The gap between rich and poor sport clubs has never been bigger than now. The sum of funds involved in the game has never been bigger than now. The quantity of players immediately becoming multi millionaires and buying high-speed cars and large penthouses have never been greater than now. However, more sadly, the quantity of clubs, mainly ones with high prestige and long bright history behind them, going under have never been greater than now.
There’s always something wrong in seeing a sport club, especially one which gets packed houses, fight to break even and struggle for a title. As the amount of money that is involved has increased, the fee of staying in the game has become bigger also. These kinds of large increases in salary put smaller, not so rich clubs at a real disadvantage in terms of competing for titles and championships. In the result of this situation, many of such kind of clubs have been enforced to take financial gambles in order to be capable to attract rather good players to stay competitive.
The question that arises is whether this wage spiral can be controlled in order not to harm the smaller clubs any longer? The answer is yes, it is possible to use a salary cap, which is a limit as to how much a sport club can spend on players’ wages during the year (Sejas 2008).
As it was mentioned, in sports a salary cap is a limit on the sum of money a team can spend on salaries for players. The limit consists of a per-player limit or the whole limit for the roster of the team, or both. Some sports leagues have adopted caps for keeping overall costs down, and ensuring parity among teams so a rich team cannot establish domination by signing lots of top players than their rivals. Salary caps still remain a major topic in discussions between league management and unions of players, as they are able to restrict the inflation of player’s salaries. Since implementation of salary caps in all kinds of sport gives more advantages than disadvantages, it should be implemented in all sport leagues. This idea is supported by many leading experts and specialist all over the world.
To explain the idea of salary caps, it is better to start with the name. A “salary cap” is not essentially a cap on individual salaries but rather a payroll or cost-of-labor cap. The managers of the different franchises get together and agree to inhibit the labor market by refusing to pay out more than some certain, fixed sum on payrolls, often a smaller amount than some franchises already dole out. A number of sports do have some kind of cap on individual player salaries, but they are usually set up with a number of exemptions and exceptions to get around the rule. Here is an example: the NHL limits the wages of rookies and players under a certain age but does not limit performance bonuses to them. The NBA has individual wages limits in place but there are so big amount of ways around them that they can rarely be a factor (Witting 2003).
There are two main types of salary caps that are used in professional sports, the Hard Cap, and the Soft Cap. Sometimes it is difficult to understand the difference between them, but never the less it is hidden in difference of the sports that they rule. A soft cap for example allows implementing some exceptions to the salary cap, influenced by some certain circumstances. This kind of cap is implemented by the NBA. The cap can differ from team to team due to their requests and needs. The NFL uses a hard cap that can not be run over despite any circumstances (Barnes 2010).
Salary caps are already used by a lot of major sports leagues all over the world. In North America it is used by: The National Hockey League, National Football League, Major League Soccer, National Lacrosse League, Canadian Football League, National Basketball Association and minor leagues in various sports (Back 2010). In England it is used by: The top-level leagues in both rugby codes – the Aviva Premiership in rugby union and the Super League in rugby league. Also several European association football leagues have also agreed about an implementation of salary caps. The use of salary caps is also adopted in Australia: The National Rugby League, the Australian Football League, and A-League. The country’s top-level rugby union league of France (Top 14), adopted a salary cap with the 2010–11 season also.
Implementation of salary caps gives a lot of benefits. Most experts agree that there are two main benefits appeared from salary caps – promotion of equality between teams, and control of costs (Dietl 2009). Mainly, an effective salary cap prevents rich teams from some kind of destructive behavior, including signing a huge amount of high-paid top players, preventing their contenders from hiring talented players and ensuring victory through greater economic ability. Accepting the rules of a salary cap every club has approximately the same economic ability to attract and invite players, which contributes to equality – more or less equal playing players in each team in the league, which in turn gives financial benefits to the whole league and to its teams individually.
