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Salary cap

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In professional sports, a salary cap is a limit on the amount of money a team can spend 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, as they can restrict the inflation of player salaries.

Adoption

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

Benefits of salary caps

In theory, there are two main benefits derived from salary caps - promotion of parity between teams, and control of costs.[1][2][3]

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 fans and for 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.

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. 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.

Salary cap arrangements were implemented by the National Football League and the National Basketball Association in the United States in the 1990s in consultation with the respective players' unions as a response to the damage spiralling wages and unbalanced leagues was doing to fan interest in their sports.

Salary cap in North American leagues

Salary cap in the NHL

For a more detailed discussion, see the article NHL Salary Cap.

Early years

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.[4]

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, 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,[5] 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.

Negotiations

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.

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.

Revenues for the six Canadian teams have all increased significantly since the lockout, 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 $59.4 million for the 2010–11 season, with a cap of $11.88 million for a player. The CBA also contains a salary floor which is formerly 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 2010–11 minimum is $43.4 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 player's 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.

Salary cap in the NFL

In the 2010 season, due to the NFL team owners deciding to opt out of their collective bargaining agreement (CBA) with the players' union, there will be no operable salary cap.

The NFL's cap was a hard cap that the teams had 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. There was also a hard floor, which is the minimum payroll the teams must pay their players, but that also will not apply for the 2010 season.

The cap was 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 the current CBA, 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. The salary floor percentage would have increased 1.2% per year until it reached 90% of the cap in 2011.

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 and their replacement by lower-salaried players on a given team's payroll over time. On the other hand, many teams have made a practice of exploiting these adjustments and used free agents to restock with better personnel more suited to the team.[6]

The salary cap prevented teams with a superior financial situation 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, it 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. 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 so that 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 $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.

Salary cap in MLS

The current salary cap in MLS is $2.55 million as of 2010.[7]

This does not include the Designated Player Rule, introduced in 2007, in which one player will only count for $335,000 toward this cap. In 2010, the rule was amended to allow each team to have two designated players who will be exempt from the cap.[8]

Salary cap in the NBA

For a more detailed discussion, see the article NBA Salary Cap.

Similarly to the NFL, the NBA's salary cap is calculated as a percentage of the league's revenues. The salary cap for the 2010-11 season will be $58.04 million.

The NBA's salary cap is a "soft" cap, meaning that teams are allowed to exceed the cap in order to retain the rights to a player who has already been on the team. This provision is 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 is to address fan unease over the frequent changing of teams by players under the free agency system, as fans become displeased over their favorite player on their favorite team suddenly bolting to another team. The "Larry Bird" provision of the salary cap gives the player's current team an advantage over other teams in free agent negotiations, thus increasing the chances that the player will stay with his current team, pleasing more fans in so doing.

The provision tends to result in most teams being over the cap at any given time. Teams that violate the cap rules face 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 has 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 have to pay a tax to the league which is divided amongst the teams with lower payrolls. However, this penalty is levied against teams in violation only if the league average also breaches a separate threshold.

The NBA has 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 collective bargaining agreement, a player's maximum possible salary increases along with his time of service in the league. For a player of five years' experience, the maximum salary threshold begins 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 sign with new teams. For players of greater experience, the salary limit is higher - but the 10.5% limit on annual increases remains the same.

In the NBA, the salary cap has not had quite the effect of breaking up championship teams that it has had 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. Of course, the converse effect of this has been to make the overall rate of salaries paid and hence the expense to operate a team rise more rapidly in the NBA than in the NFL. The average NBA salary is $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 after September 1) of Major League Baseball.

Luxury tax in Major League Baseball

for reference please see List of Major League Baseball teams by payroll

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.[9][10]

A team that goes over the luxury tax cap for the first time in a five-year period pays a penalty of 17.5% 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.

As of the 2009 season, 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.

Monies 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).

Criticism of the luxury tax

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 the likeliness of making the playoffs, it does not result in teams consistently winning championships.

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 once 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.

Salary cap in the 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. [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].

