Salary cap

In professional sports, a salary cap (or wage cap) is an agreement or rule that places a limit on the amount of money that a team can spend on players' salaries. It exists as a per-player limit or a total limit for the team's roster, or both. Several sports leagues have implemented salary caps (mostly Closed leagues), using them to keep overall costs down, and also to maintain a competitive balance by restricting richer clubs from entrenching dominance by signing many more top players than their rivals. Salary caps can be a major issue in negotiations between league management and players' unions because they limit players' and teams' ability to negotiate higher salaries even if a team is operating at significant profits, and have been the focal point of several strikes by players and lockouts by owners and administrators. Template:Toclimit

Adoption

Salary caps are used by the following major sports leagues around the world:

• North America
  • The National Basketball Association, National Football League, National Hockey League, Major League Soccer, Major League Rugby, North American Rugby League, Canadian Football League, National Lacrosse League, Women's National Basketball Association, National Women's Soccer League, Premier Hockey Federation, and minor leagues in various sports.
  • The National Basketball Association uses a soft cap plus luxury tax system, while Major League Baseball has no salary cap and instead implements a luxury tax only (see below).
• United Kingdom:
  • In England, the top-level leagues in both rugby codes—the Gallagher Premiership in rugby union and the Super League in rugby league—have salary caps.
  • The four Welsh regional sides in the rugby union competition now known as the United Rugby Championship unilaterally adopted a salary cap effective with the 2012–13 season.
• Australia and New Zealand: Most major leagues operating in the two countries have salary cap provisions:
  • The Australian Football League (Australian rules football), which operates only in Australia. The AFL Women's league, operated by the (men's) AFL, is also capped.
  • The National Rugby League (rugby league), A-League Men (association football) and National Basketball League, each of which is based in Australia but has one team in New Zealand.
  • The countries' national netball leagues—Suncorp Super Netball in Australia and the ANZ Premiership in New Zealand—are capped. The trans-Tasman predecessor to both leagues, the ANZ Championship, was also capped.
  • In rugby union, New Zealand's top domestic competition, the National Provincial Championship, is capped. In addition, the Australian teams in the Super Rugby competition operate under a unilaterally adopted cap. New Zealand's Super Rugby sides are not subject to a team cap, but are subject to caps and floors on individual player salaries. During the period in which Argentine, Japanese, and South African sides participated in Super Rugby, teams from those countries were not subject to caps, but South Africa did have caps and floors on individual player salaries. It is unknown at present what limits South African sides are subject to in the United Rugby Championship.
• Eurasia: The Kontinental Hockey League, based in Russia and also including teams in Belarus, China, and Kazakhstan, has operated with a salary cap since its creation in 2008.
• France: The country's top-level rugby union league, Top 14, instituted a salary cap effective with the 2010–11 season.
• Asia: The Chinese Super League in association football instituted a salary cap effective with its 2021 season.

Recently, several European association football leagues have also discussed introducing salary caps. The Union of European Football Associations introduced a set of Financial Fair Play Regulations in 2011, which limits football clubs' spending relative to their income.

Benefits

In theory, there are two main benefits derived from salary caps – promotion of parity between teams, and control of costs.

Primarily, an effective salary cap prevents wealthy teams from certain destructive behaviours such as signing a multitude of high-paid star players to prevent their rivals from accessing these players, and ensuring victory through superior economic power. With an effective salary cap, each club has roughly the same economic power to attract players. This results in roughly equal playing talent in each team in the league, and in turn brings economic benefits to the league and to its individual teams.

Leagues need to ensure a degree of parity between teams so that games are exciting for the fans and not a foregone conclusion. Leagues with salary caps generally believe letting richer teams accumulate talent affects the quality of the sporting product they want to sell: if only one or a few teams can win consistently and challenge for the championship, many contests will be blowouts by the superior team, reducing the sport's attractiveness for fans at the stadium and television viewers. Television is an important revenue source for many leagues worldwide; the more evenly matched and exciting the contests, the more interesting the television product, and the higher the value of the television broadcast rights. An unbalanced league will also threaten its weaker teams' financial viability: fans of the weaker clubs will gravitate to other sports and leagues if their teams have no long-term hope of winning.

