Tax: French Football’s Unsolvable Dilemma

Je Suis Hollande

The French football authorities have signalled a clear preference for financial incentives over outward reputation as they face a tough dilemma put forth by François Hollande’s government.

The French president was elected last year on the back of a campaign for more equality in a country increasingly short on some, in spite of its famous motto « Liberté, Egalité, Fraternité » (« Freedom, Equality, Brotherhood »). The growing gap between those affected by the financial crisis and those above it all pushed the newly-elected president to call for a revolutionary measure to tax every individual earning over a million euros per year with a staggering 75% rate on all additional income above that threshold.

Rumours of this measure led Zlatan Ibrahimovic to demand that PSG pay all his taxes upon signing a contract from AC Milan last year, as the Swedish striker negotiated a €14m a year salary that therefore costs a total of €90m a year to QSI.

The draft of this decision has been modified to shift from individuals earning a million euros a year paying these taxes directly, to firms employing these individuals having to make the extra payment. The problem is thus now on French football clubs to find a way around this measure or risk losing any chance to ever attract top players negotiating big wages and already earning more in other leagues. For a gross salary of €1.8m, a Ligue 1 player will actually earn €710,000 while his net wage in England would be €886,000 and in Italy €960,000. If on top of that, the twelve Ligue 1 clubs employing players who earn over a million per year (there are 112 of them in the French top-flight) have to pay the rate set out by the government, it goes without saying that all hopes to compete with the Serie A or the Bundesliga (where players  pay an average tax rate of 2% as opposed to 31% in Ligue 1) would be lost. One club would obviously be happy with this situation, AS Monaco benefiting from the 1963 fiscal convention signed between the Monaco Principalty and the French state which allows the club not to pay any taxes to the French government (although the football authorities are seeking to change this, by requiring ASM to have a ‘seat of business’ in France – judicial proceedings proceed on that).

The total cost of this measure for the other Ligue 1 teams has been measured at €82m, leading officials from PSG, OM and Lyon alike to ask for French football clubs to be spared by not being considered ‘large businesses’ in this case. French Minister of Finance Pierre Moscovici seems to have accepted this argument, saying that Ligue 1 clubs are already in financial trouble having totalled €62m in losses last season.

However, the image of football in France (generally bad in a country less sports-oriented than Germany or Spain) is certain to be degraded if footballers, already perceived as privileged, are confirmed to not be included in this measure. Though the big earners are mostly foreign (although this might come to change with PSG and Monaco having the financial strength to keep the best domestic players in France in the future), they will be seen as even more detached from the French society if they are exempt when this law comes into full force, planned for 2013 and 2014 only. Critics will rightly point out that French football is failing to contribute to the war effort necessary to combat the effects of the economic downturn.

In the end, although French football clubs might end up being better equipped to compete with their European peers, national support may be further harmed and make football the most hated mainstream sport in the country.