Breaches

The following breaches of the salary cap have occurred (no team has yet been penalized for violating salary floor regulations)[11]:

  • In 2007, the Montreal Alouettes were fined $116,570 and forfeited a first-round draft pick after an investigation found that they had exceeded the salary cap by $108,285 during the season.
  • The Saskatchewan Roughriders were also fined in 2007 ($76,552) for a string of minor breaches in relation to benefit payments to injured players.
  • In 2008, the Saskatchewan Roughriders were fined $87,147 for exceeding the salary cap by that amount during the season.
  • In 2009, the Winnipeg Blue Bombers were fined $44,687 for minor breaches in relation to player bonuses.

Criticism of the cap

Critics believe that the system operates more like a strict luxury tax regime as opposed to a true cap, while great Canadian football players and sports analysts have known the CFL's salary cap as being more of a guideline which few (if any) teams adhered to.

Salary caps in other North American leagues

Salary caps are common in other leagues.

The salary cap of the original Arena Football League was $1.82 million per team in its final season in 2008. The Tampa Bay Storm were fined $125,000 and their head coach Tim Marcum was suspended for four games (two in the 2005 season, two in 2006) and fined $25,250 for salary cap violations; Marcum was suspended for a fifth game the next day for criticizing the decision at a press conference.

The new Arena Football League has 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 has a 16-game season, this effectively means that its players are semi-professional.

Salary caps in Europe

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:

  • The various national leagues are in competition with each other for the best players because there is free movement of players between the leagues. Football leagues in European Union countries have been forbidden from prohibiting the signing of EU players from other nations, or even from limiting their numbers. Therefore, if one league imposed a strict cap on its teams, the best players from the country in question would still be free to move to uncapped rival leagues.
  • The existence of lucrative and prestigious international club competitions encourage clubs to ensure dominance of their national leagues in order to play in the higher-level European leagues. For manye top clubs, the domestic league is little more than a stepping stone to the European league. Success in European club competitions is not only a matter of national pride as the number of places allocated to each country for these competitions is determined by that country's teams' past performances in Europe. Salary capped clubs in franchise leagues do not have to compete with teams in rival leagues where there is no salary cap.
  • Different governing bodies have authority over domestic and international competitions. For example, UEFA governs European football and organizes the prestigious Champions League and Europa League, but its authority over the domestic leagues is very limited. Although UEFA could, in theory, impose a wage cap, it would only apply to UEFA's club competitions and to the portion of each team's payroll paid to players registered with UEFA. A wealthy Champions League team could then sign players who would play exclusively in domestic competitions. In other major sports, there is generally only a single league which oversees a single premier competition.
  • The number of clubs in the various lower divisions of the national leagues can run into the thousands. The promotion and relegation system used to allow transfer between these divisions presents challenges especially if the cap system provisioned lower limits in the lower divisions. The system would make it difficult to rise into the higher leagues if it didn't have the option of buying new players, forever limiting the club's ability to compete. A club with a payroll close to the top division's cap might be relegated and then find themselves significantly over the second division cap. A promoted club might have to face the challenge of hastily finding players who it could then pay under a higher cap. The franchise model is fixed, with the same teams involved every year.
  • European tax systems and rates vary greatly from country to country. One prominent club, AS Monaco, plays in a principality with no income tax at all. A flat payroll limit would therefore equate to aggregate take home pay that varied greatly from one club to the next, which would make it difficult for teams in countries with higher taxation to attract the best players. By comparison, the differences between the tax systems and tax rates of Canada, the U.S. and between their respective provinces and states are not nearly as great.
  • Europeans use multiple currencies and football wages are usually paid in the local currency. Although the countries hosting all but one of the most prominent European leagues now use the Euro, the one exception (England) has the richest league. Even if a hypothetical UEFA-wide cap were denominated in Euros, fluctuating exchange rates would make it difficult for the cap to be fairly administered in the United Kingdom since its salaries are paid in pounds sterling. By comparison, most player salaries paid to players on Canadian major sports teams are paid in U.S. dollars, in fact this is now mandated in the NHL to ensure that payrolls do not fluctuate with exchange rates. On the other hand, trying to force British clubs to pay wages in Euros so that their payrolls could not exceed a cap would meet with opposition from clubs since their revenues are collected in pounds, and might even provoke political opposition from Britons determined to prevent the Euro from replacing the pound.