One famous example of this occurring was in the Union Association, a baseball league that operated in 1884. The Association was dominated by the St. Louis Maroons, whose owner, Henry Lucas, was also league president (an obvious conflict-of-interest situation which is now banned), and bought all the best players for his own franchise, leaving the Maroons to easily win the pennant with a record of 94–19 (.832 winning percentage), 21 games ahead of their nearest rivals. The league folded at the end of the season.

Another famous example is the All-America Football Conference, which operated between 1946 and 1949. Despite starring many top players and innovative coaches, the AAFC was dominated by one team, the Cleveland Browns, who lost only three games in four years and won every championship in the league's four-year existence, being unbeaten in 1948, and winning three of the championships in blowouts. This resulted in a consistent fall in attendance and heavy losses after the league's second season, for the Browns as well as their rivals, and the league folded at the end of 1949.

The need for parity is more pronounced in leagues that use the franchise system rather than the promotion and relegation system, which is used in European football. The structure of a promotion and relegation system means weaker teams struggle against the threat of relegation, adding importance and excitement to the matches of weaker teams. International club competitions such as the UEFA Champions League also means that the top clubs always have something to play for, even in the most unbalanced of national leagues.

A salary cap can also help to control the costs of teams, and prevent situations in which a club will sign high-cost contracts for star players in order to reap the benefits of immediate popularity and success, only to later find themselves in financial difficulty because of these costs. Without caps, there is a risk that teams will overspend for immediate victory at the expense of long-term stability. Team owners who use the same risk-benefit analysis used in business may risk both the fortunes of their own team and the reputation and viability of the whole league. Sports fans often seek to support a team for life, not merely for the short term. If teams regularly go bankrupt or change markets as businesses do, fans may deem the whole sport unstable and lose interest, switching support to a more stable sport in which long-term stability is more likely.

Hard cap, soft cap and salary floor

A salary cap can be defined as a hard cap or a soft cap.

A hard cap represents a maximum amount that may not be exceeded for any reason. Contracts which cause a team to violate a hard cap are subject to major sanctions, including the voiding of violating contracts, and the stripping of championships won while breaching salary cap rules, which happened to the Melbourne Storm in the NRL. Hard caps are designed so that penalties deter breaking the cap, but there are numerous examples of clubs who have occasionally or systematically cheated the cap.

A soft cap represents an amount which may be exceeded in limited circumstances, but otherwise exceeding the cap will trigger a penalty which is known in advance. Typically these penalties are financial in nature; fines or a luxury tax are common penalties used by leagues.

A salary floor is a minimum amount that must be spent on the team as a whole, and this is separate from the minimum player salary that is agreed to by the league. Some leagues, in particular the NFL, have a hard salary floor that requires teams to meet the salary floor every year, which helps prevent teams from using the salary cap to minimize costs. This also ensures that money from revenue sharing is used for player salaries instead of being pocketed by owners.

When the salary cap and floor are the same, the result is a standard form contract model of payment, in which each player is paid the same amount, sometimes varying by position. The standard form contract model is used extensively in North American minor leagues.

Reserve clause

Before the implementation of salary caps, the economic influence of clubs on player markets was controlled by the reserve clause, which was long a standard clause in professional sports player contracts in the United States. The clause forbade a player from negotiations with another team without the permission of the team holding that player's rights even after the contract's term was completed. This system began to unravel in the 1970s due largely to the activism of players' unions, and the threat of anti-trust legal actions. St. Louis Cardinal star Curt Flood started the ball rolling when he refused a trade to the Philadelphia Phillies. He had been a player for 12 years and felt he should have a voice in where he played baseball. Even though he lost his case in the Supreme Court, he was the first baseball player to try to end the reserve clause. Although anti-trust actions were not a threat to baseball, which has long been exempt from anti-trust laws, that sport's reserve clause was struck down by a United States arbitrator as a violation of labor laws.

