In professional sports, a salary cap (or wage cap) is a cartel agreement between teams that places a limit on the amount of money that can be spent on player salaries. The limit exists as a per-player limit or a total limit for the team's roster, or both. Several sports leagues have implemented salary caps, both as a method of keeping overall costs down, and to ensure parity between teams so a wealthy team cannot entrench 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, and has been the focus point of several strikes by players and lockouts by owners and administrators.[1][2]
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Salary caps are used by the following major sports leagues around the world:
In addition, the four Welsh regional sides in rugby union's Pro 12 have unilaterally adopted a salary cap effective with the 2012–13 season.
In theory, there are two main benefits derived from salary caps - promotion of parity between teams, and control of costs.[3][4][5]
Primarily, an effective salary cap prevents wealthy teams from certain destructive behaviours, such as signing a multitude of high-paid star players, preventing their rivals from accessing talented players and ensuring victory through superior economic power. With a salary cap each club has roughly the same economic power to attract players, which contributes to parity - roughly equal playing talent in each team in the league, which in turn brings economic benefits both 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. The leagues that have adopted salary caps generally do so because they believe letting richer teams accumulate talent affects the quality of the sporting product they want to sell. If only a handful of dominant teams are able to win consistently and challenge for the championship, many of the contests will be blowouts by the superior team, reducing the sport's attractiveness for spectators both at the ground and viewing on television. Television revenue is an important part of the income of many sports around the world, and the more evenly matched and exciting the contests, the more interesting the television product, meaning the value of the television broadcast rights is higher. An unbalanced league also threatens the financial viability of the weaker teams, because if there is no long term hope of their club winning, patrons of the weaker clubs may gravitate to other sports and leagues.
The need for parity is more pronounced in leagues that use the franchise model, rather than the promotion and relegation model, 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 in order to reap the benefits of immediate popularity and success, only to later find themselves in financial difficulty because of those high costs. Without caps there is a risk that teams will overspend in order to win now at the expense of long term stability. Team owners who use the same risk-benefit analysis used in business may risk not just the fortunes of their own team but the reputation and viability of the whole league. Sporting consumers are generally looking to support a team for life, not just a product to purchase for the short term. If teams regularly go bankrupt or change markets the same way businesses do, then the whole sport looks unstable to the sporting consumers, who may lose interest and switch their support to a more stable sport where their team and their rivals are more likely to be playing in the long term.
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. 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 other 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.
A salary cap existed in the early days of the National Hockey League (NHL). During the Great Depression, the league was under financial pressure to lower its salary cap to $62,500 per team and $7,000 per player, forcing some teams to trade away well paid star players in order to fit the cap.[6]
Prior to the resolution of the 2004–05 lockout, the NHL was the only major North American professional sports league that had no luxury tax, revenue sharing, salary cap, or salary floor.
Player salaries did not become an issue until the 1970s, when Alan Eagleson founded the NHL Players' Association (NHLPA) and the upstart World Hockey Association began competing with the NHL for players. On the other hand, Harold Ballard of the Toronto Maple Leafs spent among the league minimum on rosters, making his team the most profitable.
The 1994–95 NHL lockout was fought over the issue of the salary cap. The 1994–95 season was only partially cancelled, with 48 games and the playoffs eventually being played.
Eight NHL franchises were based in Canada at the time of the lockout, but they suffered a revenue discrepancy. All NHL salaries must be paid in U.S. dollars,[7] but the Canadian teams' revenues were in Canadian dollars. The financial difficulties and uncertainties of competing in smaller Canadian markets led to two clubs moving to the U.S.; the Quebec Nordiques to Denver, and the Winnipeg Jets to Phoenix. NHL Commissioner Gary Bettman successfully persuaded the US-based teams to donate towards a pool to mitigate the negative effect of the exchange rate.
