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Salary cap
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In professional sports, a salary cap (often called a wage cap in the United Kingdom) is a limit on the amount of money a team can spend on player salaries, either 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 other teams. Salary caps can be a major issue in negotiations between league management and players' unions, as they may stunt the inflation of player salaries.
ry caps are used by 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.
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 access talented players to ensure they win through superior economic power.
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Encyclopedia
In professional sports, a salary cap (often called a wage cap in the United Kingdom) is a limit on the amount of money a team can spend on player salaries, either 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 other teams. Salary caps can be a major issue in negotiations between league management and players' unions, as they may stunt the inflation of player salaries.
Adoption
Salary caps are used by 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.
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 access talented players to ensure they win through superior economic power. With each club having roughly the same economic power to attract players, this contributes to parity - roughly equal playing talent in each team in the league, which 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, and without any long term hope of their club winning, patrons may gravitate to other sports and leagues. Television revenue is an important part of the income of many sports around the world, and the more evenly matched and exciting the matches, the more interesting the television product, meaning the value of the rights is higher.
The need for parity is more pronounced in leagues that use the franchise model, rather than the promotion and relegation model, such as in European football. The structure of a promotion/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 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 it. Without caps there may be 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. If teams regularly go bankrupt or change markets the whole sport looks unstable to consumers, and they may instead support more stable sports where their team and their rivals are more likely to be playing in the long term.
Players and players' unions generally concede that the overall wealth and stability of a league is just as important as the chance at higher wages for certain star individuals, and support the application of salary caps in principle, as long as they are not set too low.
Reserve clause
Salary caps were largely unnecessary in the era of 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.
In a response to this and as a way of limiting the damage this did to the competitive balance necessary to maintain fan interest in their sports, in the 1990s both the National Football League and the National Basketball Association negotiated salary cap arrangements with their respective players' unions.
Salary cap in North American leagues
Salary cap in the NHL
A salary cap existed in the early days of the National Hockey League (NHL). During the Great Depression, for example, 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, 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, owners such as Harold Ballard of the Toronto Maple Leafs spent among the league minimum on rosters, making his team the most profitable. There was little financial incentive for Ballard to spend money on star players to improve the quality of the on-ice product and attract fans, as all Maple Leafs games were sold out regardless of how poorly the team played.
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.
Although six NHL franchises are based in Canada, all NHL salaries must be paid in U.S. dollars.
This caused hardship among the small-market Canadian teams at the turn of the 20th century due to the weak Canadian dollar, as their revenues were in Canadian dollars. NHL Commissioner Gary Bettman successfully persuaded the US-based teams to donate towards a pool to mitigate the effect of the exchange rate.
Current salary cap
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.
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. The lockout was resolved when the NHLPA agreed to a hard salary cap based on league revenues, although the NHL reciprocated by implementing revenue sharing which would 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. Revenues for the six Canadian teams have all increased significantly since the lockout, and due to the fact the Canadian dollar rose to briefly reach parity with its U.S. counterpart (the Canadian dollar has since fallen to around 80 US cents, still significantly above its lows around 2000), league-wide revenues measured in U.S. dollars have been inflated accordingly. As a result of these factors, the cap was raised to $44 million for the 2006–07 NHL season, to $50.3 million for the 2007–08, and to $56.7 million for the 2008-09 Season.
The CBA also contains a "Lower Limit of the Payroll Range", which is the minimum that each team must pay in player salaries. The lower limit is defined from 2006–07 onwards to be $16 million below the cap, therefore the 2006–07 minimum was $28 million, and the 2007–08 minimum was $34.3 million. The difference between the salary cap and a team's actual payroll is 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 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 legitmate 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 or less than that of the injured player, even 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 one third the remaining salary if younger than 26 at the time of termination, or two thirds if 26 or older.
Some formerly-common practices (such as trading cash for players or agreeing to pay a portion of a player's remaining salary after trading him) have been forbidden in the new CBA to prevent wealthier teams from evading the restrictions of the cap.
