This article was published in November 2019 – prior to the release of the independent disciplinary panel’s written decision. For a full and up-to-date analysis of this case, please see my later article: PREMIERSHIP RUGBY V SARACENS: THE SALARY CAP DECISION.

On 5 November 2019, it was announced that Saracens Rugby Club (“Saracens”) had breached the Premiership Rugby Salary Cap Regulations (the “Regulations”). In what is undoubtedly the biggest scandal to have ever hit English club rugby, Saracens were fined a total of £5,360,272.31 and deducted 35 league points.

This announcement followed a nine-month investigation by Premiership Rugby (“PRL“) and reflected the decision of an Independent Disciplinary Panel (the “Panel”) chaired by Lord Dyson, a former Justice of the Supreme Court and Master of the Rolls (the “Decision”).

The Panel found Saracens to have breached the Regulations in two distinct ways. First, they failed to disclose payments to players in the 2016-17, 2017-18 and 2018-19 seasons. Second, Saracens were found to have exceeded the Ceiling for payments to Senior Players in each of the same three seasons.

Saracens have indicated their intent to challenge the decision, as they are entitled to do under Regulation 13 of the Regulations.

This article will attempt to explain the decision and the applicable Regulations. It is the first part of a series of articles entitled “Saracens and the Salary Cap”. Part II will consider how Saracens might be able to challenge the Decision, while Part III will consider its broader legal and commercial implications.

It is important to note at the outset that, under Regulation 16, proceedings under the Regulations are confidential, subject to PRL’s power to publish an appropriate summary of the sanction and the Decision (Regulation 16.4). As such, there is limited information available publicly.

It is also worth noting that the Regulations have been amended in each of the three seasons in question, as well as for 2019/20. It is the version of the Regulations which were in force at the time the breaches occurred which must be applied a disciplinary panel (Regulation 2.3(c)). The Saracens case thus involves applying three versions of the Regulations. Nonetheless, the rules have remained largely the same and only the 2018-19 and 2019-20 versions appear to be available online. For the purposes of this article, I have used the 2018-19 Regulations.

The Breaches

Regulation 11 sets out the three categories of breach of the Regulations: “Breach of the Salary Ceiling” (11.1), “Failure to Co-operate” (11.2) and a residual category of “Other Breaches” (11.3), for more minor infractions.

In this case, we are concerned with Breach of the Salary Ceiling – a breach of Regulation 3 – and Other Breaches, namely a failure to disclose payments to Players – in breach of Regulation 4.3.

Breach of the Salary Ceiling

Regulation 3.1(a) of the Regulations states that the Senior Ceilings for each Premiership season in question were as follows:

• 1 July 2016 – 30 June 2017: £6,000,000
• 1 July 2017 – 30 June 2018: £6,400,000
• 1 July 2018 – 30 June 2019: £6,400,000

The Senior Ceiling is defined in Regulation 1.1 as:

the maximum total Salary permitted to be paid directly or indirectly by or on behalf of each Club during or in respect of a Salary Cap Year in connection with all its Senior Players

Senior Players of the Club are those who are not Academy Players (Regulation 1.1).

Under Regulation 3.2, there is also a system whereby Clubs can receive credits, allowing them to spend up to a certain amount over the ceiling in Regulation 3.1(a). For example, under 3.2(a), Clubs are entitled to up to £600,000 of “Home Grown Senior Player Credits”; Home Grown Senior Players being those who have played for the Club since before their 18^th birthday and for at least two years. There is then further provision for credits for international players and members of the England EPS squad.

Importantly, under Regulation 3.3, Clubs are entitled to nominate up to two “Excluded Players” each season, whose salaries are not taken into account under the cap. These are the so-called “Marquee Players”.

Saracens have been found to have breached Regulation 3 in three consecutive Premiership seasons. The details of these breaches are not public, though it is widely thought, following an investigation by the Daily Mail earlier this year, that it relates to the co-ownership of properties and co-investments (collectively, the “Co-Investments”) between Saracens players and the Club’s owner, Nigel Wray.

The Daily Mail reported that Wray co-owns a £690,000 house with former Saracens player Schalk Brits, along with Dominic Silvester, a director of the Club. Wray also owned a £587,500 house in which former second-row Jim Hamilton lived until the end of 2017.

