Evaluating Economic Rationale for a Major European Professional Football League’s Relative Squad Cost Cap

NERA was engaged to assess the economic rationale for introducing a relative squad cost cap in a major European professional football league. Our work evaluated whether linking clubs’ spending on player wages and transfers to their revenues could improve economic efficiency by addressing market failures inherent in professional sports competitions.

Our analysis examined if and how competitive dynamics can create incentives for clubs to engage in inefficient spending “arms races,” resulting in excessive squad costs, financial instability, and underinvestment in long-term assets such as youth development and infrastructure. Drawing on industrial organization, contest theory, and sports economics, we assessed the role of externalities, moral hazard, and institutional incentives in driving these outcomes and evaluated if and how a relative squad cost cap could enhance financial sustainability, reduce systemic risks, promote more efficient investment, and strengthen the long-term value of the competition for clubs, fans, media partners, and other stakeholders.