COLA to be replaced by rent subsidy

[Meg]

Well done. Superbly put on the Hawks / Demons example.

The AFL thinks that paying 100% of your cap makes the competition more equal. I think it allows good and mediocre players at low ladder clubs to be paid way above their market value and on-field performance. The AFLPA thinks this is a great outcome.

This practice allows the lowly club less flexibility in revamping their list and less money to advantage from free agency. Imagine if a club who finished 14th on the ladder could say:

?We have had some significant improvement from our younger players and we are operating at 82% of our salary cap. We are looking forward to the free agency period and have significant cap room to ad players who will fill positional weaknesses s in our young side?.

Isn't the new "banking mechanism" designed to achieve this purpose? Albeit not as extreme as your 82% example.

I've copied details below. I'm still struggling a bit to understand this. If you buy a big name player with the temporary over-cap amount how do you keep your list together the following year when you have to drop back to 100%?.
-------------
Will be: The introduction of a new TPP banking mechanism that allows clubs to spend over 100 per cent of the TPP and ASA limits (combined limit), if in any of the preceding two years the club spent below 100 per cent of the combined limit.

The permitted amount of overspend is commensurate with the level of underspend in the relevant preceding period.

For instance, if a club was $500k below the combined limit in 2015, it can spend up to $500k over the combined limits across 2016 and 2017

The overspend amount in any given year permits a club to spend up to a maximum of 105 per cent of the combined limit in that year.

This mechanism is effective from season 2015 (as such any underspends in 2013 and/or 2014 can be recovered in 2015)

[barry]

Banking mechanism will mean the premiership will simply be between the 4 or 5 teams playing 105% that year.

This is complicating the matter. Typical of the new CEO who is more of a negotiator trying to appease the loudest voices, rather lead with a simple and fair system thats easily enforcable.

Eddie McGuire and his cohorts must love the prospect of a weak AFL CEO.

[Ludwig]

It seems that the banking mechanism is meant to iron out some year on year anomalies, which would give clubs a bit more flexibility in dealing with short term cap issues. It will be interesting to see how it is used regarding veterans on big salaries. The dropping of the veterans allowance will come into play as well. It could be used to back end contracts on key players to allow vets to play an extra year or 2, or might be used to force early retirements in order to bank the cap savings for future contracts.

As for the Swans, it may encourage the retirements of Goodes and Shaw in order to 'bank' their cap in 2015 to help pay for back ended contracts in later years, especially when the COLA gets dropped. Without full salary disclosure it will always be difficult to work out a club's cap strategy.

Offhand, these changes appear to put pressure on retaining older stars for and extra year or so, encouraging clubs to drop them when in doubt.

[Meg]

"Offhand, these changes appear to put pressure on retaining older stars for and extra year or so, encouraging clubs to drop them when in doubt."

Yes we might see a lot more of the Chapman & Podsiadly moves to new clubs at the end of their careers.

[liz]

While the banking mechanism sounds like an added complication, I'm not sure how much difference it makes in practice. Clubs can already manipulate how much gets included in the cap each year by back ending and front ending contract. So if a club signs a player to a 5 year deal for 400k per annum but knows it has a $200k spare room in the next year's cap, they can just pay $600k to the player in year 1 and then $50k a year less for the remaining of the contract, thus leaving a little more room for future years in case they want extra to attract a certain player or re-sign an existing one. Or they can defer payments until later years, as the Swans appear to be doing with Buddy. The ability to carry forward the cap from year to year might simplify the process and reduce the need to forecast the cap for a few years to work out how to spread it, but it doesn't fundamentally change the ability of clubs to manipulate year on year payments within the constraints of a cap.

[DA_Swan]

How long do you have be at a club before you become a restricted Free Agent ? - biggest threat / opportunity for the Swans will be newly banked or cashed up clubs chasing Swans stars who have won a couple of premierships at a young age - we know who they are and thankfully most are locked up for the next couple of years - the challenge will be knowing when to trade and not let anyone walk for nothing comparatively like Buddy did when he joined the Swans - I think the days of the one club player will be a thing of the past - I don't have a problem with player's chasing the money as long as a decent trade or picks are made. Our culture is great but an extra 100 or higher thousand $$$ will be hard to resist for those who have done it all and are looking for a "new challenge" - old money is tied up for the top clubs with their own stars - it is the lower clubs with access to new money ie Melbourne who will be trying to make a statement who I think are the real winners.