As noted in the beginning of this article, the top English rugby competitions, the Guinness Premiership (Union) and the Super League (League), have caps in place. The Top 14, France's top rugby union competition, will impose a salary cap of €8 million in the 2010–11 season.[12]

Salary caps in Australia

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 its richest clubs (i.e. Essendon, Collingwood and Carlton) to perennially dominate the competition.

The cap was set at AU$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 percentage 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 help to stem the dominance of high membership clubs such as the West Coast Eagles and Adelaide.

The salary cap, known officially as Total Player Payments, is AU$7,950,000 for the 2010 season with a salary floor of AU$7,353,750 and AU$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 AU$8,596,562.50). [13] 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.

Breaches

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.

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 deduction of premiership points; the latter penalty has never been implemented for any of the breaches that have occurred.

The following is a list of documented breaches of the salary cap (no club has yet been penalized for breaches of the salary floor):

  • In 1987, Sydney were fined the maximum of $20,000 and forfeited their first round pick in the National Draft after a VFL investigation found that they had exceeded the salary cap by $1.15 million during the season.
  • In 1992, Sydney were fined $50,000 after it was found that they had failed to disclose payments made to former player Greg Williams during the 1990 season; Williams was suspended for six matches and fined the maximum of $25,000 for accepting the payments. [14]
  • Hawthorn was fined $28,500 in 1992 for a minor breach in relation to benefit payments.
  • Three clubs were fined for minor breaches in 1993: Melbourne ($13,450), Carlton ($9,750) and Footscray ($2,700).[15]
  • In 1994, Carlton were fined $50,000 after it was found that they had exceeded the salary cap by $85,000 during the 1993 season.[16]
  • In 1995, Sydney were fined $20,000 after key documents relating to player financial details and star full-forward Tony Lockett's contract details were lost in the post by club officials, forcing the club to skip the 1995 pre-season draft and play the season two players short.[17] The club officials were fired by the Swans one week later.
  • In 1996, Essendon were fined a record $638,250 ($250,000 in back tax and penalties, $112,000 for draft tampering and $276,250 for breaching the salary cap), forfeited their first, second and third round draft picks in the National Draft and were excluded from the 1997 rookie and pre-season drafts after a joint Australian Tax Office and AFL investigation found that they had committed serious and systematic breaches of the salary cap totalling $514,500 between 1991 and 1996.[18]
  • Ten other clubs were fined in 1996 for minor breaches in a crackdown following the Sydney incident the year before: Fitzroy, St Kilda and North Melbourne ($30,000 each), Richmond ($20,000), and Brisbane, Collingwood, Western Bulldogs, Fremantle, Hawthorn and the West Coast Eagles ($10,000 each).
  • In 1997, Port Adelaide was fined $50,000 for late lodgement of documents relating to the contract and financial details of five players.[19]
  • In 1998, the West Coast Eagles were fined $100,000 and forfeited a draft pick after it was found that they had exceeded the salary cap by a total of $165,000 during the 1997 and 1998 seasons.
  • Five other clubs were fined in 1998 for minor breaches after an AFL investigation: Geelong ($77,000), Collingwood ($47,500), Hawthorn ($45,000), Richmond ($21,000) and the Western Bulldogs ($5,300). Geelong, Collingwood and Richmond were also excluded from the 1999 pre-season draft.[20]
