The Italian tax tweak that would change the global transfer market

Every sporting director has a figurative drawer in which a dossier lies containing the names of transfer targets and prospective new managers. Imagine, for a moment, you’re in charge of one of Italy’s big clubs. Things haven’t gone as well as you expected this season and the time has come to make a change at head coach. Roberto De Zerbi is the guy you want but he won’t be cheap. Leaving aside the buy-out clause in his Brighton contract, there’s a Premier League salary to match.

Fortunately, legislation passed by the Italian government four years ago strengthens your hand. The ‘Decreto Crescita’ — Growth Decree — was introduced to reverse the brain drain caused by talented Italians leaving the country. A tax break came into effect to entice back the likes of De Zerbi while also making Italy more attractive to skilled foreigners. It makes your pitch to his agent easier as anyone in the 48 per cent tax bracket willing to domicile in Italy would pay around half that on their income instead. This is a significant advantage.

Let’s say you plan to offer De Zerbi a salary worth €10million (£8.6m; $10.8m) gross. Before the Growth Decree’s implementation, he would make €5.5m after tax. Now, he’d take home €7.5m. Your offer becomes far more competitive. The chances of De Zerbismo reappearing in Serie A increase. There’s just one problem, and that’s the changing political wind. There have been three prime ministers since the Growth Decree and elements of it, which were already modified last year, are set to be repealed. Evidently, the optics of the Growth Decree, which costs €674m a year and benefits only 15,000 people, are not the best amid a cost of living crisis.

And so as winter comes, Italian football is working up a sweat.

The tax break is one of the few edges Serie A clubs have in recruitment. One hundred and ninety-eight of the league’s 653 players take advantage of it (30 per cent of the whole) and the benefit to the teams is estimated to be around €150m. It’s not hard to understand why the prospect of its removal is the source of so much concern.

Inter Milan’s chief executive Giuseppe Marotta was the one who framed the debate in terms of what the league stands to miss out on in a post-Growth Decree Serie A. “We have a very good coach in the Premier League in De Zerbi. Let’s imagine if a club wanted to bring him back to Italy on what he earns now. Without the Growth Decree, it wouldn’t be possible. That goes for Jose Mourinho too.”

Roma may not have been able to appoint him in 2021 had the Growth Decree not been in effect. The loan of Romelu Lukaku and his colossal subsidised salary would have been far more challenging, as well.

Chelsea are a surprisingly neat window into the Growth Decree discussion too. They have sold Tammy Abraham to Roma and, more recently, Fikayo Tomori, Ruben Loftus-Cheek and Christian Pulisic to AC Milan. All of them were on Premier League money. Approximating, let alone matching their salaries at Chelsea, would have been an onerous task without the Growth Decree. Its paring down will only make it harder for Premier League clubs to sell into Italy and change the dynamics of the market. First-world problems for the richest league in the world.

As for Italy, maintaining the gap between Serie A and the Premier League, let alone closing it, will only become more challenging if it loses this edge. The Growth Decree has coincided with a renewed competitiveness in Italian football. Since its introduction four years ago, Serie A teams have started to perform again in Europe, reaching a Champions League final, two Europa League finals and two Conference League finals. That contrasts starkly with only three finals in the 10 years before the Growth Decree passed into legislation.

Serie A has leapfrogged La Liga in the year-on-year UEFA coefficient, which is important given that, next season, the top two leagues will obtain an extra spot in the expanded Champions League. Milan’s defeat to Borussia Dortmund last week, however, has swung things the Bundesliga’s way as the likeliest league to have a fifth representative along with the Premier League.

American Christian Pulisic is among Serie A’s many foreign players (Piero Cruciatti/AFP via Getty Images)

Going deeper in Europe has allowed clubs to bring in more (taxable) revenues. Last season alone, Serie A teams raked in €375m from UEFA in prize and TV money, a 40 per cent increase on the season before the tax break became active. Gate receipts are up, as anyone who has visited a sold-out San Siro or Stadio Olimpico or Stadio Diego Armando Maradona can tell you.

Understandably, this relative surge in on-the-pitch competitiveness has attracted brands. All of a sudden, they are seeking associations with Serie A again. Sponsorship deals are more and more lucrative and easier to do (90 per cent are struck with foreign companies) particularly if these teams are successful and sign stars. This is because they can guarantee greater exposure, brand awareness and publicity.