It was also reported that England lock Maro Itoje entered a business arrangement with Wray, who became a joint shareholder in MN Property Solutions Ltd with the player in September 2016. Since early 2017, scrum-half Richard Wigglesworth has been a 65%-shareholder of Wiggy9 Investments Limited with Wray holding the other 35%. The Daily Mail reported that this company had £875,000 of property, and £189,397 available to shareholders at the end of the last accounting year.

England captain Owen Farrell also jointly owns Faz Investments Ltd with Wray, a company set up by Kamal Shah, a former director of Saracens who is currently the director of Premier Team Promotions, which runs the commercial side of Saracens. Lastly, brothers Billy and Mako Vunipola co-own with Wray VunProp Limited, which, too, was established in early 2017.

The inference that can be made from the available information is that, by co-investing with players in this way, in addition to paying their wages, Saracens exceeded the Senior Ceiling.

The central issue – aside from the exact sums involved, of which we are not currently aware – is whether the Co-Investments could be considered as “Salary” under the Regulations, and thus count towards the Senior Ceiling.

The Definition of “Salary”

“Salary” is defined in Regulation 1.1 as:

The total of all amounts referred to in Schedule 1, which are paid or payable, provided or to be provided within the relevant Salary Cap Year, as determined by [PRL’s accountants] acting as experts

Schedule 1 is therefore where the crucial information lies. It is drafted in the broadest possible terms and is evidently intended to catch any sort of benefit which flows directly or indirectly from the Clubs to the Players.

Paragraph 1 of Schedule 1 states that “Salary” means:

the total of all the amounts referred to in this paragraph 1, whether they are paid or payable (or in the case of a benefit in kind, provided or to be provided) directly or indirectly onshore or offshore by or on behalf of a Club or any Connected Party of the Club…to or in respect of a Player or any Connected Party of the Player, and shall exclude any amount set out in paragraph 2.

”Connected Party” is also defined very broadly, in Regulation 1.1. In relation to a Club, it includes directors, officers, employees and their family members; agents, sponsors, shareholders (of at least 5%) and any company, trust or organisation operating directly or indirectly for the benefit of any of these persons. In relation to a Player it includes any family member, dependent or cohabitee, agent or body corporate in which these persons have at least a 10% share, as well as any company, trust or organisation operating directly or indirectly for the benefit of any of these persons.

As such Nigel Wray, as Chairman of the Club – i.e. a director/officer – is a Connected Party to Saracens. It may also be that other individuals who were involved in procuring the Co-Investments are also Connected Parties.

Para 1 of Schedule 1 then has subsections (a) – (w) identifying amounts which are included in the meaning of “Salary”. The most relevant are:

(a) any salary, wage, fee, remuneration, compensation, match fee, per diem, royalty, gratuity, profit, perquisite, reward, emolument, earnings, incentive, retainer, loyalty payment, preferred payment or any other sum;

…

(g) any accommodation…;

…

(m) any other financial remuneration (of a form not described above);

…

(p) any payment or benefit in kind which the Player would not have received if it were not for his involvement with a Club;

As emphasised above, this is an incredibly broad list. Subsections (a) and (p), in particular, are broad enough to cover almost any sort of payment or benefit in kind.

Undoubtedly, if Wray did own Jim Hamilton’s house, this would amount to the direct provision of “accommodation” by a Connected Party to Saracens, and thus “Salary”, under para 1(g). The co-ownership of property would also arguably amount to “Salary” in this way. In any event, such arrangements would be caught by para 1(p), as the Saracens’ players would not have received such a benefit in kind (a mortgage-free home of which they own a share), had they not been involved with Saracens.

The same is true of the co-investment in companies. The players involved will derive benefits from these companies (the “Companies”) now or in the future. These could be described as “profit” or “earnings” under para 1(a), which have come indirectly from a Connected Party to Saracens – Nigel Wray, a director – as, by investing, Nigel Wray is helping the players to generate these benefits. Equally, as above, these benefits would also fall under para 1(p), as it is surely the case that the players would not have received these had they not been involved with Saracens.

