Salary cap

Adoption

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

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 of salary caps

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 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 by producing roughly equal playing talent in each team in the league, and 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 fans at the stadium and viewers 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 team winning, fans of the weaker clubs will gravitate to other sports and leagues.

One famous example of this occurring was in the Union Association, which operated in 1884. The league was dominated by St. Louis Maroons, whose owner, Henry Lucas, was also league president in an obvious conflict-of-interest situation which is now banned. Lucas bought all the best players for his own franchise, and the Maroons easily won 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. Attendances and profits consistently fell 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 in order to win now at the expense of long term stability, and 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.

Sports fans 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 fans, 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.

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 and/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.

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.

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 2013–2016 and the second from 2017–2020. 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 leading to 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 and floor regulations include fines of up to $5 million for each violation, 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 are adjusted annually based on the league's revenues, and they have 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 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.

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 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-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. 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 docked $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 26 NFL teams ($1.77 million each) as added cap space (this excludes the Raiders and Saints, the latter of which was also dealing with their ongoing bounty scandal, as both teams were 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.

Year by Year Salary Cap

National Hockey League

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.

Pre-salary cap

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, very limited revenue sharing and no salary cap.

During the Original Six era through to the early years of the expansion era, the NHL's strict reserve clause negated the need for a salary cap.

Player salaries first became an issue in the 1970s, when Alan Eagleson founded the NHL Players' Association (NHLPA) and the upstart World Hockey Association began competing with the NHL for players. Not all NHL owners were willing to engage in a bidding war, in particular, Harold Ballard of the Toronto Maple Leafs spent as close to the league minimum on rosters as he could. Since Maple Leaf Gardens was consistently sold out no matter how poorly the Maple Leafs played, Ballard's team was by far 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. Until the 1990s, the Canadian teams usually paid player salaries in Canadian dollars, but with the rise of free agency and a decline in the value of Canadian dollar, players and their agents increasingly demanded to be paid in U.S. dollars. Canadian teams' revenues were, then as now, mostly in Canadian dollars, and the effects of the discrepancy were particularly acute for the small market franchises. 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 adverse effects of the exchange rate.

Negotiations

The negotiations for the 2004-05 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.

Current salary cap

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. The CBA also mandated the payment of salaries in U.S. dollars, codifying what had been a universal practice for more than a decade.

Revenues for the six Canadian teams that were in the league at the time of the lockout have all increased significantly since then, and because the US dollar fell to relative parity with its Canadian counterpart in the early 2010s, league-wide revenues measured in U.S. dollars were inflated accordingly.

As a result of these factors, the cap was raised each year of the 2005–12 CBA to $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 was $48.3 million.

Since the current CBA was approved after a later lockout in 2012–13, league revenues have stagnated due to a significant fall in the value of the Canadian dollar against the U.S. dollar. The cap was $69 million for the 2014–15 season and will be $74 million for 2016–17.

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.

Salaries 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.

National Basketball Association (soft cap + luxury tax)

The NBA had salary cap in the mid-1940s, but it was abolished after only one season. The league continued to operate without such a cap until 1984–85 season, when one was instituted in an attempt to level the playing field among all of the NBA's teams and ensure competitive balance for the Association in the future. Before the cap was reinstated, teams could spend whatever amount of money they wanted on players, but in the first season under the new cap, they were each limited to $3.6 million in total payroll. Under the 2005 CBA, salaries were capped at 57 percent of basketball-related income (BRI) and lasted for six years until June 30, 2011. The current 2011 CBA set the cap at 51.2 percent of BRI in 2011–12, with a 49-to-51 band in subsequent years. The salary cap for 2016–17 season will be set at $94.14 million, with the salary floor at 84.73 million and the luxury tax limit at $113.29 million.

The NBA uses "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 uses "luxury tax" 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 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.

The cap remains a soft cap; the Bird exception remains in place, but teams have less financial room to retain a player with Bird rights than under the previous agreement.

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, is eligible to receive 30% if he is named MVP, makes an All-NBA Team twice, or is selected as a starter in two All-Star Games.