Salary cap in the NFL
The NFL's cap is a so-called "hard cap," which all teams must stay under at all times; teams face fines and/or the cancellation of contracts for violating or circumventing the cap. There is also a hard floor, a minimum team payroll that must be paid to players. The cap was 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 have increased each year. In 2008, the cap will be about $116 million per team, while the floor will be 85.2% of the cap, or $98.8 million; the salary floor percentage will increase 1.2% per year until it reaches 90% of the cap in 2012.
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 treatment, 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 has been 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.
The salary cap prevents 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, even those who are fan favorites has become less common in the era of the salary cap. A veteran's minimum salary is required to be higher than a player with lesser experience. This means teams tend to favour 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 dollars and cents driven tendency, 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 has also served to limit the rate of increase of the cost of operating a team. This has accrued to the owners' benefit, and is widely regarded as being responsible for the NFL being overall the most financially stable of the major North American sports organizations. While the initial cap of $34.6 million has increased to $102 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 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 2008-2009 season will be $58,680,000. The NBA's salary cap is a so-called "soft cap", meaning that teams are allowed to exceed the cap number 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. 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. There is no official penalty for being over the cap, but teams over the limit are prohibited from signing free agents for more than the league minimum, with only a few exceptions. 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 average team payroll exceeds a certain number 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. Average NBA salary is $5.356 million, the highest of any major North American sports league, this however, is mitigated by the NBA roster size of 15 as opposed to 53 for NFL teams, 23 for NHL teams, and the varying 24-40 man rosters (24 or 25 after opening day, 24-40 after September 1st) 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 implemented a "luxury tax," an arrangement by which teams whose aggregate 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."
, only the Boston Red Sox, the Los Angeles Angels of Anaheim, the Detroit Tigers, and the New York Yankees paid any luxury tax, as the team's superstar players earned yearly salaries close to the entire payroll of some other clubs. The tax has only been implemented on eleven occasions and the Yankees have been the subject of six of those.
However, critics point out that the luxury tax has had little effect on maintaining competitive balance and on overspending by affluent teams. However, Joe Posnanski's December 2008 SI.com blog, which was addressed by Peter Gammons in a January 2009 espn.com article, points out that despite baseball's lack of a salary cap, only twice in the past 30 years has a team won the World Series with a $100 million payroll: the 2004 and 2007 Red Sox. In those 30 years, 20 different teams have won World Series titles. In those same 30 years, 14 different teams have won the Super Bowl, 13 have won the Stanley Cup and nine have won the NBA championship. Despite Posnanski's observations, he still has a distaste for baseball's economic system. But, he does clearly show that while a top tier payroll increases the likeliness of making the playoffs, it does not result in teams consistently winning championships. Counterintuitive as it may seem, baseball has had more parity than any other major sport in the last 30 years...at least in terms of how many unique teams have won a championship.
Others critics point to dependence of the small market teams on the revenue provided through the tax, without which they would be unable to fund operations. Although certain teams owners' (notably, the Boston Red Sox and the Milwaukee Brewers) have called for the introduction fo a salary cap, the opposition of a powerful MLB players' union as well as the New York Yankees' ownership group makes implementation of a cap highly unlikely. 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 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
The Canadian Football League also has a salary cap. However, among the great Canadian football players such as amongst sports analysts, the CFL's salary cap has been well-known as being more of a guideline which few (if any) teams adhered to. In the CFL's 2005 season, the salary cap hovered around C$2.6 million per team. On June 13, 2006, the proposed salary management system featuring a $3.8 million Maximum Salary Expenditure Cap (SEC) initially proposed in January was ratified at the CFL board of governors meeting in Winnipeg, Manitoba.
