La Liga transfer market: From economic controls to squad cost limits - rules you need to know

Summer is traditionally a time for football transfers. It’s when clubs strengthen and make the necessary adjustments to their squads ahead of a new season and it’s 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 La Liga? What is involved in the economic control and squad cost Limit rules put in place by La Liga? 

Here’s a look at how La Liga transfer market works from within.

How La Liga transfer market works works

Economic Control is a regulatory framework that was self-imposed by La Liga clubs and SADs (public limited companies), launched in 2013 with the clear objective of guaranteeing the sustainability of the competition and the clubs themselves through financial review. 

This framework applies in the top tier, La Liga EA Sports, and in Spain’s second tier La Liga too, so all participating clubs must abide by the same rules. La Liga’s Economic Control is preventative and coexists alongside retrospective measures such as UEFA’s 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 La Liga from the others when it comes to the transfer market.

When 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 Non-Registrable 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, some players aren’t 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 Non-Registrable squad encompasses the other players and coaches at the club.

This framework isn’t 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, 25 percent of the purchase option price (when it’s quite likely to be carried out), licence fees and other remunerations. As such, any new player a club wishes to register must fit within the club’s SCL.

Looking at all the factors that make up the SCL, the limit for each club corresponds to a simple equation: budgeted non-sporting 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 question.

When a club or SAD signs a new player they send all the documentation to La Liga, who will authorise or reject the registration of the player, based on the rules and 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 and/or economic trends. This guarantees that all registrations of players by La Liga 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 La Liga clubs.

The application of Economic Control in La Liga and the responsibility of the clubs have already produced undoubted benefits. From 2014/15 to 2019/20, the combined equity of clubs rose by 250 percent. Meanwhile, debt owed to public bodies has gone down from €650m in 2013 (the majority overdue) to just €3m in 2023. Furthermore, complaints from players over non-payment have fallen drastically, from €89m worth in 2011 to zero.

In the time since the introduction of Economic Control, the positive off-the-pitch results have been accompanied by success on the field of play, as 19 of the past 31 European titles in this time have been won by Spanish sides. 

All players who ply their trade in La Liga 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 COVID-19 crisis.

Which bodies play a role in establishing the Squad Cost Limit (SCL)?

When a club or SAD sends the documentation for a new player, the managing body of La Liga’s Economic Control is in charge of authorising the registration request. Furthermore, La Liga 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 La Liga, there is a Validation Body and there are technological appliances (software, BI&A, AI, etc). Nothing is left to chance.

This is all done to reassure clubs that La Liga transfer market 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 La Liga’s Economic Control, to a UEFA Appeals Committee (RFEF – Spanish Federation) or to the ordinary courts.

La Liga transfer market: Specifics of Economic Control

It’s clear that the common regulatory framework of Economic Control is robust and that it must be met by all La Liga EA Sports and La Liga clubs. But not all clubs are the same. As such, there are some idiosyncrasies based on these different circumstances.

What happens if a club has exceeded its SCL?

Faced with this exceptional situation – one that has managed to arise following COVID-19 and the drastic reduction in revenues – the competition’s Economic Control framework looks to exceptional circumstances. 

In the case of having exceeded the limit, clubs are allowed to spend no more than 40 percent of a cost that has been reduced beforehand, a figure which has been increased temporarily to 50 percent for the 2023/24 season. 

The idea behind this temporary increase is to encourage transfers in what is a down period for the market, while at the same time ensuring that a balance is struck between clubs’ financial requirements and on-field needs, allowing clubs to continue operating in the market while guaranteeing that exceeded amounts are gradually reduced until the point of reaching the required financial equilibrium.

If a saving is made through a player who represents more than 5 percent of the SCL then 50 percent of that saving can be re-spent.

Meanwhile, for new registrations in the cases of clubs who have exceeded their limits, the player’s salary cannot be increased by more than 25 percent season on season.

How are player swaps calculated?

In 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 clubs.

Can clubs turn to accumulated equity for transfers?

As outlined above, La Liga clubs’ combined equity grew by 250 percent between 2014/15 and 2019/20 thanks to their good management. In exceptional circumstances, be they particular to a single club or across the board, such as the COVID-19 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 club’s ‘acceptable ratio’ threshold. This, then, is a resource that is only available to clubs that are, financially speaking, stable and that have savings at hand.

Are there sanctions for clubs that don’t meet the Economic Control limits?

Yes. There is a penalty system for, among other issues: exceeding the SCL; non-compliance with delivery times; missing or incorrect documentation; debts with other clubs, employees or public administrations; and non-compliance with financial indicators.

If a SAD approves a capital increase, can that be used to increase the SCL?

Yes. 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 80 percent, 65 percent, 50 percent or 0 percent to signings.

Independently of the permitted percentage, the entire amount cannot be allocated to signings, at least not immediately. La Liga EA Sports clubs must defer the amount over four years, while La Liga clubs must do so over two years.

How is an amount for not-yet-completed transfers calculated in order to update the SCL?

The 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 club’s activity from previous years.

For the 2023/24 season, budgets can be based on the club’s average sales over the last three seasons, while this amount will increase automatically with each transfer carried out in this window.

What happens if the documentation presented by a club is found to differ from the reality of the market?

When a club sends the documentation to register a new player, there is a Validation Body that can make adjustments if the figures presented don’t line up with the values of the market or with economic trends.

Are there special rules for salary valuations?

There 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 Europe’s top five leagues and played a certain number of matches then at least 50 percent of the previous salary across the last two seasons is considered; it isn’t possible to reduce a salary without adding more years to the contract; and the maximum salary increase between seasons is 25 percent. 

For now, this specific part of Economic Control has only been approved for La Liga, except for this last point of the salary increase between seasons, which also applies to La Liga EA Sports exceeded clubs.

Do relegation assistance payments count for the SCL?

La Liga dedicates some economic help to the clubs who are relegated to La Liga, with these relegation assistance payments varying based on certain conditions and precedents that are specific to each club. 

In the 2023/24 La Liga season, 50 percent counts for the SCL in the first year and the remaining 50 percent in the second year, as long as the club remains for that season in La Liga.

How are the losses attributable to COVID calculated?

The losses attributable to COVID can be recovered over five years in the following percentages: 15 percent in 2022/23, and then successively 20 percent, 20 percent, 22.5 percent, and finally 22.5 percent in the 2026/27 season.

 

How are the players in the reserve team involvement calculated?

For players registered in the reserve team (or dependent team) who apply for a visa to participate in professional competition for the current season, they will be counted as a first-team player for the purposes of the SCL according to the following criteria:

• in case of players already belonging to the club: if played more than 30 percent of the first team matches, the percentage of matches played with the reserve team, and the player’s salary.
• in the case of newly registered players: the amount of the transfer and the player’s salary, as well as previous sporting performance (national team, former club and league, etc).

Is it possible to increase enrollment capacity in advance?

There is an option to increase enrolment capacity by anticipating the realisation of revenue or profit. This measure is strictly transitional, 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 club's balance sheet as non-refundable equity, and La Liga may apply these guarantees to the payment of the club's overdue debts. 

In addition, there is a limited maximum amount that can be used under this rule: 5 percent of net turnover in La Liga EA Sports and 1.5 percent in La Liga.

Within all these specifics of Economic Control, it should also be noted that the sum of any capital increase, and accumulated equity allocated to increase the SCL, cannot exceed 25 percent of turnover.

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