The task of the leagues is to create equality between teams with the intention to make games exciting for the fans, spectators and not a predictable conclusion. The leagues that have implemented salary mention that they do this because they believe letting richer teams gather talent affects the quality of the sporting product they desire to sell (Staudohar 1997). If only a few of dominant teams can win constantly and challenge for the championship, most of the competitions will be blowouts by the advanced team, reducing the sport’s magnetism for fans and for media. Television revenue is a significant part of the income of a lot of sports all over the world, and the more consistently matched and exciting the contests, the more attractive the television product, making the value of the TV broadcast rights is higher. An unstable and unbalanced sport league also threatens the economical capability of the weaker teams, since if there the long term hope and perspectives of their club winning are absent, sponsor of the weaker clubs may move to other kinds of sports and leagues. Dean Bonham, a former president of the Denver Nuggets, who is now marketing consultant to various major leagues and teams admit that “Sports leagues are much more monopolistic than any of us would like to admit. But they are also like private clubs, and if you want to be part of a private club, you have to abide by the rules” (Sports 2004).
The need for equality is more obvious in leagues that work according to franchise model, rather than the promotion and relegation model, used in football of Europe. The organization of a promotion and demotion system means weaker teams go against the threat of relegation, providing excitement to the games of weaker teams (Wong 2009). Such international club competitions as the UEFA Champions League also means that the greatest clubs all the time have something to compete for, even in the most unbalanced and unstable of national leagues. Marc Ganis, who was a consultant for teams in four major professional sport leagues agrees about the benefits of salary cap adoption and tells that “Caps might cause greater on-field parity that, ironically, would result in less interest among fans. There is example after example of more fans tuning in for superstar teams and players. But caps with flexibility would allow teams that might simply be smarter to benefit from their strengths” (Sports 2004).
An adoption of the salary cap can also provide the control of the costs of teams and avoid cases when a sport club will sign high-cost contracts to obtain the benefits of instant popularity and success, and only later find themselves in financial trouble because of those high expenses. Without salary caps there is always a risk that teams can overspend wishing to win at the moment instead of long term stability and prosperity. The owners of teams who use the same risk-benefit analysis used in business may take not only the risk with the future of their own team but the reputation and capability of the whole league. Sporting sponsors are normally wishing to support a team for life, and not just to buy it for the short term period. In the case when teams regularly fail or change markets the same way businesses often do, then the whole sport life looks unstable to the sporting sponsors and consumers, who can lose interest and switch their help to a more stable sport in which their team is expected to be playing in the long term period (Back 2010).
The majority of the main sport leagues have adopted salary caps already. Salary Caps was adopted by the NFL, the NBA, the NHL and only the MLB doesn’t use it. The vital idea of the salary cap is to guarantee that the owners of teams are not cheated by the ever-increasing expenses of players for the relevant sport. Although the fact that there are loopholes in the system of salary caps, the same as in any other business activity, the cap is still a good way to control and stop rising player expenses as well as manageable system to hire players (Barnes 2010).
Nowadays there is only one of the main sports that North America likes that does not use a salary cap – the MLB. The Major League Baseball uses a luxury tax system, which is an arrangement according to which the teams with the total payroll more than some certain figure (decided every year) are taxed on the excess amount. This tax is paid to the league, which later transferes the money to its industry-growth fund (Baseball 2000).
A team that exceeds the luxury tax cap for the first time during the five years pays a penalty of 22.5% of the sum they had over the cap, if they exceed the second time, they pay 30% penalty, and teams that go over the limit three or more times pay a 40% penalty. The cap limit for 2010 is $170 million, and the cap for 2011 is $178 million (MLB 2006).
There are specialists who are sure that that it is time for MLB to address the issue of team payrolls. However, there are those who believe that a salary cap and a required minimum payroll are needed. Those who spent in 2007: Yankees $209 Million, Red Sox $134 Million, Detroit $138 Million, White Sox $121 Million, Mets $138 Million, Cubs $118 Million, St. Louis $100 Million. Those who didn’t spend in 2007: Kansas City $58 Million, Minnesota $57 Million, OAK $48 Million, TB $44 Million, Florida $22 Million, Pittsburgh $49 Million, Washington DC $55 Million. As it is seen the gap between the Yankees and the Marlins is $187,000,000 and the adoption of salary caps can change the situation (Zimbalist 2011).