  • In 1999, Melbourne were fined $600,000 and forfeited their first, second and third round draft picks in the National Draft for two years after it was found that they had committed serious and systematic breaches of the salary cap totalling $810,000 between 1995 and 1998. Fremantle were handed Melbourne's first round pick for the 1999 National Draft as compensation for losing ruckman Jeff White to Melbourne.
  • Two other clubs were fined in 1999 for minor breaches: Carlton ($43,800) and Geelong ($20,000); Carlton were also excluded from the 2000 pre-season draft.[21]
  • In 2000, Fremantle were fined $54,400 and excluded from the 2001 pre-season draft for a string of minor breaches. Fremantle's poor 2001 season (in which it won the wooden spoon) has been put down to this penalty.
  • Four other clubs were fined in 2000 for minor breaches: North Melbourne ($35,000), Richmond ($10,000), Brisbane ($7,500), and Melbourne ($5,000). [22]
  • In 2001, Carlton were fined $125,150, forfeited their second and third round picks in the 2001 National Draft and were excluded from the 2002 pre-season draft after it was found that they had failed to disclose payments totaling $239,900 to captain Craig Bradley and incorrectly lodged an additional services agreement document during the 1998 and 1999 seasons.
  • Three other clubs were fined in 2001 for minor breaches: Richmond and North Melbourne ($20,000 each) and Melbourne ($5,000).[23]
  • In 2002, Carlton were fined a record $987,500 and forfeited their priority picks in the National Draft, their first and second round picks in the National Draft for two years and were excluded from the 2003 pre-season draft after an AFL investigation found that they had committed serious and systematic breaches of the salary cap totaling $1.37 million between 1998 and 2001. Carlton struggled for seven years as it recovered both on and off the field from these significant penalties, finishing no higher than 11th in 2004 and winning their first-ever wooden spoons in 2002, 2005 and 2006. After the draft ban expired, Carlton received a multitude of priority and first round draft picks. [24]
  • Fremantle were fined $80,000 in 2002 for late and incorrect lodgement of documents relating to the financial and contract details of four players.
  • In 2003, Brisbane were fined $260,000 for late lodgement of documents relating to the contract and financial details of 26 players, and the Western Bulldogs were fined $30,000 for late lodgement of documents relating to the contract and financial details of three players after a crackdown in light of the Carlton scandal the year before.
  • Essendon were fined $85,000 in 2003 after it was found that they had exceeded the salary cap by $106,000 during the 2002 season.[25]
  • In 2004, Melbourne were fined $30,000 for incorrect lodgement of documents relating to the contract and financial details of three players.[26]
  • In 2005, St Kilda were fined $40,000 for a minor breach in regards to minor sponsor Xbox providing players with the game machines. [27] Brian Waldron, Matt Hanson and Cameron Vale, the club's CEO, CFO and Financial Officer at the time, are currently under investigation by ASIC, the Australian Tax Office, the Victorian State Revenue Office and the Victoria Police in relation to the Melbourne Storm salary cap scandal in the NRL.
  • In 2006, St Kilda were fined $40,000 for late lodgement of documents relating to the contract and financial details of four players.[28]
  • Richmond was fined $10,000 in 2007 for late lodgement of a document relating to the contract and financial details of a player. [29]
  • Two clubs were fined in 2008 for minor breaches: Adelaide ($20,000) and St Kilda ($10,000).[30]

