Many of Europe's football clubs are facing an uncertain financial future – television revenues have nose-dived and the transfer market has all but disappeared. Yet, at the same time, players' salaries have continued to soar

It is against this background that the European football community has been discussing the need to adopt what is seen by many as the most radical form of cost control – salary capping.

The purpose of salary capping is simple. Caps limit the amounts that clubs can spend on players, thereby controlling increases in players' wages and limiting the risk of clubs spending more than they can afford on players, while also maintaining the competitiveness of the league. The form of cap currently under consideration by the Football League and by G14, a group formed by Europe's 18 'elite' clubs, is a scheme in which each club's spending would be limited to a percentage of its turnover.

Under European Competition law, an agreement or practice is deemed unlawful if it imposes restrictions on competition in the relevant market.

In the past, European Community authorities have recognised the intrinsic nature and value of sport and have ruled that a UEFA rule will not restrict competition if without it the various UEFA competitions would lose credibility, which would devalue the competitions and the clubs and threaten the “very existence of credible pan-European competitions”.

There is, however, little evidence to suggest that a cap in the form currently being proposed would preserve the credibility or value of Europe's many leagues.

G14 has suggested a cap set at 70 per cent of each club's turnover. If this type of cap was imposed, it would have little or no effect on Europe's elite clubs, apart from Real Madrid, which would have to cut its spending. For example, despite its high-profile signings and legion of superstars, last season, Manchester United only spent around 50 per cent of its turnover on players' wages.

In contrast, many smaller clubs gamble in order to compete at the highest level. The average English First Division football club spends 101 per cent of its revenue on players' wages alone. If the proposed cap was introduced, each of these clubs would be forced to slash wages or sack staff. The position would deteriorate further if revenues continued to drop and some clubs could go out of business in the process.

So rather than creating competitive balance and preserving the existence of credible pan-European competitions, the opposite could happen, as the effect of a cap would further widen the gulf between Europe's elite and the chasing pack. The cap, in the form currently under consideration, would be a restriction of competition and would not be given exemption, especially as there are alternative courses of action open to clubs to prevent wages from spiralling out of control.

If UEFA is unable to obtain a satisfactory level of support for the proposed cap from clubs, players and unions, it is unlikely that it will decide to impose a cap and risk both a strike by players and the scheme being struck down by the competition authorities. If UEFA is unwilling to impose a capping system, each national league could impose a salary cap on its own clubs, although if UEFA is unwilling to impose a cap, the national leagues may prove to be equally as unwilling to impose one themselves and have it challenged in the European courts, especially if the cap risks putting its league at a competitive disadvantage with other European leagues.

A properly set G14 wage cap could bring down wages throughout football. However, the current proposed cap of 70 per cent of turnover is unlikely to have a significant effect on many of G14's members and, even if the cap was set at an effective rate, as a gentlemen's agreement, it remains to be seen how effectively the scheme would be adhered to in what is a highly competitive marketplace where winning is everything.