However, payments/benefits may be excluded under paragraph 2. Specifically, para 2(a) states that the following shall not be considered as “Salary”:

any payments or benefits in kind in connection with an individual sponsorship, endorsement, merchandising, employment or other individual arrangement between a Player (or any Connected Party of a Player) and any Connected Party of the Club or Third Party which the Salary Cap Manager reasonably concludes on the balance of probabilities should not be considered Salary

This introduces an element of discretion, as regards “individual arrangement[s]”. This may have allowed Saracens to argue that they were not, in fact, “Salary”. Para 2(a) lists the 16 factors which the Salary Cap Manager must consider in reaching their decision, including:

(i) if the arrangement is with a Connected Party, it will be more likely to be considered Salary;

(ii) if the arrangement was negotiated and/or intended to be entered into at arm’s length from the Player’s Club, it will be less likely to be considered Salary;

(iii) if the arrangement was negotiated at or around the same time as the Playing Contract for the Player, it will be more likely to be considered Salary;

…

(x) if the term of the arrangement is different to the term of the Player’s Player contract with the Club, it will be less likely to be considered Salary;

(xi) if a servant or agent of the Player’s Club was involved, whether directly or indirectly, in securing for the Player the benefit of the arrangement, it will be more likely to be considered Salary;

(xii) if the Connected Party/Third Party has entered into similar arrangements with any other Player(s) from the Player’s Club, it will be more likely to be considered Salary;

…

(xvi) any other matter that, in the opinion of the Salary Cap Manager in his absolute discretion, ought to be taken into account;

As Nigel Wray is a Connected Party to Saracens and has entered into similar arrangements with several Saracens players, factors (i) and (xii) point in favour of the Co-Investments being “Salary”. Equally, it is noticeable that at least Owen Farrell’s company was set up at around the same time that he signed a new contract with the Club, suggesting this is indeed “Salary” (factor (iii)).

The length of any arrangement between Wray and the players is unknown, and it may be that the Companies are intended to last beyond their time at Saracens, while it may be that this was all done at arm’s length from the Club, mitigating against them being “Salary” (factors (x) and (ii)). Indeed, Jim Hamilton continued to live in the house he co-owned with Wray after he retired from playing.

However, it may be the case that the Co-Investments were set up as part of the players’ contract negotiations, and that the Club was fully involved, which would very much suggest that the “arrangements” were Salary.

Moreover, it is worth highlighting that para 2 refers to the decision of the “Salary Cap Manager”, not the Panel. It could be argued, therefore, that para 2 cannot apply unless the payments/ benefits were disclosed in the first place, as whether they are to be excluded is a matter for the Salary Cap Manager only – and not the Panel. The better view, though, is that this would have formed part of the Panel’s decision.

Ultimately, it appears that the Panel deemed these arrangements to fall under the Senior Ceiling, and that they placed Saracens in breach of it and, thus, the Regulations, in three consecutive seasons.

Failure to Disclose

The second set of breaches relates to failures to disclose payments to Players. Under Regulation 4.3, Clubs must provide, by the end of the September following the end of each season:

a Certification…signed on behalf of each Club by the Chairman, the Chief Executive Officer and Financial Director of the Club (Regulation 4.3(a)(i))

This must include:

the total amounts paid or payable provided or to be provided as Salary in the preceding Salary Cap Year by or on behalf of a Club or a Connected Party of the Club in respect of its Senior Players…or any Connected Party of those Players… (Regulation 4.3(b)(i))

Given that the Co-Investments were uncovered in an investigation this year, it is suggested that these arrangements were likely those which hadn’t been properly disclosed. However, it is possible that there were other payments which hadn’t been disclosed, as Saracens admitted in a statement that there had been “administrative errors”.

The Sanctions

The two categories of breach are each sanctioned differently and, as such, shall be considered in turn.

Failure to Disclose

Failure to supply a Certification under Regulation 4.3 is listed as an example of a breach in Regulation 11.3(b)(i). Regulation 11.3(b) states that each instance of failure shall constitute a separate breach for the purposes of the Regulations, and that each will attract a Penalty.

Regulation 11.3(c) sets out the Penalties and states that these shall escalate according to the number of breaches, as follows:

• 1^st breach: £100
• 2^nd breach: £200
• 3^rd breach: £400
• 4^th breach: £800

Each breach over and above the 4^th breach shall attract a £800 Penalty, and there is no maximum limit for the total amount payable. This would have contributed to the overall fine.