Substantial changes were made to the luxury tax regime. The dollar-for-dollar tax provisions of the previous CBA remained in effect through the 2012–13 season. Starting in 2013–14, the tax changed to an incremental system. Tax is now 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 pays $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. 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% was not specified in the new agreement.

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, since 2013–14, teams that exceed the tax threshold by $4 million or more cannot receive a player in a sign-and-trade deal.

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. In addition, the midlevel exception was extended to teams under the salary cap for the first time; these teams received a 2-year exception.

Under the current CBA, teams are 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.

The salary floor, previously 75% of the cap, increased to 85% in 2011–12 and 2012–13, and 90% in future years.

Major League Baseball (luxury tax)

Instead of a salary cap, Major League Baseball implements a luxury tax (also called a competitive balance tax), an arrangement in which teams whose total payroll exceeds a certain figure (determined annually) are taxed on the excess amount in order to discourage large market teams from having a substantially higher payroll than the rest of the league. The tax is paid to the league, which then puts the money into its industry-growth fund.

A team that goes over the luxury tax threshold for the first time in a five-year period pays a penalty of 22.5% of the amount they were over the threshold, second-time violators pay a 30% penalty, and teams that exceed the limit three or more times pay a 50% penalty from 2013 onwards. There is also an incentive to lower payroll; if in any year a team goes under the threshold, the penalty rate decreases to 17.5%, 25% or 40% (depending on prior record over the previous five years) for the next time the tax is paid, which will apply from 2013.

The threshold for 2011-2013 is $178 million, and for 2014-2016 is $189 million.

The following teams have been subject to luxury tax as of 2015:

The New York Yankees have paid 73.78% of all luxury tax collected by MLB.

Money collected under the MLB luxury tax are apportioned as follows: The first $2,375,400 dollars and 50% of the remaining total are used to fund player benefits, 25% goes to the Industry Growth Fund, and the remaining 25% is used to defray team's funding obligations from player benefits.

Criticism

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 10 times (the 2009 Yankees, the 2004, 2007 and 2013 Red Sox, the 2011 St. Louis Cardinals, the 2010, 2012 and 2014 San Francisco Giants, the 2015 Kansas City Royals, and the 2016 Chicago Cubs); however, while $100 million plus payrolls have only existed since 2001, the last team to win the World Series with a payroll less than $100 million was the 2008 Philadelphia Phillies (payroll $98.26 million). However, this can be explained by the fact that the majority of elite players require high salaries when they hit free agency (unless their team extends them beforehand) and teams with those players generally perform better.

While a top tier payroll increases a team's chances of making the playoffs, it does not guarantee they will consistently win championships. On the other hand, the New York Yankees have consistently had the highest total payroll in MLB, and they have appeared in 40 of the 112 World Series for 27 wins as of 2016 (35.7% of all World Series for a 24.1% success rate).

In the past 30 years, 19 different teams have won the World Series. In comparison, only 14 different teams won the NFL Super Bowl, 13 won the NHL Stanley Cup and 8 won the NBA championship in that same time frame.

Other 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 (the central figure of Moneyball). In fact, teams with consistently high payrolls, including the New York Yankees and Boston Red Sox, have secured high numbers of playoff berths (the two teams have combined to win the AL East 17 out of 21 seasons from 1994-2014). In contrast, teams with low payrolls are far less likely to make the playoffs—for example, the Pittsburgh Pirates went 20 years without a winning season before making the 2013 playoffs.

A number of the small market 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 if such a cap is implemented.

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.

Major League Soccer

Here are some major points of the MLS rules and regulations for the 2017 season.

Since the 2012 season, the cap number for international designated players has depended on the players' ages. Since the 2013 season, players 20 or younger have counted $150,000 against the cap and those age 21 to 23 have counted $200,000, with older players remaining at the standard cap number ($368,750 for 2013, $387,500 for 2014, $436,250 for 2015, $457,500 for 2016, and $480,625 for 2017). For the purpose of determining a cap number, the player's age is determined solely by his year of birth.