By the 1990s, most players with several years' professional experience became free agents upon the expiry of their contracts and were free to negotiate a new contract with their previous team or with any other team. This situation, called Restricted Free Agency, led to "bidding wars" for the best players—a situation which inherently gave an advantage in landing such players to more affluent teams in larger media markets.

In North American leagues

National Football League

The new Collective Bargaining Agreement (CBA) formulated in 2011 had an initial salary cap of $120 million. While the previous CBA had a salary floor, the new CBA did not have one until 2013. Starting with that season, each team is required to spend a minimum of 88.8% of the cap in cash on player compensation, and 90% in future years. However, the floor is based on total cash spent over each of two four-year periods, the first running from 2013 to 2016 and the second from 2017 to 2020. A team can be under the floor in one or more seasons in a cycle without violating the CBA, as long as its total spending during the four-year period reaches the required percentage of the cap. This allows for unforeseen circumstances such as career ending injuries or unexpected player retirements to not result in an immediate penalty. As a result, teams are not forced to immediately take on a replacement for missing players which allows them to use more organic approaches such as a trade, free agency acquisition or the draft.

The NFL's cap is a hard cap that the teams have to stay under at all times, and the salary floor is also a hard floor. Penalties for violating or circumventing the cap regulations can include fines of up to $5 million for each violation, cancellation of contracts and loss of draft picks. Violating the salary floor regulations does not result in any fines or competitive penalties; instead, deficiencies are placed into a pool and distributed among all players who were on the regular roster of the offending team during a four-year floor cycle, prorated according to time on the roster in said period.

The cap was first introduced for the 1994 season and was expected to be $32 million, but an unexpectedly high bid from Fox and other networks increased the cap to $34.6 million. Both the cap and the floor are determined by a formula that is the league's revenue multiplied by the CBA percentage of the collective bargaining agreement to determine the player revenue share for the season. That value is then subtracted from the projected cost of player benefits for the season then divided by the total number of teams to determine the salary cap for a given season. Since its introduction the salary cap has increased each season (with the exception of the 2021 season due to a decrease of league revenues in the 2020 season due to the COVID-19 pandemic). In 2009, the final capped year under that agreement, the cap was $128 million per team, while the floor was 87.6% of the cap. Using the formula provided in the league's collective bargaining agreement, the floor in 2009 was $112.1 million. Under the NFL's agreement with the NFLPA, the effects on the salary cap of guaranteed payments such as signing bonuses are, with a few rare exceptions, prorated evenly over the term of the contract. During the offseason and preseason, only the top 51 salary figures are counted towards the cap. Once the 53-man rosters go into effect for the regular season the salaries of all players on the active roster, injured reserve, and practice squad, as well as unpaid bonuses and guarantees for former players count towards the cap.

In transitions, if a player retires, is traded, or is cut before June 1, all remaining bonus is applied to the salary cap for the current season. If the payroll change occurs after June 1, the current season's bonus proration is unchanged, and the next year's cap must absorb the entire remaining bonus. When a player is franchise tagged the salary cap will be affected. When the salary cap can't be met for a tagged player the National Football League will fund the remainder of the contract. Each team may only tag one player per year.

Because of this setup, NFL contracts almost always include the right to cut a player before the beginning of a season. If a player is cut, his salary for the remainder of his contract is neither paid nor counted against the salary cap for that team. A highly sought-after player signing a long-term contract will usually receive a signing bonus, thus providing him with financial security even if he is cut before the end of his contract.

Incentive bonuses require a team to pay a player additional money if he achieves a certain goal. For the purposes of the salary cap, bonuses are classified as either "likely to be earned", which requires the amount of the bonus to count against the team's salary cap, or "not likely to be earned", which is not counted. A team's salary cap is adjusted downward for NLTBE bonuses that were earned in the previous year but not counted against that year's cap. It is adjusted upward for LTBE bonuses that were not earned in the previous year but were counted against that year's cap.