The negotiations for the most recent NHL Collective Bargaining Agreement revolved primarily around players' salaries. The league contended that its clubs spent about 75% of revenues on salaries, a percentage far higher than existed in other North American sports; NHL Commissioner Gary Bettman demanded "cost certainty" and presented the NHLPA with several concepts that the Players' Association considered nothing more than euphemisms for a salary cap, which it had vowed it would never accept. The previous CBA had expired on September 15, 2004, and a lockout ensued, leading to the cancellation of the entire 2004–05 NHL season, the first time a major sports league in North America had lost an entire season to a labor dispute.
The lockout was resolved when the NHLPA agreed to a hard salary cap based on league revenues, with the NHL implementing revenue sharing to allow for a higher cap figure. The NHL salary cap is formally titled the "Upper Limit of the Payroll Range" in the new CBA. For the 2005–06 NHL season, the salary cap was set at US$39 million per team, with a maximum of $7.8 million (20% of the team's cap) for a player.
Revenues for the six Canadian teams that were in the league at the time of the lockout have all increased significantly since then, and due to the fact the US dollar fell to relative parity with its Canadian counterpart, league-wide revenues measured in U.S. dollars have been inflated accordingly.
As a result of these factors, the cap has been raised each year to its current figure of $64.3 million for the 2011–12 season, with a cap of $12.86 million for a player. The CBA also contains a salary floor which is formally titled the "Lower Limit of the Payroll Range", the minimum that each team must pay in player salaries. The lower limit was originally set at 55% of the cap, but is now defined to be $16 million below the cap, therefore the 2011–12 minimum is $48.3 million. The difference between the salary cap and a team's actual payroll is referred to as the team's "payroll room" or "cap room".
Each year of an NHL player contract, the salary earned contributes to the team's "cap hit". The basic cap hit of a contract for each year it is effective is the total money a player will earn in regular salary over the life of the contract divided by the number of years it is effective. This, in theory, prevents a team from paying a player different amounts each year in order to load his cap hit in years in which the team has more cap room. Teams still use this practice, however, for other reasons. Performance bonuses also count towards the cap, but there is a percentage a team is allowed to go over the cap in order to pay bonuses. A team must still factor in possible bonus payments, however, which could go over that percentage.
Salary for players sent to the minors, under most circumstances, do not count towards the cap while they are there. If a player has a legitimate long-term injury, his cap hit is still counted; however, the team is permitted to replace him with one or more players whose combined salary is equal to (or less than) that of the injured player, even if the additional players would put the team over the salary cap. If the team's cap room is larger than the injured player's cap hit, they may take on as much as their cap room; however, the injured player may not return to play until the team is again compliant with the original cap.
The NHL has become the first of the major North American leagues to implement a hard cap while retaining guaranteed player contracts. Guaranteed player contracts in the NHL differ from other sports, notably the NFL, where teams may opt out of a contract by waiving or cutting a player. NHL teams may buy out players' contracts, but must still pay a portion of the money still owed which is spread out over twice the remaining duration of the contract. This does not apply for players over 35 at the time of signing; in this case a team cannot buy out the player's contract to reduce salary. Any other player can be bought out for ⅓ of the remaining salary if the player is younger than 28 at the time of termination, or ⅔ of the remaining salary if the player is 28 or older. Trading cash for players or paying a player's remaining salary after trading him have been banned outright in order to prevent wealthier teams from evading the restrictions of the cap.
Players, agents or employees found to have violated the cap face fines of $250,000 - $1 million and/or suspension. Teams found to have violated the cap face fines of up to $5 million, cancellation of contracts, forfeiture of draft picks, deduction of points and/or forfeiture of game(s) determined to have been affected by the violation of the cap.
The new collective bargaining agreement formulated in 2011 has a salary cap of $120 million and a salary floor of $108 million, representing 90% of the cap. The NFL's cap is a hard cap that the teams have to stay under at all times. Penalties for violating or circumventing the cap include fines of up to $5 million, cancellation of contracts and/or loss of draft picks.
