French football and the economic folly

“The high-income tax of 75%, which was included in the 2013 draft budget of France, will have a disastrous effect on the competitiveness of French football,” – A statement from the Professional Union of Football Clubs (UCPF).

Edinson Cavani was signed by PSG from Napoli this summer

The death of French football is upon us, it appears.

Club presidents in France have declared this state of emergency after recent talks with French president Francois Hollande yielded no U-turn with regards to his decision to progress with the introduction of a 75 per cent tax plan; a plan which looks to revive the country’s fiscal condition, but leaves the beautiful game in France in the middle of a socialist debate with an uncertain future.

This uncertainty comes from the proposed tax plan itself. Although still to be approved by parliament, the new tax strategy would see a 75 per cent rate on salaries over €1m, paid by the company itself. Hollande has already tried to impose the tax on the individuals, but had this thrown out by France’s highest court, and now this slight adjustment sees his plans very much back on track.

For French football clubs, this could not come at a worse time.

Recent substantial investment into the league was supposed to kick start a new resurgence of French football; Paris Saint-Germain and Monaco the latest European clubs to be backed by the super-rich. But attracting the top players means paying the top salaries, and in turn, paying the top rate of tax.

To fully understand where the clubs are coming from, it’s better to let the numbers speak for themselves.

Champions PSG have around 20 players with salaries over €1m and would be the biggest hit. Players like Zlatan Ibrahimovich easily take home over €10m per annum after tax. Monaco’s tricky status means they are exempt from French Tax laws, but clubs like Marseille and Lyon would struggle, and already are struggling. In fact, Ligue 1 clubs recorded a combined loss of €108m at the end of the 2011-2012 season. An estimated €40m in extra taxes will be coughed up with this plan, and with already decreasing television revenues this makes bad reading for club presidents all across France.

“Most of the clubs don’t make money, they lose money, so how is it possible for the clubs to pay taxes when they don’t have money left?” Saint-Etienne president Bernard Caizzo speaking to the Associated Press.

A study by UCPF chairman Jean-Pierre Louvel outlines the benefits to the French economy that football already generates, with an annual turnover of over €3billion. Basically, each euro created by a club generates a further 2.5 euros; this serves only to aggravate clubs further, believing that football can be a help, not a hindrance to the French economy.

It seems the bigger picture is the main concern. With this rate of tax, how can the league compete with the likes of England, Germany, Spain and Italy? The general thought is it will deter players from joining French clubs. Although the clubs themselves will need to absorb the increased rate, it is still bound to restrict spending in the league. One thing is for certain, foreign investment into the league will almost halt, with the feasibility simply not in existence. Investing in, for example England, where a 40 per cent rate is in place, would be more viable; further excluding the French league from Europe’s elite.

Of course, this is a political debate as much as anything. The fact that the new tax laws will apply to existing player contracts has particularly sparked unsavoury sentiments and the usual behaviour seen in parliamentary debates has befallen the game. President Hollande’s socialist ways gained great popularity during his campaign run, with the “rich must pay more” approach resonating with the French people during a pitiable economic period. The declaration of war on the rich won the presidency, but is now seen as more symbolism than anything else. Yes, firms will pay more, but a 75 per cent tax rate will not greatly dent the €85bn deficit.

Although a measure to drag France out of its economic crisis, the new tax strategy, if approved, is certain to greatly affect the football clubs of France. Football should not be exempt from the law and taxes; that has never been in doubt. But it is now unclear whether the exciting years ahead which were predicted by many for the French game are an actuality, or just a fantasy from a more prosperous time.

Published in permission with Steven Bell