[Matt80]

While the banking mechanism sounds like an added complication, I'm not sure how much difference it makes in practice. Clubs can already manipulate how much gets included in the cap each year by back ending and front ending contract. So if a club signs a player to a 5 year deal for 400k per annum but knows it has a $200k spare room in the next year's cap, they can just pay $600k to the player in year 1 and then $50k a year less for the remaining of the contract, thus leaving a little more room for future years in case they want extra to attract a certain player or re-sign an existing one. Or they can defer payments until later years, as the Swans appear to be doing with Buddy. The ability to carry forward the cap from year to year might simplify the process and reduce the need to forecast the cap for a few years to work out how to spread it, but it doesn't fundamentally change the ability of clubs to manipulate year on year payments within the constraints of a cap.

I would assume the practice of front ending or back ending contracts would effect a player?s income tax position in a large way. I?m surprised that so many players go for the arrangement.

Buddy will not only be fighting double teaming defenders in the later years of his contract, he will also be fighting the ATO who are looking to benefit from his back ended contact.

[Meg]

How long do you have be at a club before you become a restricted Free Agent ? - biggest threat / opportunity for the Swans will be newly banked or cashed up clubs chasing Swans stars who have won a couple of premierships at a young age - we know who they are and thankfully most are locked up for the next couple of years - the challenge will be knowing when to trade and not let anyone walk for nothing comparatively like Buddy did when he joined the Swans - I think the days of the one club player will be a thing of the past - I don't have a problem with player's chasing the money as long as a decent trade or picks are made. Our culture is great but an extra 100 or higher thousand $$$ will be hard to resist for those who have done it all and are looking for a "new challenge" - old money is tied up for the top clubs with their own stars - it is the lower clubs with access to new money ie Melbourne who will be trying to make a statement who I think are the real winners.

RESTRICTED FREE AGENT
A player has served eight or more seasons of AFL football at one club, is one of the top 25 per cent highest-paid players at his club, and is now out of contract for the first time since March 1 in his eighth season. (Restricted Free Agent)

I agree with your thoughts here and in fact this seems to be the intent of the package of changes - to encourage more movement of top players between clubs and thereby achieve a more equal competition.

[Reggi]

I would assume the practice of front ending or back ending contracts would effect a player?s income tax position in a large way. I?m surprised that so many players go for the arrangement.

Buddy will not only be fighting double teaming defenders in the later years of his contract, he will also be fighting the ATO who are looking to benefit from his back ended contact.

Gift from Paul Keating sportspeople can average their incomes over seven years

[undy]

I would assume the practice of front ending or back ending contracts would effect a player?s income tax position in a large way. I?m surprised that so many players go for the arrangement.

Buddy will not only be fighting double teaming defenders in the later years of his contract, he will also be fighting the ATO who are looking to benefit from his back ended contact.

Only if it takes them above/below an income tax boundary, or a future government alters the tax rates.
Top tax band cuts in at $180K, so Buddy (say) would be above that every year, no matter how his contract is loaded.

[Matt80]

Reggi, you would be able to tell me if players can do this.

Can a player set themselves up as a company and contract out their services? That way players would only get taxed at 30% of their profits as opposed of having to pay the top marginal tax rate plus the deficit levy.

Instead of paying Lance Franklin the club could pay Buddy Fitness Pty Ltd

[dimelb]

Reggi, you would be able to tell me if players can do this.

Can a player set themselves up as a company and contract out their services? That way players would only get taxed at 30% of their profits as opposed of having to pay the top marginal tax rate plus the deficit levy.

Instead of paying Lance Franklin the club could pay Buddy Fitness Pty Ltd

Ah, put that man on the Board.

[liz]

Reggi, you would be able to tell me if players can do this.

Can a player set themselves up as a company and contract out their services? That way players would only get taxed at 30% of their profits as opposed of having to pay the top marginal tax rate plus the deficit levy.

Instead of paying Lance Franklin the club could pay Buddy Fitness Pty Ltd

To do that, you have to be able to demonstrate you get your income from a variety of sources. If most of your income comes from one or two sources, you are taxed as an employee.

In any case, how would you get the earnings out of the company? As soon as you pay a dividend, you will land up effectively paying your top marginal tax rate on the income (after adjustment for franking credits).

Any scheme that is set up to avoid paying tax is essentially not allowed.

[Matt80]

To do that, you have to be able to demonstrate you get your income from a variety of sources. If most of your income comes from one or two sources, you are taxed as an employee.

In any case, how would you get the earnings out of the company? As soon as you pay a dividend, you will land up effectively paying your top marginal tax rate on the income (after adjustment for franking credits).

Any scheme that is set up to avoid paying tax is essentially not allowed.

Great insight Liz. This area fascinates me. If Buddy works a second job do those earnings get counted on the Swans Total Player Payments?

If Buddy is a star trader of stocks and derivatives in his spare time and earns a 40% return on his Swans Salary every year, does this extra money need to be included in the Total Player Payments?

[Ruck'n'Roll]

Meh, could be worse.
I was half expecting - no clubs outside Victoria permitted to participate in finals.

If the push to include transport/airfares into the football department spend, that may well be achieved.