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, which was set at $4.05 million with a salary floor of $3,746,250. The cap will be set at $5.15 million for the 2017 season or an average salary of $111,956 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.

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

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

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.

The National Women's Soccer League, launched in 2013, was initially planned to have a team cap of $500,000, but that was later lowered to $200,000. However, the sport's three North American national federations—the United States Soccer Federation, which runs the league; the Canadian Soccer Association; and the Mexican Football Federation—committed to paying the league salaries of many national team players. For the league's first season, 23 US players, plus 16 players each from Canada and Mexico, had their salaries paid by their respective federations; these players' salaries do not count against the team cap. In a player allocation held before the inaugural season, each of the eight charter teams received two Canadian and two Mexican internationals; seven of the eight teams received three US internationals and the Western New York Flash received two.

Salary caps in Europe

Salary caps are rarely used in Europe. However, several European rugby competitions, 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. The league has used promotion and relegation for most of its history, though from 2009 through 2014 it operated on a licensing system with some similarities to the North American franchising model. Promotion and relegation returned to Super League in the 2015 season. In rugby union, two of the continent's three main domestic/regional leagues—the English Premiership and the French Top 14—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.

English Premiership

The Premiership's salary cap has been in place since the late 1990s. By 2007–08, the cap reached £2.2 million. In the following season, it nearly doubled to £4 million, and remained at that amount through the 2011–12 season. A provision applicable only in seasons that run up against the quadrennial Rugby World Cup, such as 2015–16, gives teams a credit for each player in the squad participating in the competition, helping them to manage their reduced squads in the season's early weeks. This credit was £30,000 in the 2011–12 season, and rose to £35,000 for 2015–16. In addition, each club has a separate salary cap for its academy players (£200,000 prior to 2015–16, reduced to £100,000 thereafter, but with home-grown players no longer counting under this cap), and is allowed to provide an unlimited educational fund to enable its players to pursue university or vocational training. Finally, each club has a separate cap of £400,000 for use in signing replacements for players lost to long-term injuries (12 weeks or more).

Through 2011–12, the cap remained at £4 million. However, academy credits were introduced that season. Teams received a £30,000 credit for each home-grown player in their senior squads who was under age 24 at the start of the season and earned more than £30,000, with a maximum of eight such credits. This increased the effective cap to a maximum of £4.24 million (not counting World Cup roster credits).

Two substantial changes took effect for 2012–13. First, the cap increased to £4.26 million before academy credits and up to £4.5 million with credits. The most significant change was that each team could now sign one player whose salary did not count against the cap, similar to the Designated Player Rule in MLS. The player so designated, which the Premiership calls an "excluded player", had to meet one of the following three criteria:

For the 2014–15 season, the cap increased to £4.76 million before academy credits and up to £5 million with credits. Other features of the cap remained unchanged.

Several significant changes were introduced for the 2015–16 season:

The cap has since increased to a base of £6.5 million with maximum academy credits of £600,000 for the 2016–17 season, and will further increase to a base of £7 million with maximum academy credits of £800,000 for 2017–18.

French Top 14

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. Previously, the only restrictions on team salaries were that wage bills were limited to 50% of turnover and that 10% of the salary budget had to be held in reserve. Along with the announcement of the cap, LNR also declared that the reserve requirement would be raised to 20%, with the previous limitation of 50% of turnover remaining in effect.

The new cap was slightly higher 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. This was publicly admitted in 2014 by Mourad Boudjellal, owner of current Top 14 power Toulon. Boudjellal found a loophole that allowed him to set up a separate company to supplement the salary of star Jonny Wilkinson by a six-figure amount while staying under the cap.