The cap was first introduced for the 1994 season and was initially $34.6 million. Both the cap and the floor were adjusted annually based on the league's revenues, and they increased each year. 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 effect 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.
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.
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 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 53-man roster limit and practice squad limits.
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.[8] A veteran's minimum salary was required to be higher than a player with lesser experience. This 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, even 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 only accounting for only $425,000 in salary-cap space.
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 $128 million, 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.[9]
| Year | Maximum Team Salary |
|---|---|
| 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 |
Here are some highlights of the new MLS rules and regulations for the 2011 season.
For 2012, the cap number for international designated players will depend on the players' ages. Players under 20 will count $150,000 against the cap and those age 21 to 23 will count $200,000, with older players remaining at a cap number of $335,000.[10]
The NBA's most recent collective bargaining agreement was approved in December 2011, ending a five-month-long lockout of players from team facilities. The new CBA made no immediate change to the numeric value of the team salary cap from the previous CBA; however, the cap will be prorated for the shortened 2011–12 season. In addition, as in the previous CBA (and also in the NFL), the cap will in the future be calculated as a percentage of league revenues. The cap for the 2010-11 season was $58.04 million.
Through 2010–11, the NBA's salary cap was a "soft" cap, meaning that teams were allowed to exceed the cap in order to retain the rights to a player who was already on the team. This provision was known as the ""Larry Bird" exception, named after the former Boston Celtics great who was retained by that team until his retirement under the provisions of this rule. The purpose of this rule was to address fan unease over the frequent changing of teams by players under the free agency system, as fans became displeased over their favorite player on their favorite team suddenly bolting to another team. The "Larry Bird" provision of the salary cap gave the player's current team an advantage over other teams in free agent negotiations, thus increasing the chances that a player would stay with his current team.
The provision tended to result in most teams being over the cap at any given time. Teams that violated the cap rules faced fines of up to $5 million, cancellation of contracts and/or loss of draft picks, and are prohibited from signing free agents for more than the league minimum. The NBA also has a salary floor, but teams are not penalized as long as their total payroll exceeds the floor at the end of the season.
The NBA also had a luxury tax system which is triggered if the average team payroll exceeds a certain amount higher than the cap. In this case, the teams with payrolls exceeding a certain threshold had to pay a tax to the league which is divided amongst the teams with lower payrolls. However, this penalty was levied against teams in violation only if the league average also breached a separate threshold.
The NBA also implemented a maximum salary for individual players. This was done following a dramatic increase in player salaries, in spite of the salary cap, in the mid-1990s. Under the CBA, a player's maximum possible salary increased along with his time of service in the league. For a player of five years' experience, the maximum salary threshold began at 25% of the salary cap, with annual increases of up to 10.5% possible beyond that for players re-signed by their original team, or 8% annual increases for free agents that signed with new teams. For players of greater experience, the salary limit was higher - but the 10.5% limit on annual increases remained the same.
The 2011 CBA resulted in several major changes to the salary cap scheme.
