As someone interested in the sports business, it is important to know the background behind what limits the amount of money that your clients can accrue. Every American sports league besides MLB has a salary cap in effect to limit the amount that each team can spend yearly. Salary caps have been implemented to ensure a competitive balance and/or keep costs down to improve profit in the various leagues, although some teams try to get around it (such as the Knicks paying a luxury tax for grossly exceeding the cap).
The reason that the Knicks can exceed the salary cap and get away with it is because the NBA has a soft cap. A soft cap allows a team to exceed the cap with certain consequences (in the NBA, a luxury tax). A hard cap does not allow any team to exceed the salary cap under any circumstance.
Signing bonuses are divided by the amount of years of the contract and counted toward the team’s salary cap equally among each year served for the team (example: Player signs 3-year contract with $9 million bonus.Â He serves for the team all three years of the contract.Â Each year, the team has $3 million of the bonus counted against its cap).Â If Player retires or gets traded, the rest of the signing bonus will be counted against the former team’s cap for that year.
In the NFL, the top 51 player salaries of each team count against its salary cap in the offseason, but every single player’s salary counts against the cap during the season [Salary Cap FAQ].Â Only players count against the cap, and no coaches, assistants, trainers, etc. salary has any effect on it.
The NBA Salary Cap has some interesting clauses named after various players and deserves its own post.Â I hope to spend more time assessing the NBA’s cap in the near future.
Here are some current Salary caps in various leagues:Â
NHL 2006-07 hard Salary Cap: $44 million
NFL 2006 hard Salary Cap: $102 million
NFL 2006 hard Salary Floor: $75 million (a team cannot spend less than this figure for the year)
NBA 2006-2007 soft Salary Cap: $53.135 million
AFL (Arena Football League) 2006 Salary Cap: $1.82 million
CFL (Canadian Football League) 2006 Salary Cap: $3.8 million Canadian dollars
Australian Football League 2006 soft Salary Cap: $6.47 Australian dollars
This is a very broad overview.Â I will get into a lot more of the specifics in the future.Â All of this is vital information to know if you plan on entering any type of role in the sports business.
[tags]salary cap, nfl, nba, mlb, nhl[/tags]