cap years in which they were in breach, they would have had, at worst, a points deduction from which they could have recovered (maximum of 35 points, possibly less with mitigating circumstances) and a fine which they could afford to pay.

They would also have had confirmation that their side-investments were salary, and therefore the opportunity to amend their model and ensure compliance the following year.

Instead, the ongoing nature of their breach means that they have been administered with a catastrophic cocktail of punishments all at once, and as a result now face relegation, the potential break up of a history-making squad and boardroom chaos.

PRL, for its part, also seems keen to ensure that lessons are learned from the Saracens case – it has announced a comprehensive review of its salary cap rules, and has also opened a public consultation.

The decision of the Panel has led to the entire house of cards built by Wray and others over many years coming crashing down in the space of a few short months.

It remains to be seen whether Saracens will ever fully recover from its fall from grace to once again take its place at the pinnacle of English and European rugby, but one thing is for sure - it’ll be a long slog.