One effect of the salary cap was the release of many higher-salaried veteran players to other teams once their production started to decline from the elite level. On the other hand, many teams have made a practice of using free agents to restock with better personnel more suited to the team. The salary cap prevented teams with superior finances from engaging in the formerly widespread practice of stocking as much talent on the roster as possible by placing younger players on reserve lists with false injuries while they develop into NFL-capable players. In this respect, the cap functions as a supplement to the 55-player roster limit (up from 53 since 2020) and practice squad limits (14 practice players by 2022 up from 10).

Generally, the practice of retaining veteran players who had contributed to the team in the past, but whose abilities have declined, became less common in the era of the salary cap. A veteran's minimum salary was required to be higher than a player with lesser experience, which means teams tended to favor cheaper, less experienced prospects with growth potential, with an aim to having a group of players who quickly develop into their prime while still being on cheaper contracts than their peers. To offset this tendency which pushed out veteran players, including those who became fan favorites, the players' association accepted an arrangement where a veteran player who receives no bonuses in his contract may be paid the veteran minimum of up to $810,000, while accounting for only $425,000 in salary-cap space (a 47.5% discount).

The salary cap also served to limit the rate of increase of the cost of operating a team. This has accrued to the owners' benefit, and while the initial cap of $34.6 million has increased to $123 million (maximum in 2009), this is due to large growths of revenue, including merchandising revenues and web enterprises, which ownership is sharing with players as well.

The owners opted out of the CBA in 2008, leading to an uncapped season in 2010. During the season, most NFL teams spent as if there was a cap in place anyway, with the league warning against teams front-loading contracts during the season. The Dallas Cowboys, New Orleans Saints, Oakland Raiders, and Washington Redskins chose to spend money in the spirit of an uncapped year, and in 2012 the Cowboys and Redskins (the top two NFL teams by revenue in 2011) were deducted $10 million and $36 million respectively from their salary caps, to be spread over the next two seasons. This $46 million was subsequently divided up among the remaining 28 NFL teams ($1.64 million each) as added cap space: this excluded the Raiders and Saints, as they were also over the cap, though to a lesser degree than the Cowboys and Redskins.

The actions of the league to punish those teams that were acting within their legal bounds during the uncapped year led to a lawsuit against them by the NFLPA. The case argued that the rest of the league colluded to keep average player salaries from rising in a year they expected them to skyrocket and unfairly punished teams that did not collude. The NFL settled the lawsuit with the NFLPA.

The Impact of Effective Salary Cap Management on Team Success in the NFL

The salary cap is defined as a rule that places a limit on the amount of money a team can spend on players' salaries. Since its implementation, it has had a widespread impact on teams and organizations in the sports industry. It has changed how organizations invest in their players and the future as a whole. It has proven to be an obstacle in the pursuit of sustained success. Since 1994, The National Football League has only experienced a handful of repeat Super Bowl appearances. In one of his most prominent studies, James Carrey researched salary and performance data across the NFL over a 10-year period. Ultimately, his study showed that strategic management of player compensation directly resulted in an increase in wins.

Salary figures across the four major professional sports leagues in the United States can be compared. Doing so better enables one to understand the impact the cap has on a broader scale. Andrew Zimbalist argues that the data collected by revenue analysts across the respective leagues can be misinterpreted. This misinterpretation comes from the disparities in organizational structures across the leagues. In his study, Andrew Zimbalist collects compensation logistics for athletes. He subsequently relates it to overall revenue generated by a sports organization. The concept of adjusted data analytics is used in this study to compare the salary and revenue shares of the National Football League, National Hockey League, National Basketball Association, and Major League Baseball. In all, Zimbalist analyzes how salary caps have impacted controlling player costs. The study shows how the cap has affected the way organizations invest in and compensate their players.

There is a perceived sunk-cost assumption that has arisen from the NFL's salary cap. This assumption underlines an analytical approach on the topic. In one of his studies, Quinn Keefer ran a regression on the structure of the NFL draft. The regression relates playing time amongst players to the regulations that have come from the salary cap. It was concluded that there is a positive correlation between salary and games started. An increase in salary cap value results an increase in games started for the players who were selected in the first two rounds of the draft. Despite no acknowledgeable differences in productivity, the salary cap enables first round selections to receive compensation premiums and signing bonuses. These benefits result in those particular players starting more games than players who weren't selected early on in the draft.