Criticism of the cap

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 5% 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.

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.

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.

Template:Australian Rules Football Salary Caps

Rugby League

The National Rugby League adopted a hard salary cap model in its first season in 1998. The salary cap is AU$4.6875 million in 2010 and AU $5 million in 2011, with a salary floor of AU$4.21875 million in 2010 and AU$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) AU$4,687,500 Yes AU$187,500 AU$7,500 AU$562,500
Super League Europe (transnational) GB£1,700,000

Breaches

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.

Penalties for players, club officials and agents include fines of up to $100,000 and/or suspension. Penalties for clubs include fines of up to $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[31]:

  • In 2000, the Newcastle Knights were fined $158,800 but did not have any points deducted after club officials revealed that they had exceeded the salary cap by $454,100 and failed to disclose third-party payments during the 1999 season.
  • The New Zealand Warriors were fined $100,000 in 2000 for failing to disclose third-party payments during the 1998 and 1999 seasons.
  • Six other clubs were fined in 2000: Penrith ($80,900), Canterbury ($50,000), Parramatta ($40,000), Melbourne ($24,300), the Sydney Roosters ($12,800) and Cronulla ($6,900).
  • In 2001, the North Queensland Cowboys were fined $100,000 but did not have any points deducted after it was found that they had exceeded the salary cap by $210,000 and failed to disclose third-party payments during the 2000 season.
  • Two other clubs were fined in 2001: Melbourne ($89,900) and Brisbane ($84,150).
  • In 2002, the Canterbury Bulldogs were fined the maximum of $500,000 and deducted all 37 premiership points received during the season after it was found that they had committed serious and systematic breaches of the salary cap totaling $2.13 million between 2000 and 2002, including $750,000 in 2001 and $920,000 in 2002; these were described by NRL Chief Executive David Gallop as "exceptional in both its size and its deliberate and ongoing nature". The points penalty meant that the club won the 2002 wooden spoon. Two senior club officials were later charged with 21 counts of fraud, theft and forgery by the NSW Police; both pleaded guilty and were sentenced to nine years imprisonment with a non-parole period of seven years.
  • The Sydney Roosters were fined $149,150 in 2002 for failing to disclose or incorrect disclosure of third-party payments in 2001 and 2002.
  • Five other clubs were fined in 2002: Newcastle ($85,000), Melbourne ($66,700), the Wests Tigers ($58,550) and Brisbane ($57,550).
  • In 2003, the Melbourne Storm were fined $130,950 but did not have any points deducted it was found that they had exceeded the salary cap by $261,900 during the season.
  • Seven other clubs were fined in 2003 after a crackdown in light of the Canterbury scandal the year before: Penrith ($60,000), Newcastle ($40,000), Brisbane ($20,000), South Sydney ($15,250), the New Zealand Warriors ($15,000), and Cronulla and Canterbury ($10,000 each).
  • In 2004, the Melbourne Storm were fined $120,000 after club officials revealed that their former management had failed to disclose third-party payments made between 2001 and 2004.
  • Five other clubs were fined in 2004: Canterbury ($82,300), St George Illawarra ($32,300), Penrith and the Sydney Roosters ($25,000 each), and Canberra ($5,000).
  • In 2005, the New Zealand Warriors were fined $430,000, ordered to start the 2006 season with a four premiership point deficit, and had their 2006 salary cap and salary floor reduced by $450,000 after club officials revealed that their former management had exceeded the salary cap by a total of $1.1 million during the 2004 and 2005 seasons. The points penalty meant that the Warriors missed a finals berth in 2006.
  • Four other clubs were fined for minor breaches in 2005: St George Illawarra ($20,000), Newcastle ($11,100), Canterbury ($8,500) and Canberra ($6,350).
  • In 2006, the Canberra Raiders were fined $173,200 but did not have any points deducted after it was found that they had exceeded the salary cap by $286,400 and incorrectly lodged documents relating to financial and contract details of 12 players during the 2005 season.
  • Seven other clubs were fined in 2006: Melbourne ($63,250), St George Illawarra ($62,400), Brisbane ($30,000), South Sydney ($28,600), Wests Tigers ($21,250), Newcastle ($19,250), and Cronulla ($5,000).
  • Six clubs were fined for minor breaches in 2007: South Sydney ($70,150), Wests Tigers ($46,800), Canberra ($45,800), Canterbury ($25,000), Melbourne ($13,900) and Brisbane ($10,000).[32]
  • Five clubs were fined for minor breaches in 2008: St George Illawarra ($15,200), South Sydney ($12,500), Gold Coast ($5,450), Canterbury ($4,650) and Wests Tigers ($3,650).
  • Seven clubs were fined for minor breaches in 2009: Melbourne ($15,000), Brisbane ($5,000), Canterbury ($3,750), and the Wests Tigers, Penrith, Sydney and the Gold Coast ($2,500 each).
  • In 2010, the Melbourne Storm were stripped of the 2007 and 2009 premierships and the 2006–2008 minor premierships, fined a record $1.689 million ($1.1 million in NRL prize money which will be equally distributed between the remaining 15 clubs, $89,000 in prize money from the World Club Challenge which will be distributed to the Leeds Rhinos, and the maximum of $500,000 for breaching the salary cap), deducted all eight premiership points received during the season and barred from receiving premiership points for the remainder of the season after Storm officials confessed to the NRL that the club had committed serious and systematic breaches of the salary cap between 2006 and 2010 by running a well-organized dual contract and bookkeeping system which left the NRL ignorant of a total of $3.17 million in payments made to players outside of the salary cap, including $550,000 in 2007, $965,000 in 2009 and $1.03 million in 2010. The points penalty means that the club will win the 2010 wooden spoon. Legal action by the directors of the club against the penalties collapsed, and the matter has been referred to ASIC, the Australian Tax Office, the Victorian State Revenue Office, and the Victoria Police. [33]
  • Five other clubs were fined for minor breaches in 2010: Parramatta ($25,000), St George Illawarra ($22,500), Brisbane ($17,000), Sydney ($7,250) and Canberra ($2,000). [34]

Criticism of the cap

The NRL is one of the only major leagues to implement a salary cap, when there are 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 eight different clubs winning the premiership between 1998 and 2009. 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.[35]

Association football (soccer)

The A-League national association football (soccer) competition has set a salary cap of AU$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, however, the salary cap for the Australian and guest marquee player is set at AU$1.65 million. 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[36], similar to the Designated Player Rule in Major League Soccer in North America.