Enforcement of the new regulations is set begin starting with the 2007 CFL season, when the cap is set to rise to $4.05 million due to increased revenues. However, critics point out that violation of the cap will apparently result only in fairly modest fines and forfeited draft picks. The effect on a violating team's draft selections has not been disclosed, however CFL teams rely more on trades and free agents cut from other teams and the NFL to stock their rosters. The fines have been revealed to be progressive in nature, up to three dollars for every dollar beyond $300,000 over the cap. Critics believe such a system will operate more like a strict luxury tax regime as opposed to a true cap.
Salary caps in other North American leagues
Salary caps are common in other leagues. In Arena football, the current salary cap is $1.82 million per team. Tampa Bay Storm head coach Tim Marcum was fined and suspended by the Arena Football League for four games (two in the 2005 season, two in 2006) for salary cap violations.
Salary caps in Europe
Several European football (soccer) leagues are considering salary caps. In 2002, 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 eventually occur. Serie A, the leading Italian football league and The Football League in England have also considered salary caps.
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, especially if this were to be a flat limit put in place to create 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 the 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 - the number of places allocated to each country for these competitions is determined by that country's teams' past performances in Europe. Salary caps in franchise leagues do not have to deal with teams in rival leagues.
- Different governing bodies have authority over domestic and international competitions. For example, UEFA governs European football and organizes the prestigious Champions League and UEFA Cup, 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.
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 restrict the ability of its richest clubs (e.g. Essendon, Collingwood and Carlton) to perennially dominate the competition. The cap was set at A$1.25 million for 1987-1989 as per VFL agreement, with a floor coming in at $1.125 million (90% of the cap).
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 West Coast and Adelaide. The salary cap in 2009 will be $8.81 million (salary floor $7.93 million).
The AFL Players Association negotiates for players with the AFL on the topic of average salary.
Penalties
The penalties for violating AFL salary cap and salary floor regulations have included fines and loss of draft picks. The more drastic penalty of loss of premiership points has not yet been implemented.
Breaches
No club has yet been penalized for violating salary floor regulations (i.e. deliberately underpaying players).
The following breaches of the salary cap have occurred:
- In 1987 (the cap's first year) Sydney were fined the maximum amount of $20,000 and forfeited a first round draft pick after being found to have almost doubled the cap with a payroll of $2.4 million.
- In 1992, Hawthorn were fined $28,500 for a minor breach in relation to benefit payments.
- In 1995, Sydney were fined $20,000 after documents relating to contract and financial details were lost by club officials. Sydney had to play the season two players short as a result of these errors.
- In 1996, 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) were all fined for minor breaches. Essendon were fined a record total of $388,000 and excluded from the pre-season and rookie drafts and the first two rounds of the National Draft.
- In 1998, Geelong were fined $77,000, Collingwood were fined $47,500 and Richmond were fined $21,000; all three clubs were debarred from the preseason draft. Hawthorn were fined $45,000, and the West Coast Eagles were fined $100,000 and also forfeited a draft pick.
- In 1999, Carlton were fined $44,000 and barred from the pre-season draft. Melbourne were fined a record $600,000 and barred from the first three rounds of the 2000 draft, while Fremantle were handed their first round selection from the 1999 draft as compensation for losing ruckman Jeff White to Melbourne.
- In 2000, Richmond were fined $10,000 for a minor breach, Fremantle were fined $54,000 and were barred from the 2001 pre-season draft, and North Melbourne were fined $20,000 and Melbourne fined $5000 for minor breaches.
- In 2002, Carlton was found to have systematically rorted the regulations between 1994 and 2001. The club was fined an unprecedented total of $987,000, banned from receiving priority picks and barred from the first two rounds of the national draft for two years. The club sunk to the bottom of the league and experienced its toughest years as it recovered both on-field and off-field from these significant penalties.
- In 2003, Essendon were fined $85,000 for a minor breach. The Western Bulldogs were fined $30,000 for minor salary cap breaches in 2000-2002.
- In 2005, St. Kilda were fined $40,000 for a minor breach.
- In 2008, Adelaide were fined $20,000 when a player failed to notify the club and the league of personal arrangements made with club associates before the reporting deadline. St. Kilda were also fined $10,000 for a minor breach.