Players benefiting from the tax break have brought an extra 621 million social media followers to the league since the Growth Decree was implemented. Fifty per cent of that uplift (312 million) derives from a group of 40 players (six per cent of the whole) whose arrival in Serie A has been facilitated by the tax break. Economically, a fledgling virtuous circle has been created.

The Growth Decree also appears to have achieved its purpose of helping to stimulate growth. It has created jobs. Milan, for instance, have gone from employing 145 people in 2018 to around 250. “It would be senseless, total madness, to change the decree,” Milan CEO Giorgio Furlani said. “A decree that allows you to go in the right direction, a decree whose very name — Growth Decree — is about helping the country’s economy grow.” Football stimulates tourism. It brings people to cities, fills hotels and books up restaurants. Serie A has collaborated with the Ministry of Foreign Affairs and International Cooperation and the Italian Trade Agency to use its legends as ambassadors for ‘brand Italy’.

Milan CEO Furlani wants the Growth Decree to remain (Kevork Djansezian via Getty Images)

But the game continues to be viewed as exactly that: a game rather than an industry. Sympathy for clubs seems in short supply. The chief executive of Serie A, Luigi De Siervo, has often said “football has been abandoned by the government”. On the one hand, why should the state be obliged to help out entities owned by hedge funds, American billionaires, Chinese conglomerates, Italian media tycoons and movie moguls? Is it not distasteful of them to ask for the maintenance of a tax break that enables the privileged ‘one per cent’ to earn more? On the other, the volatility of national and local politics, and the snail-like pace of bureaucracy have continued to hold Italian football back.

The abandonment complex took hold during Covid-19 when, unlike in France, the government offered football clubs no financial support, shut stadiums sooner than in other countries and reopened them later and in phases. Calls for the Dignity Decree to be reversed, as a relief measure, fell on deaf ears. This was the piece of legislation that banned football clubs from doing sponsorship deals with betting companies. It led to their cancellation overnight.

While morally applaudable, it was financially problematic for Serie A. Asked for his opinion on the plans to get rid of the tax break, Torino owner Urbano Cairo framed his answer in terms of the Dignity Decree. “Football should get a share of the total betting pool, which amounts to €16bn,” he said. “If we were to get a percentage of the money bet on football, we wouldn’t ask anybody for anything.”

It’s an interesting position to take at a time when the game has been hit by a betting scandal. But, more broadly, the debate around the Dignity Decree highlights the challenging economic environment clubs face in Italy. Take, for example, the new domestic TV rights deal. It has gone marginally backwards compared with the last tender. One of the factors behind the regression is piracy fatigue. “Sadly, we are known as the country with the highest number of acts of piracy, of illegal football consumption on firesticks and IPTVs that allow pirate viewing of our content,” De Siervo said. “Over time, this has significantly reduced the number of people who regularly pay for a subscription.”

The state isn’t doing enough. Until new government legislation becomes even more effective in fighting piracy, broadcasters won’t stump up more for the rights. De Siervo estimates that “Serie A loses no less than €300m a year to this phenomenon”. It’s why, as part of the new domestic TV deal, the clubs have been incentivised to do more to stop it. While its value has nominally rolled back, there is a pathway to parity, or even an uplift, on the last deal via a profit share with DAZN, Serie A’s main broadcast partner in Italy, if piracy diminishes over the five-year life cycle of this contract.

Serie A has been able to recruit from the Premier League (Marco Bertorello/AFP via Getty Images)

Stadiums should also figure in this conversation. The average age of a football ground in Italy is 68 compared with 35 in England and 38 in Germany. They are, for the most part, out-of-date and obsolete. Roma, Milan and Inter are among the clubs to have announced projects to build new ones at a combined cost of €3bn. They are to be privately funded. And yet even though someone else is prepared to foot the bill, red tape and local politicking have stopped spades from going into the ground. Not to labour the point, but if clubs were able to open new, job-creating stadiums and generate higher revenue than existing crumbling infrastructure, any repeal of a tax break wouldn’t be an issue. But in the current climate, it goes a long way.

