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What the Decreto Crescita is and what its end means for Serie A

A dive into Italian tax law isn’t what anyone expected, but here we are.

Football Serie A Frosinone-Juventus Photo by Massimo Insabato/Archivio Massimo Insabato/Mondadori Portfolio via Getty Images

If you’re on social media and at all plugged into the calciosphere, you’ve probably seen a lot of posts about the Decreto Crescita and the inescapable doom enveloping Serie A. If you’re a regular, emotionally healthy person, you may not be familiar with the whole situation, but it could indeed have a significant impact on the league. I don’t have the knowledge, expertise, or time to do a deep dive, but hopefully this can give you a bare bones look at the situation.

I’m also going to note here that I’ll be talking a lot about topics that often lead to some pretty heated feelings, particularly finances and the foreign vs domestic debate. I’ll note a couple of things here. I will not be entertaining any discussion about whether the increase in foreign players is good or bad. For one thing, that discussion always leads to a repulsive brand of xenophobia, no matter how it tries to disguise itself. For another, importing players actually increases level of domestic talent (see Simon Kuper and Stefan Szymanski’s seminal Soccernomics).

Zooming out, I’m also not interested in fostering a discussion about nationalism, culture, and identity, in Italy or elsewhere. This is strictly about soccer, insomuch as anything can be strictly about soccer and not politics. Anyone who uses this article as a bridge to get into political stuff is getting banned. I’m not going to put up with a comment war on this site.

What is the Decreto Crescita?

The Decreto Crescita, or Growth Decree (which doesn’t sound nearly as good), is a tax law that the Italian Senate voted into existence on 27 June, 2019. It didn’t originally have anything to do with sports; rather, it was an attempt to reverse the brain drain negatively impacting the Italian economy by providing a 5-year tax break to skilled workers who moved into the nation, whether it was Italians returning from abroad or folks from other places entirely. The idea was to incentivize bright, talented people to settle in Italy, spending money and creating jobs.

The part that applies to soccer is Article 5 of the law, which allows players and coaches who haven’t worked in Italy for the previous two years, whether native Italians or not, to pay taxes on just 50% of their incomes rather than the usual 100%. With top tier players qualifying for the highest tax rate of 43% percent, there were enormous financial benefits for both players and clubs.

The video below is a very good explanation, written by Euan McTear and narrated by Joe Devine, from the ever-wonderful Tifo channel.

The latest news, however, is that the government has declined to extend the original 5-year period that the Decreto Crescita established, which means those tax breaks will cease in February of this year. Clubs and owners have protested vociferously against this decision and may attempt to create an exception for soccer, although that may be difficult to ram through.

What did the tax break actually do?

Most clubs offer salaries to their players based on the after-tax amount, which is why the media in nations other than England (which stubbornly reports pre-tax wages) reports those amounts in after-tax terms. For example, Fiorentina’s highest earner Nikola Milenković is usually reported as receiving a salary of €3 million. That’s the amount after tax, though. The full salary is €5.56 million, with €2.56 million going to the federal government in tax.

The Decreto Crescita, then, provided clubs with two potential benefits in signing new players. The first was to allow them to offer much higher wages. Returning to the Milenković example, Fiorentina could have offered him the same size wage, but under the Decreto Crescita’s rules, he would have taken home €4.366 million rather than €3 million. Essentially, the tax break increased clubs’ financial power in terms of paying salaries.

Alternatively, clubs could maintain their current wage structures and cut costs. To continue the example, Milenković could’ve kept making the same €3 million, but Fiorentina would only have had to pay €4.27 million. This option in particular helped clubs through the years when coronavirus restricted incomes.

Remember, though, that Milenković is just an illustrative example here. He wouldn’t have been eligible for this tax break, as he moved to Italy back in 2017. This law only applied to new signings, or to players and coaches arriving from outside of Italy. Unsurprisingly, this has led to an increase in foreign players since the Decreto Crescita came into effect.

Here are the numbers from Transfermarkt; keep in mind that they’ll likely change for this season as the January window approaches.

The Decreto Crescita correlates with an increase in foreign players in Serie A. The year before it came into action, the number was just over half. While the 2018-2019 season is an outlier due to Covid (Remember how many clubs were forced to use youth players? Most of those players are Italian.), the number has steadily climbed since, with the rate mostly following along.

Clubs have clearly realized that it has been effectively cheaper to pay foreign players and hire foreign coaches than domestic ones. With the Decreto Crescita ending, however, that advantage will evaporate, which means clubs’ international purchasing power, or at least their power to pay contracts, will decrease significantly.

What does it mean for Serie A going forward?

Because the Decreto Crescita ends in February, clubs will retain the financial advantage of purchasing foreign players in the upcoming January transfer window. However, that advantage will vanish afterwards, unless the legislature re-enacts the law. As teams reacted to the opportunities it created, they’ll doubtless react to the new reality just as quickly.

First, teams will likely focus less on recruiting outside of Italy, as there competitive advantage won’t be worth the money and effort to scout and sign foreign players, as well as the extra difficulty in helping them settle into a new country with a new language and culture. That’s not to say that teams will only sign Italian players as if we were still in the 1950s. However, the odds no longer favor gambling on non-Italians as much.

One possible outcome is that teams will invest more into their academies as a way to find low-cost talent. Italy has famously preferred experience to youth, and although that has begun to change over the past decade, the path from the Primavera to the first team remains an arduous one that very few players successfully traverse. More investment towards internal development—whether that’s coaching, talent identification, or the creation of lower-tier reserve sides a la Juventus Nex Gen—could provide similar financial juice.

I’m not smart enough to make projections about the long-term impact, and if I were, I wouldn’t be writing them here. This will doubtless create a couple of loopholes for smart teams to exploit, just as every rule change does. Perhaps Fiorentina will be one of those teams, perhaps not. The only real prediction I can make is that the billionaires who own these teams will complain about all the money this decision has cost them, which really means that the status quo remains intact.