Breaches

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.

National Basketball League

The National Basketball League has a salary cap of AU$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.[37]

References

  1. ^ Dietl, H., Lang, M. and Rathke, A. (2009): "The Effect of Salary Caps in Professional Team Sports on Social Welfare", The B.E. Journal of Economic Analysis and Policy, Vol. 9, Article 17.
  2. ^ Dietl, H., Franck, E., Lang, M. and Rathke, A. (2008): "Welfare Effects of Salary Caps in Sports Leagues with Win-Maximizing Clubs", University of Zurich, ISU Working Paper Series No. 86.
  3. ^ Dietl, H., Lang, M. and Rathke, A. (2010): "The Combined Effect of Salary Restrictions and Revenue Sharing in Sports Leagues", forthcoming in Economic Inquiry.
  4. ^ Diamond, Dan (1991). The Official National Hockey League 75th Anniversary Commemorative Book. McClelland & Stewart. p. 69. ISBN 0-7710-6727-5.
  5. ^ Article 11, Section 11.17, "Currency". Collective Bargaining Agreement Between the National Hockey League and the National Hockey League Players' Association. July 22, 2005.
    Downloadable from the NHL Players' Association official site here.
  6. ^ Michael Holly. Patriots Reign (1st ed. HC ed.). HarperCollins. ISBN 006757949. {{cite book}}: Check |isbn= value: length (help); Unknown parameter |copyright= ignored (help)
  7. ^ http://web.mlsnet.com/news/mls_news.jsp?ymd=20100323&content_id=8881794&vkey=news_mls&fext=.jsp
  8. ^ [1] In M.L.S., Designated Players Do Not Guarantee Great Expectations, March 17, 2009
  9. ^ Four-Year Deal Includes Luxury Tax, No Contraction," ESPN.com, August 30, 2000.
  10. ^ Dietl, H., Lang, M. and Werner, S. (2010): "The Effect of Luxury Taxes on Competitive Balance, Club Profits, and Social Welfare in Sports Leagues", forthcoming in International Journal of Sport Finance.
  11. ^ Salary cap breaches 2007-2010
  12. ^ Moriarty, Ian (2009-12-18). "Salary cap just sleight of hand". Scrum.com. Retrieved 2009-12-19. {{cite web}}: Italic or bold markup not allowed in: |publisher= (help)
  13. ^ Australian Football League and Australian Football League Players Association Incorporated: Collective Bargaining Agreement 2007-2011. Accessed on 2009-07-30.
  14. ^ 1992 season review
  15. ^ 1993 season review
  16. ^ 1994 season review
  17. ^ 1995 season review
  18. ^ 1996 season review
  19. ^ 1997 season review
  20. ^ 1998 season review
  21. ^ 1999 season review
  22. ^ 2000 season review
  23. ^ 2001 season review
  24. ^ 2002 season review
  25. ^ 2003 season review
  26. ^ 2004 season review
  27. ^ 2005 season review
  28. ^ 2006 season review
  29. ^ 2007 season review
  30. ^ 2008 season review
  31. ^ Salary cap breaches 2000-2010
  32. ^ AAP (2008-04-28). "Six NRL clubs cop salary cap fines". The Age. Retrieved 2008-09-20.
  33. ^ Storm salary cap rort report handed to police
  34. ^ Five clubs fined for cap breaches
  35. ^ Roy Masters (May 16, 2009). "Double or Nothing: Why the NRL TV rights are worth 1 billion". Sydney Morning Herald.
  36. ^ http://au.fourfourtwo.com/news/82095,slow-start-for-marquee-scheme.aspx
  37. ^ National Basketball League (2009). NBL: Inside the NBL: Salary Cap/Points Cap. Accessed on 2009-07-30.
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