The Top 14 salary cap was set at €9.5 million for 2012–13. For 2013–14, the cap was increased to €10 million, and in addition youth players are excluded from the cap unless their salaries are more than €50,000. The €10 million total cap remained in place for three seasons (through 2015–16); the agreement allowed for the threshold for exclusion of youth players to be adjusted before any of those seasons, but no such adjustment was made. The €10 million cap was later extended through the 2018–19 season. Additionally, each club that has a member of the France national team on its roster (more specifically, one of the 30 players named by the French Rugby Federation to the so-called "elite squad") is allowed to exceed the cap by a set amount per national team member. This amount was fixed at €100,000 through the 2015–16 season, and increased to €200,000 starting in 2016–17.

The cap rules were further tweaked for the 2015–16 season. Player bonus payments that amount to more than 10% of a player's salary are now counted against the cap.

Welsh rugby union

On 20 December 2011, the four Welsh regional sides that participate in the Pro12 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—at the time of announcement, the Heineken Cup and European Challenge Cup, and from 2014–15 the European Rugby Champions Cup and European Rugby Challenge Cup. It does not cover players in the regions' academies.

This cap was unilaterally instituted only on the Welsh teams. The Pro12 league 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.

Kontinental Hockey League

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. For 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, China, Croatia, Finland, Kazakhstan, Latvia, and Slovakia, in addition to its primary base of Russia. The seven non-Russian countries use six different currencies, with most floating against the ruble.

From 2011-12, each team can sign up to two "designated players" whose salaries are not counted against the cap. Up until 2011, the KHL salary cap was 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. From the 2012-13 KHL season onward, the KHL uses a hard cap, set at 1.25 billion rubles ($US36.5 million).

Salary caps in European football

Several European association football leagues have considered introducing salary caps in the early 21st century. In 2002, the BBC reported 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 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:

Australian rules football

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 the richest and most successful clubs, Carlton, Collingwood and Essendon, 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, and to 95% of the cap for 2013 onwards due to increased revenues. The salary cap, known officially as Total Player Payments, is A$10,070,000 for the 2015 season with a salary floor of $9,566,500 except for Greater Western Sydney, whose salary cap is $10,500,000 with a floor of $9,996,500.

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 other high membership clubs, such as Adelaide, Hawthorn and the West Coast Eagles.

Certain payments are excluded from the cap, and concessions are available for some players, in particular "veteran" players (those who have completed 10 seasons with their current club) and "nominated" rookie list players, who are discounted by 30% or 50% for purposes of the cap, depending on the number of these players at each club.

The AFL Players Association negotiates for players with the AFL on the topic of average salary.

Breaches

The breaches of the salary cap and salary floor regulations 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 to prevent wealthier clubs from circumventing the restrictions of the salary cap and salary floor.

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, forfeiture of draft picks and/or deduction of premiership points. As of 2015, no club has been penalised for breaches of the salary floor regulations, and no punishment has included the deduction of premiership points.

Success of the cap

The VFL/AFL's salary cap has been quite successful in terms of parity: since the cap was introduced in 1987, 17 of the 18 teams have reached the top four and played in a Preliminary Final, 15 teams have played in a Grand Final, and 12 teams have won the premiership.

The three richest and most successful clubs, Carlton, Collingwood and Essendon, who won 42 of the premierships between 1897 and 1987, have only won five of the premierships since.

Criticism of the cap

The AFL salary cap is occasionally controversial, as it is a soft salary cap and can sometimes be slightly different for each club. Clubs in poor financial circumstances have not always used their full cap, in some circumstances not even reaching the salary floor. The cap is only for the Total Player Payments of each club and not the club's football department. This has caused concern in recent years; for instance, three of the four top-spending clubs in played in the Preliminary Finals in 2012, and the last team to win the premiership outside the top eight spending teams was North Melbourne in 1999. There have been calls for a separate cap for the football department, or to reform the salary cap to include football department spending, but this has been opposed by the wealthier clubs. The AFL has also used the cap to pursue its policy of supporting clubs in non-traditional markets such as Sydney and Brisbane.

State and regional leagues

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.

Rugby league

The National Rugby League has a salary cap of A$6.4 million in 2014, with a salary floor of A$5.92 million (92.5% of the cap). The salary cap keeps average annual player salaries at around A$256,000.