The salary cap, and the regulations that are a part of it, come from the NFL collective bargaining agreement. This is an agreement between the league and its player association that discusses the sharing of revenue and other compensation rules. Quinn Keefer, in his analysis, primarily focusses on the section of the agreement regarding player compensation. He highlights that two major changes came from the 2011 collective bargaining agreement. One major change was rookie wage scale and how their selection in the draft notably affected their compensation and playing time. The second change was a limit placed on the first-year salary for players. Although these changes led to a higher first-year compensation for rookies-especially those selected in the first two rounds–they ultimately resulted in decreased salaries in the years after. Keefer concluded that there were diminishing returns. Overall, the 2011 collective bargaining agreement resulted in a negative effect on player salaries. This effect has led to a restructured management of rookie contracts over the last decade.

Salary dispersion and incentive pay affect team performance across the NFL. Mike Mondello and Joel Maxcy examine this effect through collecting data from the NFL between 2000 and 2007. Mondello and Maxcy performed regression analyses that used both fixed and random effects models. Their study was geared towards establishing a relationship between performance and payroll. A positive relationship between on-field performance and increased payroll was found. Mondello and Maxcy also found a relationship between on-field performance and salary dispersion. Team revenue production, analyzed as a means to measure team performance, was also used in this analysis. Mondello and Maxcy's findings suggest that incentive pay is effective when a pay structure differentiates players based on productivity and quality of performance. The findings in their study have implications that could expand across different sports leagues.

Player compensation across the NFL has been widely examined since 1994. Richard Borghesi analyzed the relationship between player compensation and franchise performance in the league between 1994 and 2004. The evidence gathered from these years shows that team success is dependent on both the actual and perceived fairness of player compensation. The data collected also shows that teams who implement the super-star approach to personnel decisions were worse on average when compared to teams who took a different approach. Borghesi shows how the most successful approach to player compensation and salary cap management is to concentrate on players' salaries on a group level. The super-star approach to player compensation leads to a lack of success on the field due to the dissatisfaction among players who recognize a substantial inequality in salaries.

Year	Maximum team salary
2024	$255.4 million
2023	$224.8 million
2022	$208.2 million
2021	$182.5 million
2020	$198.2 million + $40 million per team in player benefits
2019	$188.2 million
2018	$177.2 million
2017	$167.00 million
2016	$155.27 million
2015	$143.28 million
2014	$133 million
2013	$123 million
2012	$120.6 million
2011	$120 million
2010	Uncapped
2009	$123 million
2008	$116 million
2007	$109 million
2006	$102 million
2005	$85.5 million
2004	$80.582 million
2003	$75.007 million
2002	$71.101 million
2001	$67.405 million
2000	$62.172 million
1999	$57.288 million
1998	$52.388 million
1997	$41.454 million
1996	$40.753 million
1995	$37.1 million
1994	$34.608 million

Year by Year Salary Cap

Canadian Football League

On June 13, 2006, a proposed salary management system featuring a Maximum Salary Expenditure Cap (SEC) was ratified at the Canadian Football League board of governors meeting in Winnipeg, Manitoba. The CFL began enforcing strict salary cap regulation for the 2007 season and the cap was initially set at $4.05 million. The cap will be $5.3 million for the 2020 season or an average salary of $115,217 per active roster player. However, most clubs spend between $7,000,000 to $8,000,000 per season on salaries due to injury exemptions allowed under the cap. For instance, the Edmonton Elks spent $8.6 million on salaries in 2018, $8.8 million in 2017 season and $7.9 million in 2016, while still cap compliant.