First, the cap remains a soft cap. The Bird exception remains in place, but teams will have less financial room to retain a player with Bird rights than under the previous agreement.[11]
The new CBA also reduced the maximum length of a contract by a year, and reduced allowable annual raises. Bird free agents are entitled to 5-year contracts with 7.5% raises; all other players (including sign-and-trade acquisitions) are limited to 4-year deals with 4.5% raises. Maximum salaries remain at 25, 30, or 35% of the cap, depending on years of service. A player coming off his rookie scale contract, who would normally be eligible to receive a salary of 25% of the cap, will be eligible to receive 30% if he is named MVP, makes an All-NBA Team twice, or appears in two All-Star Games.[11]
Substantial changes were made to the luxury tax regime. The dollar-for-dollar tax provisions of the previous CBA remain in effect through the 2012–13 season. Starting in 2013–14, the tax changes to an incremental system. Tax will be assessed at different levels based on the amount that a team is over the tax threshold, which remains at a level above the actual cap. The scheme is not cumulative—each level of tax applies only to amounts over that level's threshold. For example, a team that is $8 million over the tax threshold will pay $1.50 for each of its first $5 million over the tax threshold, and $1.75 per dollar for the remaining $3 million. In addition, "repeat offenders", subject to additional tax penalties, are defined as teams that paid tax in four of the five previous seasons. As in the previous CBA, the tax revenue is divided among teams with lower payrolls.[12] However, under the new scheme, no more than 50% of the total tax revenue can go exclusively to teams that did not go over the cap; the use of the remaining 50% has not been specified in the new agreement.[11]
| Amount over tax threshold | Standard tax | Repeat offender tax |
|---|---|---|
| $5 million or less | $1.50 | $2.50 |
| $5 million to $10 million | $1.75 | $2.75 |
| $10 million to $15 million | $2.50 | $3.50 |
| $15 million to $25 million | $3.25 | $4.25 |
Taxpaying teams have additional spending limits under the new agreement. They have a smaller "midlevel exception" (another cap provision that allows teams to go over the cap to sign at least one player per season), and can acquire less salary in a trade. Also, beginning in 2013–14, teams that exceed the cap by $4 million or more cannot receive a player in a sign-and-trade deal.[11]
The midlevel exception itself also changed with the new CBA. The maximum duration of midlevel contracts was reduced from 5 years to 4 for non-taxpaying teams and 3 for taxpaying teams, and maximum allowable raises were also reduced.[11]
Under the new CBA, teams will be allowed to "amnesty" one player before the start of any season, as long as his current contract was signed during the 2005 CBA. The amnestied player is waived from the team; although the player's former team remains obligated to pay his salary under the old contract (with a credit for any salary paid by a future team), that salary is no longer counted for purposes of the cap or luxury tax calculations. This provision can be used only once per team during the duration of the CBA, which lasts for 10 years with either side able to opt out in 2017.[11]
The salary floor, previously 75% of the cap, will increase to 85% in 2011–12 and 2012–13, and 90% in future years.[11]
In the NBA, the salary cap has not had the same effect of breaking up championship teams and movement of veteran players between teams that has occurred in the NFL. Repeat championship winners have been far more likely to occur in the NBA than in the NFL in the salary cap era. Also, the overall rate of salaries paid and the expense to operate a team rose more rapidly in the NBA than in the NFL. The average NBA salary in 2010–11 was $5.356 million, the highest of any major North American sports league. This is mitigated by the NBA roster size of 15 as opposed to 55 for NFL teams, 23 for NHL teams, and the varying 24-40 man rosters (24 or 25 after opening day, 24-40 beginning September 1) of Major League Baseball.
Instead of a salary cap, Major League Baseball implements a luxury tax, an arrangement in which teams whose total payroll exceeds a certain figure (determined annually) are taxed on the excess amount. The tax is paid to the league, which then puts the money into its industry-growth fund.[13][14]
A team that goes over the luxury tax cap for the first time in a five-year period pays a penalty of 22.5% of the amount they were over the cap, second-time violators pay a 30% penalty, and teams that exceed 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.[15]
As of the 2009 season[update], only the Boston Red Sox, the Los Angeles Angels of Anaheim, the Detroit Tigers, and the New York Yankees have paid any luxury tax; the Yankees have contributed to over 95% ($164.1 million) of tax payments, and have been subject to six of the eleven occasions the tax has been implemented.
Money collected under the MLB luxury tax are apportioned as follows: The first $5m is held in reserve, to pay for possible luxury tax refunds. Once it is clear that there are no refunds to be issued, this money is then earmarked for the Industry Growth Fund (IGF). 50% of the remaining money is used to fund player benefits, 25% is used to fund baseball programs in developing countries with no high-school baseball, and 25% is put into the Industry Growth Fund (IGF).