The National Rugby League adopted a hard salary cap model in its first season in 1998. 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." Before the 2012 season, the NRL's then Chief executive David Gallop said "The cap's there to make sure that pure purchasing power cannot dominate the sport... It means we can genuinely say that all 16 teams ... have a chance. For the fan every week, every game is a contest. That's at the core of why rugby league is so successful."

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 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 has developed a tradition of players from Australia moving to Europe where salaries for the elite, and even for average players, were considerably higher. The NRL chooses 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 twelve different clubs winning the premiership in the 20 seasons between 1998 and 2016.

Australia: Super Rugby

The five Australian teams playing in rugby union's Super Rugby competition face a salary cap. The Australian Rugby Union decided in 2011 to introduce the salary cap because of financial pressures. The 2012 salary cap of A$4.1 million was raised to $4.5 million for 2013 and 2014 to take pressure off the teams' ability to recruit and retain players. The salary cap is a key component of the negotiation between the ARU and the Rugby Union Players Association over the collective bargaining agreement. The Super Rugby salary cap is $5 million, as of 2016. The fact that the Australian teams in Super Rugby face a salary cap has been attributed as a factor that makes it more difficult for Australian teams to win the title.

The cap regulations have some small concessions:

New Zealand: Mitre 10 Cup

The 14 teams participating in New Zealand's top domestic competition, now known as the Mitre 10 Cup, faced a salary cap in 2013 that was the lesser of $NZ 1.35 million or 36% of the union's commercial revenue. Maximum player salaries are $55,000, and minimum salaries are $18,000. In August 2013, it was announced that the cap would be further reduced, with the team cap for the 2015 season set to $1.025 million.

New Zealand first implemented the salary cap in the 2006 season. The purpose of the salary cap was to ensure an even spread of players to produce competitive matches and higher television audiences for the new, fully professional competition.

The salary cap had been as high as $2 million in 2008. However, the competition had generated losses of approximately $9.6m in 2007, and salary payments had increased by 75% in the previous four years. Some teams were reported to be in dire financial position, with four teams having payrolls of $1.75 million or more. The salary cap was cut in 2008, converting what was then known as the ITM Cup into a semi-professional competition, with players not under national team or Super Rugby contracts needing to find other part-time jobs.

A-League

The A-League national association football (soccer) competition has set a salary cap of A$2.55 million (excluding Marquee, guest and replacement players) for the 2014/2015 season, with a salary floor of $2.294 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 (or New Zealand for the Wellington Phoenix) for a longer period, 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 ($7,500 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.

National Basketball League

The National Basketball League has a salary cap of A$1.1 million for each of its eight teams as of the 2016–17 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.

On May 9, 2014, in order to help attract high-calibre imports or offer financial incentive for local stars considering overseas opportunities, the NBL introduced a marquee player rule. It originally allowed a team to nominate one player whose salary was paid outside the cap, with a 25% Marquee Player levy applied to any payment made above the salary cap. The levy still applies to non-local marquee players (i.e., players who are neither Australians nor New Zealanders).

Effective with the 2016–17 season, two significant changes were made to the cap scheme. First, the cap was changed from a hard cap of A$1 million to a soft cap of $1.1 million. Teams exceeding the cap are required to pay "salary equalisation" (effectively a luxury tax) equal to the amount above the cap. Second, the Marquee Player rule was modified with regard to local players; the cap charge for an Australian or New Zealander who fills a team's marquee player slot is now $150,000, regardless of his actual salary.

Netball (ANZ Championship)

In netball's ANZ Championship, each of the 10 franchises are each restricted to a NZ$380,000 salary cap (as of 2013) from which player salaries are paid. Salary amounts vary among players, but each player receives a retainer of at least NZ$12,000 per season; high-profile players are expected to earn up to NZ$50,000.

Salary caps in rugby union

Salary caps and currency conversions accurate as of August 2016.

Notes:

Salary Caps in Cricket

Salary caps and currency conversions accurate as of January 2015.