Penalties for teams found to have breached the salary cap or salary floor regulations are:

Amount involved in breach	Penalty for each $1	Draft picks forfeited
First $100,000	$1	None
$100,000 to $300,000	$2	First Round
More than $300,000	$3	First and Second Round

The following breaches of the salary cap have occurred (no team has yet been penalized for violating salary floor regulations):

• In 2007, the Montreal Alouettes were fined $116,570 and forfeited a first-round draft pick after a CFL investigation found that they had exceeded the salary cap by $108,285 during the season.
• The Saskatchewan Roughriders were also fined in 2007 ($76,552) for a string of minor breaches in relation to benefit payments to injured players.
• In 2008, the Saskatchewan Roughriders were fined $87,147 for exceeding the salary cap by that amount.
• In 2009, the Winnipeg Blue Bombers were fined $44,687 for minor breaches in relation to player bonuses.
• In 2010, the Saskatchewan Roughriders were fined $26,677 for exceeding the salary cap by that amount.
• In 2013, the Saskatchewan Roughriders were fined $17,975 for exceeding the salary cap by that amount.

Other North American leagues

Salary caps are common in other leagues.

The salary cap of the first Arena Football League was $1.82 million per team in its final season in 2008. In 2005, the Tampa Bay Storm were fined $125,000 for salary cap violations and their head coach Tim Marcum was suspended for four games (last two of the 2005 season and first two of the 2006 season) and fined $25,250; Marcum was suspended for a fifth game the next day for criticizing the decision at a press conference.

When the Arena Football League returned in 2010, it instituted a standard salary of $400 per game and a salary cap of $1.5 million, considerably lower than that paid by teams in the previous AFL; given that the new AFL had a 16-game season in 2010, this effectively means that its players are semi-professional.

2022 season

Competition	Sport	Country	Hard cap (US$)	Hard cap (original currency)	Soft cap (US$)	Soft cap (original currency)	Ref
Major League Baseball	Baseball	Template:Flag/core Template:Flag/core	-	-	211 mil	-
National Football League	American football	Template:Flag/core	208.2m + $40 million per team in player benefits	-	-	-
National Basketball Association	Basketball	Template:Flag/core Template:Flag/core	136.6m	-	112.4m	-
Chinese Super League	Association football	Template:Country data China	91.7m	¥ 600m	-
National Hockey League	Ice hockey	Template:Flag/core Template:Flag/core	81.5m	-
Top 14	Rugby union	Template:Country data France	-	-	12.7m	€11.0m
Indian Premier League	Cricket	Template:Country data India	12.4m	₹ 800m	-	-
Kontinental Hockey League	Ice hockey	Template:Country data Russia	12.0 m	₽ 900m	–	–
Australian Football League	Australian football	Template:Country data Australia	-	-	9.7m	AU$12.45m
National Rugby League	Rugby league	Template:Country data Australia Template:Country data New Zealand	7.4m	AU$9.4m	-	-
Premiership Rugby	Rugby union	Template:Country data England	-	-	6.8m	£5.0m
Canadian Football League	Canadian football	Template:Flag/core	-	-	4.0m	CA$5.2m
Major League Soccer	Association football	Template:Flag/core Template:Flag/core	-	-	4.9m + Designated Player Rule exception	-
Indian Super League	Association football	Template:Country data India	-	-	2.7m	₹ 175m
Women's National Basketball Association	Basketball	Template:Flag/core	1.34m	-
National Women's Soccer League	Association football	Template:Flag/core	1.1m	-
Premier Hockey Federation	Women's ice hockey	Template:Flag/core Template:Flag/core	0.75m
Major League Rugby	Rugby union	Template:Flag/core Template:Flag/core	0.5m
North American Rugby League	Rugby league	Template:Flag/core Template:Flag/core	0.3m

External links

• salary caps 101
• CapGeek.com – NHL salary cap calculator, buyout calculator, org charts, free agents, and more
• The Hockey GM – Up to date salary cap information for NHL teams
• Overview of salary caps in US professional leagues
• Ask the Commish NFL Salary Cap FAQ, up to date with current (2006) labor deal
• NBA salary cap FAQ
• Salary Cap Spreadsheets for the Washington Redskins from TheWarpath.net
• NRL salary cap page
• Sports' salary cap discussed in detail
• 2010/2011 Toronto Maple Leafs Salary Cap