Measuring the success of the luxury tax in bringing the benefits of parity has brought mixed results. A team with a $100 million plus payroll has won the World Series three times: the 2009 Yankees, and the 2004 and 2007 Red Sox; however, $100 million plus payrolls have only existed since 2000. In the past 30 years, 20 different teams have won World Series titles, compared to 14 different teams winning the NFL Super Bowl, 13 winning the NHL Stanley Cup and 9 winning the NBA championship. While a top tier payroll increases a team's chances of making the playoffs, it does not guarantee they will consistently win championships. Others disagree, citing the New York Yankees having consistently the highest salary in baseball and have won approximately a quarter of all world series.
Others pundits, such as Michael Lewis, the author of the bestseller Moneyball, have argued that using World Series championships as an example of parity may be misleading, and playoff appearances may be a better indicator of relative team strength. The playoff system used in baseball comprises a small number of games compared to success over a long season, and has been described as a "crapshoot" by Oakland A's General Manager Billy Beane. Teams with consistently high payrolls including the New York Yankees and Boston Red Sox have secured high numbers of playoff berths while teams with low payrolls such as the Pittsburgh Pirates and Tampa Bay Rays have only made the playoffs four times combined over the past decade.
Some teams, notably the Milwaukee Brewers, have called for the introduction of a salary cap, but any introduction is opposed by the MLB players' union, and the Yankees' ownership group; the latter have threatened legal action. Although some saw the success of NHL owners in their 2004–05 lockout as an opportunity for MLB to reform its collective bargaining agreement, baseball owners agreed to a new five-year deal in October 2006 that did not include a salary cap. Unlike the other three major North American sports, MLB also has no team salary floor: the only minimum limits for team payrolls are based on the minimum salaries for individual players of various levels of experience that are written into MLB's collective bargaining agreement.
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. [2] The CFL began enforcing strict salary cap regulation for the 2007 season, which was set at $4.05 million with a salary floor of $3,746,250 (92.5% of the cap); the cap will be set at $4.25 million for the 2010 season, with a salary floor of $3,931,250. [3]
Penalties for teams found to have breached the salary cap or salary floor regulations are fines of the amount involved for the first $100,000, fines of double the amount involved and forfeiture of the first-round draft pick for the next $200,000, and fines of triple the amount involved and forfeiture of the first and second-round draft picks for any amount in excess of $300,000. [4].
The following breaches of the salary cap have occurred (no team has yet been penalized for violating salary floor regulations)[16]:
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 (two in the 2005 season, two in 2006) 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.
Salary caps are little used in Europe. However several European association football leagues have considered introducing them in the early 21st century. In 2002, BBC reported [5] that the G14 group of 18 leading European football teams would cap their payrolls at 70% of team's income, starting from the 2005/2006 season - however, this did not eventually occur. Serie A, the leading Italian football league and The Football League in England have also considered salary caps.
These measures would be implemented to ensure clubs spend responsibly rather than as a tool to create parity. Top executives in European football have acknowledged that a number of challenges not present in North America would confront anyone who tried to implement an effective cap across European football or even across a single league with a view to creating competitive balance:
However, several European rugby leagues, as well as ice hockey leagues have successfully instituted salary caps. Rugby league's Super League, mainly in England with a team also in France (and formerly one in Wales), is capped. Historically, Super League had used promotion and relegation, but changed in 2009 to a licensing system with some similarities to the North American franchising model. In rugby union, two of the continent's three main domestic/regional leagues—the Aviva Premiership in England and the Top 14 in France—instituted caps despite both being at the top of extensive pyramid structures with promotion and relegation throughout. The most notable European ice hockey league with a salary cap is the Kontinental Hockey League (which uses the franchising model), and that league implemented a cap despite currency issues.