Breach of the Salary Ceiling

Regulation 11.1 states that:

Any breach of the Regulations in relation to Salary exceeding the Senior Ceiling by £350,000 or more…shall be dealt with in accordance with the procedures set out in Regulation 12

Regulation 12 provides for the disciplinary process. Thus, to even be brought before the Panel, Saracens’ must have exceeded the Senior Ceiling by £350,000 or more. As per Regulation 12.10(c) the Panel then had the power to determine the appropriate sanction, in line with Regulation 14.

Regulation 14.3(b) provides that for every £1 exceeding the £350,000 threshold, a fine of £3 is payable, in addition to any Overrun tax payable (see below). Saracens also must bear the reasonable costs incurred by PRL “in connection with that breach or breaches” (Regulation 14.3(a)).

The amount by which a Club exceeds the Senior Ceiling below £350,000 is subject to the “Overrun tax”. The first £49,999.99 is charged at £0.50 for every £1 overspend, £50,000 – £199,99.99 at £1 for every £1, and £200,000+ at £3 for every £1 overspend. This tax, plus the above fine and any penalties for the disclosure failures will have made up the total £5.36m fine.

In addition, Regulation 14.3(c) provides that a points deduction shall be imposed. This depends on the amount by which the Senior Ceiling is exceeded, but a 35-point deduction applies where the breach is of over £650,000. This deduction applies in the season that the disciplinary decision is taken (Regulation 14.3(c)(i)).

However, the Panel also has discretion to increase or decrease the points deduction, depending on whether the Club admitted the breach, whether it was the Club’s first breach and whether the breach was deliberate, reckless, negligent or due to a “non-negligent mistake” (Regulation 14.3(d)). In this regard, it is notable that Saracens are widely thought to have come to an agreement with PRL about previous breaches, along with at least one other Club, back in 2015.

Furthermore, under Regulation 14.3(e), if the Panel thinks that the Club recklessly or deliberately committed such a breach, it can “impose any financial penalty” (emphasis added) and reduce the Senior Ceiling for that Club for the subsequent year.

Saracens were keen to emphasise in their statement that the Panel found that they had not breached the Regulations deliberately. However, it has since been reported that they were indeed found to be reckless. Under the Regulations, “reckless” means:

(a) failing to give any significant thought as to the risk or possibility of breaching the Regulations; or

(b) having recognised that there is some risk or possibility, nonetheless deliberately taking a risk of breaching the Regulations

This seems appropriate. On the evidence available, it would be difficult to show a deliberate intention to exceed the Senior Ceiling. Indeed, Nigel Wray has insisted that the Club was advised that the Co-Investments would not be classed as “Salary”. Nonetheless, there was surely a risk that they would be, given the wording of the Regulations, and, as such, taking that risk made the Club reckless.

It is not known whether the Panel exercised this discretion to impose further financial penalties, but it appears that they did not do so in respect of the points deduction.

It is also worth noting that the Panel had the power to impose a lesser penalty where the penalty imposed would otherwise be unfair, or “would lead to a result not within the spirit” of the Regulations (Regulation 14.2).

Saracens’ Right to Review

Finally, under Regulation 13.1 and 13.2, Saracens have the right to seek a review of the Decision, provided that they bring their challenge within 14 days of receiving the Decision (Regulation 13.8). However, it is important to stress that this is a review properly so called and not an appeal, as Regulation 13.2 states.

An “appeal” typically allows a case to be re-heard in front of a new panel, or for new arguments to be used to make the same case. A “review”, meanwhile, looks at the legality, or validity, of the decision taken. A review, at least traditionally, is not concerned with the merits of the decision, but with the process by which it was reached.

As such, Regulation 13.2 states that a challenge under Regulation 13.1:

shall operate only as a forum and procedure for a challenge to the validity of such a decision under English law on the grounds of ultra vires (including error of law), irrationality or procedural unfairness, with the Tribunal exercising supervisory jurisdiction only.

It is this section which must form the basis of any challenge brought by Saracens under the Regulations, and it is this section which shall be the focus of Part II of this series.

Part II can be read here.