However, outrage over its prospective disappearance isn’t universal. On the contrary, some are incensed by the clamours for it to stay. The head of the players’ union, Umberto Calcagno, argues that the tax break is a “norm that discriminates in a frightening way against Italians or foreigners who have already been in Italy” since it came into effect. He isn’t the only one to think it has encouraged clubs to buy players from abroad at the expense of developing kids in their academies. This has been a sensitive topic ever since Italy failed to qualify for the World Cup in Qatar last year.

“It’s enough to look at the minutes played by players in Serie A,” Calcagno said. “In 2006 (when Italy were last world champions), Marcello Lippi got to count on 70 per cent of them going to Italians and 30 per cent to foreigners.” The precise number in 2005-06 was 70 percent and 2006-07 a staggering 74 per cent. “Now it’s the opposite for Roberto Mancini and Luciano Spalletti.” This season, Italians account for 36.5 per cent of the minutes played in Serie A.

Unsurprisingly, the owners and chief executives of clubs that do the most to promote young Italian players wouldn’t mourn the end of the tax break. “The Growth Decree is a joke,” Empoli president Fabrizio Corsi said. “It’s anti-Italian and against the Italian football system. I’m disconcerted by the attitude of some Italian directors.” Sassuolo chief executive Giovanni Carnevali echoed the sentiment. “The Growth Decree facilitates the signing of foreign players and doesn’t help. We have to find opportunities so that clubs who do buy Italian players are rewarded. Instead, we only have it for foreigners. It is not good for our world.”

Tammy Abraham has been in Serie A since 2021 (Maja Hitij via Getty Images)

And yet Serie A does impose tighter restrictions than other countries on the signing, for instance, of non-EU players. Teams are only allowed to sign one non-EU player a season. A second is permitted only if another non-EU player leaves the team. This contrasts with the Bundesliga, Eredivisie, Liga Portugal and Jupiler Pro League, where no limits are in place. Three can be signed each year in La Liga, four in Ligue 1 (except African players, as they are not counted on the ‘foreign’ list) and seven in the Turkish Super Lig and Greece.

The national team does not seem to have suffered under the Growth Decree either. OK, Italy missed out on Qatar but, it could be argued, that this was the culmination of a long trend, starting with back-to-back group stage exits in 2010 and 2014 and back-to-back failures to qualify in 2018 and 2022. Reaching the final of Euro 2012 and winning it in 2021 has been quickly forgotten.

Italy will defend its crown in Germany next summer and the average age of the team has come down from 29.5 to 26.5. That makes the Azzurri the third-youngest national side in FIFA’s top 20 behind the USMNT and England. At youth level, Italy is the only European nation to send four different age groups into the knockout stages of back-to-back Under-20 World Cups and Under-17, Under-19 and Under-21 European Championships. The Under-20s contested the World Cup final last summer while the Under-19s became European champions in two decades.

A negative correlation between the Growth Decree and the results of the national team is, on the face of it, hard to discern. On the contrary, the savings it facilitates can theoretically be reinvested in Next Generation teams, like the one Juventus established in 2018. As an operation, they aren’t cheap, costing €15m-€20m a year. But more clubs, notably Atalanta, are following suit on the back of Juventus’ success in preparing young players such as Fabio Miretti, Nicolo Fagioli, Hans Nicolussi Caviglia and others for the step up to first-team football. A recent study has shown that B teams accelerate a player’s graduation by 70 per cent when compared with the loan system as a means of development. Funding them is easier in the current fiscal environment.

But the government does not seem to be for turning and Serie A fears a loss in competitiveness. The Premier League and La Liga are strong enough already and Ligue 1 might become more appealing as it can offer players tax breaks.

Then there is the Saudi Pro League. Forget for a moment the spending power of its clubs, the players going there play tax-free. It’s something to bear in mind as another transfer window approaches.

The fear among the Serie A elite is that removing the tax break will make them less competitive in the transfer market, less competitive on the pitch, less appealing to broadcasters and less able to make revenue from player-trading models as they wait for direly needed news stadiums to one day get built.

Only six months ago, an advertising campaign commissioned by Serie A declared “Calcio is Back”. Now a story about a tax break could send Calcio close to breaking point.

(Top photo: Romelu Lukaku of Roma; by Paolo Bruno via Getty Images)