It is also worth mentioning that the sums of money teams can spend accord to the salary cap are very big and players shouldn’t complain. For example checking the history of NFL salary cap, we see that each team had to spend $85.5 Million in 2005, $109 Million in 2007, $116.7 Million in 2008, $127 Million in 2009 and so on (Lackner 2009). Also, Larry Coon explaining how to count an annual salary cap for NBA, mentions that there minimum and maximum salaries for players. The salary also depends on how long the plays in the league. For example, a minimum salary for the first-year player in 2010-2011 is $473,604, while the maximum is $13,603,750 (Coon 2010).
As it was mentioned above, the use of salary caps, limiting how much teams can pay their players, is a relatively new development. The debating around this question is in process. A lot of players are surely against a salary cap, and they have their own reason. What the salary cap mainly does is limit what the player can earn on a payroll. At the same time, the owners are elated over this system, as it keeps money from falling out of their pockets on a regular basis. The full adoption of the salary cap is important and right step in sport regulations. The main benefit of salary cap system is that it ensures that every sport team is competitive despite their revenue and profits (Sejas 2008). It guarantees equality and fairness for the players and keeps the fans on the edge of their seats when it comes to challenging for the title as no one is shoo-in.
Back, Howard. N.B.A. Increases Salary Cap for Next Season. The New York Times. Web. 7 July 2010. Retrieved from http://offthedribble.blogs.nytimes.com/2010/07/07/n-b-a-increases-salary-cap-for-next-season/?scp=3&sq=salary%20cap&st=cse
Barnes, Mark. Salary Caps in Pro Sports – the Costs of Players vs Owners. Ezine Articles. Web. 2010. Retrieved from http://ezinearticles.com/?Salary-Caps-in-Pro-Sports—the-Cost-of-Players-vs-Owners&id=201992
Baseball. Four-Year Deal Includes Luxury Tax, No Contraction. ESPN.com. Associated Press. Web. 30 August 2000. Retrieved from http://static.espn.go.com/mlb/news/2002/0830/1425253.html
Coon, Larry. Larry Coon`s NBA Salary Cap FAQ. Web. 2010. Retrieved from http://members.cox.net/lmcoon/salarycap.htm
Dietl, H., Lang, M. and Rathke, A. “The Effect of Salary Caps in Professional Team Sports on Social Welfare”, The B.E. Journal of Economic Analysis and Policy. 2009: Vol. 9, Article 17.
Lackner, Al. Ask the Commish. Web. 19 January 2009. Retrieved from http://www.askthecommish.com/salarycap/faq.asp
MLB. MLB, MLBPA reach five-year labor accord. Press Release. Web. 24 October 2006. Retrieved from http://mlb.mlb.com/news/press_releases/press_release.jsp?ymd=20061024&content_id=1722380&vkey=pr_mlb&fext=.jsp&c_id=mlb
Sejas, Martin. Equity in Football – The Pros & Cons of the Salary Cap Proposal. Ezine Articles. Web. 12 November 2008. Retrieved from
Sports. USA Today. Web. 9 January 2004. Retrieved from http://www.usatoday.com/sports/2004-09-01-pros-cons-salary-cap_x.htm
Staudohar, Paul D. “The Baseball Strike of 1994-95,” Monthly Labor Review, Vol. 120, No. 3, March 1997. p. 24.
Witting, Matt. Salary Caps 101 (Part 2). Washington Hokey. Web. 10 February 2003. Retrieved from http://www.washingtonhockey.com/200203/features/sc2.htm )
Wong, Glenn M. Essentials of Sports Law. 2009. p. 559. Print.
Zimbalist, Andrew. Reflections on Salary Shares and Salary Caps. Journal of Sports Economic. Web. 2011. Retrieved from http://jse.sagepub.com/content/11/1/17.short?rss=1&ssource=mfc )