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Contract Negotiation

What Is A Salary Cap?

Time to put on your salary capAs 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.  He serves for the team all three years of the contract.  Each year, the team has $3 million of the bonus counted against its cap).  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].  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.  I hope to spend more time assessing the NBA’s cap in the near future.

Here are some current Salary caps in various leagues: 

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.  I will get into a lot more of the specifics in the future.  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]

By Darren Heitner

Darren Adam Heitner, Esq., is a preeminent sports attorney and the founder of Heitner Legal, P.L.L.C., a Fort Lauderdale-based law firm specializing in sports law, contract negotiations, intellectual property, and arbitration. He earned his Juris Doctor from the University of Florida Levin College of Law in 2010 and a Bachelor of Arts in Political Science, magna cum laude, from the University of Florida in 2007, where he was named Valedictorian of the College of Liberal Arts and Sciences. Admitted to practice in the state bars of Florida, New York, and the District of Columbia, as well as multiple federal courts, Darren also serves as a certified arbitrator with the American Arbitration Association.

As an adjunct professor, Darren imparts his expertise through teaching Sports Law at the University of Florida Levin College of Law and Name, Image, and Likeness (NIL) at the University of Miami School of Law in the Entertainment, Arts, and Sports Law LL.M. program. His scholarly contributions include authoring several books published by the American Bar Association, such as How to Play the Game: What Every Sports Attorney Needs to Know, and numerous articles in prominent publications like Forbes, Inc. Magazine, and Above the Law. His thought leadership in NIL has earned him recognition as one of the foremost experts by The Wall Street Journal, USA TODAY, and On3, and he has been lauded as a “power player in NIL deals” by Action Network and a “top sports trademark attorney” by Sportico.

Darren’s passion for sports law led him to establish Sports Agent Blog on December 31, 2005, initially titled “I Want To Be A Sports Agent.” The platform, created as a New Year’s resolution, has grown into a cornerstone of the sports agency community, offering in-depth analysis of industry trends, legal disputes, and agent-player dynamics. His commitment to the field is further evidenced by his representation of numerous athletes and sports agents, as well as his prior role as an Adjunct Professor at Indiana University Bloomington, where he developed and taught a course on Sport Agency Management from 2011 to 2014.

Darren’s contributions have been recognized with prestigious honors, including the University of Florida’s 40 Under 40 Award, the University of Florida Levin College of Law’s Outstanding Young Alumnus Award, and designation as the best lawyer in Fort Lauderdale by Fort Lauderdale Magazine. He remains an active voice in the sports law community, sharing insights through his weekly NIL newsletter and his X posts, engaging a broad audience on legal developments in sports.

One reply on “What Is A Salary Cap?”

[…] In the NFL, there is no such thing as a guaranteed contract. The NFL is the most important league to look at when delving into the signing bonus arena. The strong likelihood of player injury coupled with a hard salary cap on teams provide an atmosphere where owners refuse to sign no-cut contracts (thus, the amount of years on a contract is never guaranteed). Within a contract, however, there may be guaranteed money to your client. The largest sum of guaranteed money usually comes in the form of a signing bonus. Currently, the average signing bonus is $679,934 in the NFL. Salary bonuses also take up a large portion of a player’s contract, up from 20% of the average contract in 1993 to about $1 for every $2 that players earn today [NFLPA: Guaranteed Contracts]. […]

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