The Premiership's salary cap has been in place since the late 1990s.[17] The most recent increase to the cap was before the 2008–09 season, when it nearly doubled from £2.2 million to £4 million;[17] the cap has remained at that amount ever since.[18] A provision applicable only in seasons that run up against the quadrennial Rugby World Cup, such as 2011–12, gives teams a £30,000 credit for each player on the roster participating in the competition, helping them to manage their reduced rosters in the season's early weeks.[18]
Through 2011–12, the cap remains at £4 million. However, academy credits were introduced that season. Teams now receive a £30,000 credit for each home-grown player in their senior squads, with a maximum of eight such credits. This increases the effective cap to a maximum of £4.24 million (not counting World Cup roster credits).[18]
Two substantial changes are set for 2012–13. First, the cap will increase to £4.26 million before academy credits and up to £4.5 million with credits. The most significant change will be that teams will be allowed to designate one player whose salary will not count against the cap, similar to the Designated Player Rule in MLS.[18]
In December 2009, Ligue nationale de rugby (LNR), operator of the Top 14, announced it would impose a cap of €8 million, effective with the 2010–11 season.[19] Previously, the only restrictions on team salaries were that wage bills were limited to 50% of turnover[20] and that 10% of the salary budget had to be held in reserve.[19] Along with the announcement of the cap, LNR also declared that the reserve requirement would be raised to 20%,[19] with the previous limitation of 50% of turnover remaining in effect.[20]
Before the introduction of the cap, it was widely speculated outside of France that some Top 14 clubs had wage bills of €20 million. As it turned out, the new cap was in fact higher (by 5%) than the highest official wage bill in the 2009–10 season. Also, due to the complex nature of French club administration, clubs were seen as likely to find creative ways to skirt the cap—for example, one major overseas player was rumored to be receiving less than 40% of his total income from the club as on-the-books salary in the 2008–09 season.[20]
When the Russian Superleague was dissolved to make way to the modern-day KHL, the Kontinental Hockey League Players' Trade Union (KHLPTU) agreed to the implementation of a salary cap. When first implemented there was a salary cap, as well as a salary floor. As of the 2009-10 KHL season, the salary cap was 620 million rubles ($US18.3 million) and the salary floor was 200 million rubles ($US5.9 million). The KHL's cap operates despite the KHL's multinational nature, with teams in Belarus, Kazakhstan, Latvia, and (as of 2011–12) Slovakia, in addition to its primary base of Russia. The four non-Russian countries each use different currencies that currently float against the ruble. Kazakhstan has never sought to peg its currency to any other. Belarus has in the recent past attempted to peg its currency to the ruble and the US dollar with limited success. Slovakia uses the euro, while Latvia's currency is closely tied to the euro via the country's membership in ERM II.
Also, starting in 2011-12, each team can sign up to two "designated players" whose salaries are not counted against the cap. The KHL salary cap is a soft cap, with a luxury tax amounting to 30% of the payroll that is over the cap, paid to the special stabilization account, which helps KHL teams facing financial hardship.
On 20 December 2011, the four Welsh regional sides that participate in the Pro 12 competition announced that they would impose a salary cap of £3.5 million, effective with the 2012–13 season. The cap covers only the registered squad for European competitions—i.e., the Heineken Cup and European Challenge Cup. It does not cover players in the regions' academies.[21]
Notably, this cap was unilaterally instituted. Pro12 is uncapped, and none of the other three countries involved in the Pro12 (Ireland, Italy, and Scotland) are known to have formally instituted such a system.
The Australian Football League has implemented a salary cap on its clubs since 1987, when Brisbane and West Coast were admitted, as part of its equalization policy designed to neutralize the ability of its richest clubs, namely Hawthorn, Essendon, Collingwood and Carlton to perennially dominate the competition.
The cap was set at A$1.25 million for 1987–1989 as per VFL agreement, with the salary floor set at 90% of the cap or $1.125 million. The salary floor was increased to 92.5% of the cap in 2001 due to increased revenues. Both the salary cap and salary floor has increased substantially since the competition was re-branded as the AFL in 1990 to assist in stemming the dominance of high membership clubs such as the West Coast Eagles and Adelaide.
