User:Zig Kuczynski/sanbox

The Impact of Effective Salary Cap Management on Team Success in the NFL

The salary cap has had a widespread impact on sports teams and organizations by limiting the amount of money they can spend on players' salaries. It has impacted how organizations invest in their players and the future as a whole. The cap has proven to be an obstacle in the pursuit for sustained success. Since, 1994, The National Football League has only experienced a handful of repeat Super Bowl appearances. In one of his most prominent studies, James Carrey researched salary and performance data across the NFL over a 10 year period. Ultimately, his study which showed that strategic management of player compensation did directly result in an increase in wins.

There is a perceived sunk-cost assumption that has arisen from the NFL's implementation of the salary cap. The sunk cost assumption underlines an analytical approach on the topic. Quinn Keefer runs a regression on the structure of the NFL draft in order to address the salary cap sunk cost. The regression relates playing time amongst players to the regulations that have come from the salary cap. It was concluded that there is a positive correlation between the salary caps and games started. An increase in salary cap value results an increase in games started for the players who were selected in the first two rounds of the draft. Despite no acknowledgeable differences in productivity, the salary cap enables first round selections to receive compensation premiums and signing bonuses that, in turn, result in them starting more games than players who weren't selected early on in the draft.

The salary cap, and the intricate rules and regulations that are a part of it, come from the NFL collective bargaining agreement. This is an agreement between the league and its player association regarding the sharing of revenue and other compensation logistics. Quinn Keefer, in his analysis, primarily focusses on the section of the agreement regarding player compensation. Keefer highlights two major changes were made as the result of the 2011 collective bargaining agreement. One major change was rookie wage scale and how their selection in the draft notably affected their compensation and playing time. The second change was a limit placed on the first-year salary for players. Although these changes led to an increased level of first-year compensation for rookies-especially those selected in the first two rounds–they ultimately resulted in decreased salaries in the years after. Keefer concluded that there were diminishing returns. Overall, the 2011 collective bargaining agreement resulted in a negative effect on player salaries. This effect has led to a restructured management of rookie contracts over the last decade.

Salary dispersion and incentive pay affect team performance across the NFL. Mike Mondello and Joel Maxcy examine this effect through collecting data from the league between 2000 and 2007. Mondello and Maxcy performed regression analyses that use both fixed and random effects models. Their study was geared towards establishing a relationship between performance and payroll. A positive relationship between on-field performance and increased payroll was found. Mondello and Maxcy also found that there was a relationship between on-field performance and salary dispersion, as well as on-field performance and increased incentives pay. Team revenue production, analyzed as a means to measure team performance, was also used in this analysis. A positive relationship was found here, Mondello and Maxcy's findings suggest that incentive pay is effective when a pay structure differentiates players based on productivity and quality of performance. The findings in their study have implications that could expand across different sports leagues.

Player compensation across the NFL has been widely examined since the salary cap implementation in 1994. Richard Borghesi analyzes the relationship between player compensation and franchise performance in the league between 1994 and 2004. The evidence gathered from these years shows that team success is dependent on both actual and perceived fairness of player compensation. The data collected from these years in the league shows that teams who implement the super-star approach to player and personnel decisions were worse on average when compared to teams who took a different approach. Borghesi shows how the most successful approach to player compensation and salary cap management is to concentrate on players' salaries on a broader scale rather than an individual level. Tthe super-star approach to player compensation leads to a lack of success on the field due to the dissatisfaction among players who recognize a substantial inequality in salaries.