The salary cap, known officially as Total Player Payments, is A$8,212,500 for the 2011 season with a salary floor of $7,596,562.50, except for the Gold Coast expansion team, whose salary cap will be A$9,212,500 with a salary floor of A$8,596,562.50.[22]
Certain payments are excluded from the cap, and concessions are available for some players, in particular, "veteran" players (those over the age of 30 and/or who have completed 10 seasons with their current club) and "nominated" rookie list players, who are discounted by up to 50% for purposes of the cap. The AFL Players Association negotiates for players with the AFL on the topic of average salary.
The breaches of the salary cap and salary floor regulations outlined by the AFL are exceeding the TPP, falling below the salary floor, not informing the AFL of payments, late or incorrect lodgement or loss of documents relating to player financial and contract details, or engaging in draft tampering. Trading cash for players and playing coaches, formerly common practices, are also prohibited in order to prevent wealthier clubs from evading the salary cap and salary floor regulations.
Penalties for players, club officials or agents include fines of up to one and one half times the amount involved and/or suspension. Penalties for clubs include fines of up to triple the amount involved ($10,000 for each document that is late or incorrectly lodged or lost), forfeiture of draft picks and/or (since 2003) deduction of premiership points; the latter penalty has never been implemented. As yet no club has been penalised for breaches of the salary floor regulations.
Documented breaches of the salary cap regulations are as follows:
The AFL salary cap is occasionally controversial, as the cap is a "soft" cap and therefore can sometimes be slightly different for each club. Clubs in poor financial circumstances do not always use their full cap, in some circumstances not even reaching the salary floor, to ensure they reduce costs.
The AFL has used the cap to pursue its policy of supporting clubs in non-traditional markets such as Sydney and Brisbane. Until the 2003 season, the Swans and the Brisbane Lions were permitted a 15% higher cap. This advantage attracted criticism after the Lions won three consecutive premierships from 2001–2003, and as a result, the Sydney Swans now have a 7% higher cap due to the increased cost of living in that city, and Brisbane's advantage has been eliminated. The AFL maintains that higher salary caps may be used in the future to support its expansion into rugby league's heartland in New South Wales and Queensland.
Apart from the AFL, several regional leagues also have salary caps which although widening between them and the AFL and overall less than national competitions, are substantial enough to dictate the movement of semi-professional and professional players between states and the overall playing quality and spectator attendance of the state leagues.
There are a significantly higher number of AFL reserves in the Victorian Football League due to affiliations with Victorian clubs, but player payments for these appearances is apparently not included in the VFL's salary cap.
| League | Region | Salary Cap (AUD) | Service payments excluded | Average player annual salary | Average salary per game | Highest paid (per year approx) |
|---|---|---|---|---|---|---|
| Australian Football League | Australia (national) | $7,950,000[40] | Yes | $227,000[41] | $10,300 | $1,200,000[42] |
| South Australian National Football League | South Australia | $400,000[43] | Yes | $46,000 | $2,000 | $70,000 |
| Victorian Football League | Victoria | $300,000 | Yes | |||
| West Australian Football League | Western Australia | $200,000[44] | Yes | |||
| Tasmanian Football League | Tasmania | $80,000 [45] | Yes | |||
| Northern Territory Football League | Northern Territory | |||||
| Sydney AFL | New South Wales | |||||
| AFL Canberra | Australian Capital Territory | |||||
| Ovens & Murray Football League | Victoria/New South Wales |
The National Rugby League adopted a hard salary cap model in its first season in 1998. The salary cap is A$4.6875 million in 2010 and AU $5 million in 2011, with a salary floor of A$4.21875 million in 2010 and A$4.5 million in 2011 (90% of the cap). The NRL's stated purposes for having a salary cap are "to assist in spreading the playing talent" and "ensure that clubs are not put into positions where they are forced to spend more money than they can afford in terms of player payments, just to be competitive." [6]
| League | Region | Salary Cap | Service payments excluded | Average player annual salary | Average salary per game | Highest paid (per year approx) |
|---|---|---|---|---|---|---|
| National Rugby League | Australasia (transnational) | A$4,687,500 | Yes | A$187,500 | A$7,500 | A$562,500 |
| Super League | Europe (transnational) | £1,700,000 |
The breaches of the salary cap and salary floor regulations outlined by the NRL are exceeding the salary cap, falling below the salary floor, not informing the NRL of payments, late or incorrect lodgement or loss of documents relating to player financial and contract details or engaging in contract tampering. Trading cash for players is also prohibited to prevent wealthier clubs from evading the salary cap and salary floor regulations.
Penalties for players, club officials and agents include fines of the lesser of 10% of the amount involved or $100,000 and/or suspension. Penalties for clubs include fines of the lesser of half the amount involved or $500,000 ($2,500 for each document that is late or incorrectly lodged or lost) and/or deduction of premiership points.
The following breaches of the salary cap and salary floor have occurred[46]:
The NRL is one of the few major leagues to implement a salary cap in a sport that has competing leagues in other countries where there is either no salary cap or a much higher cap per club. As a result, there is a constant drain of players from Australia to Europe where salaries for the elite, and even for average players, are considerably higher. The NRL has chosen to continue with the cap, believing that any reduction in quality of the sporting product due to the loss of these players is less than allowing richer clubs to dominate. In practice, the goal of parity has been quite successful, with nine different clubs winning the premiership between 1998 and 2010. Since the NRL's inception in 1998, only the Brisbane Broncos have won the premiership more than once.
In 2008, the departure of Mark Gasnier and Sonny Bill Williams, two elite stars, to play French rugby union prompted calls for the cap to be raised. Australian rugby league players had suffered a 27% decline in their wages since 1999, whereas other Australian sportsmen had experienced steady, and in some cases explosive growth. Some of the blame has been apportioned to the fact that the media company News Limited is a 50% owner of the NRL, and would normally be expected to be a bidder for rugby league rights in Australia. Being an owner of the game means News can apportion rights to itself at a discount, reducing the overall income the league can make for itself through media rights. This has a flow-on effect reducing available income for players.[50] Following the 2009–10 northern rugby union season, global exchange rate changes meant that payments in European currencies were not as attractive and Gasnier returned to the NRL, while Williams returned to his homeland of New Zealand in what proved a successful attempt to play rugby union with the All Blacks.
The A-League national association football (soccer) competition has set a salary cap of A$2.35 million for each squad in the 2010/2011 season, with a salary floor of $2.17375 million.
Each team can sign one "marquee player" and one "guest player", whose salaries are excluded from the team's salary cap. The A-League has also introduced a "junior marquee" for eligible under 23 year old players with the aim of keeping young talented players in Australia for a longer period,[51] similar to the Designated Player Rule in Major League Soccer in North America.
The breaches of the salary cap and salary floor regulations outlined by the A-League are exceeding the salary cap, falling below the salary floor, not informing the A-League of payments, late or incorrect lodgement or loss of documents relating to player financial and contract details or engaging in contract tampering.
Penalties for players, club officials or agents include fines of up to one and one half times the amount involved and/or suspension. Penalties for clubs include fines of up to triple the amount involved ($5,000 for each document that is late or incorrectly lodged or lost) and/or deduction of competition points.
In the 2006-07 season, Sydney FC were fined $174,000 and deducted three competition points after it was found that they had exceeded the salary cap by $110,000 and failed to declare third-party payments during the 2005–06 season in which they were premiers.
The National Basketball League has a salary cap of A$1 million for each of its eight teams, for the 2009-10 season. In addition, since 2003-04, the NBL has used a "points cap" to encourage spread of talent: players are assigned points on a 1-10 basis each season "based on their performance in the NBL or based on the league they have participated in for the season just concluded", and each team's player roster (of between 10 and 12 players) must fall within a "Total Team Points" limit.[52]