Criticism of the cap
The AFL salary cap is occasionally controversial, as the cap is a "soft" cap and therefore can be slightly different for each club. Due to the larger number of players (40) in each squad compared to other sports, the cost per club can be higher than and individual player payments can be less than or equal to other rival national competitions. Clubs in poor financial circumstances do not use their full cap, in some circumstances not even reaching the salary floor, to ensure they reduce costs.
The Sydney Swans have a 7.5% higher cap due to the increased cost of living in that city, and until 2004 the Brisbane Lions were also permitted a 15% higher cap; these extensions were justified in the name of AFL's expansion into rugby league's heartland in Sydney and Brisbane. The Lions with this assistance from the AFL's extra allowance within the salary cap won a hat-trick of premierships from 2001 to 2003; this resulted in the AFL halving Sydney's cap extension and eliminating Brisbane's altogether.
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.
Rugby League
The National Rugby League adopted a salary cap model in 1990. In 2008 the salary cap for the sixteen teams is $4.1 million, with a $3.69 million salary floor.
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."
The NRL is one of the only major leagues (alongside the A-League) to implement a salary cap that has competing leagues in other countries where there is 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 8 different clubs winning the championship in 8 years between 2001 and 2008. Since the NRL's inception in 1998, only two clubs have won the premiership on more than one occasion.
In 2008 the departure of two elite stars to play French rugby union has prompted calls for the cap to be raised. Australian rugby league players had suffered a 27% decline in their wages since 1999. 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 major 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.
| League | Region | Salary Cap (AUD) | Service payments excluded | Average player annual salary | Average salary per game | Highest paid (per year approx) |
|---|
| National Rugby League | Australia (national) | $4,100,000 | Yes | $170,800 | $6,570 | $500,000 |
Breaches
In the NRL, clubs found to have breached the salary cap rules can incur a fine and/or a premiership points deduction.
- 1991: The Canberra Raiders were fined $100,000 and ordered to repay $85,000 excess from 1990.
- Eight clubs were fined in 2000: Newcastle ($159,000), the New Zealand Warriors ($100,000), Penrith ($81,000), Canterbury ($50,000), Parramatta ($40,000), Melbourne ($24,500), the Sydney Roosters ($13,000) and Cronulla ($7,000).
- Three clubs were fined in 2001: North Queensland ($100,000), Melbourne ($90,000) and Brisbane ($84,000).
- 2002: The Canterbury Bulldogs were found to have committed serious and systematic breaches totaling $920,000, which was at the time enough for two extra players. The club was hit with a $500,000 fine and were stripped of all 37 competition points accumulated to that date; the club won the wooden spoon as a result. An extensive NRL investigation resulted in criminal charges being laid against two senior club officials by NSW Police; they were convicted and sentenced to seven years imprisonment (with a minimum of five years) for fraud. Five other clubs were also fined: the Sydney Roosters ($149,000), Newcastle ($85,000), Melbourne ($67,000), the Wests Tigers ($58,500) and Brisbane ($57,500).
- Nine clubs were fined in 2003 after a crackdown in light of the Canterbury scandal the year before: Melbourne ($131,000), Penrith ($60,000), Newcastle ($40,000), Brisbane ($20,000), South Sydney ($15,250), the New Zealand Warriors ($15,000), Cronulla ($10,000), and Canterbury ($10,000).
- Six clubs were fined in 2004: Melbourne ($120,000), Canterbury ($82,500), St George Illawarra ($32,500), Penrith ($25,000), the Sydney Roosters ($25,000), Canberra ($5,000).
Four clubs were fined in 2005: St George Illawarra ($20,000), Newcastle ($11,000), Canterbury ($8,500) and Canberra ($1,000).
- 2006: The New Zealand Warriors revealed that their former management had exceeded the salary cap in 2004-2005. The club were fined $430,000, had to start the season with a four point deficit, and were ordered to play 2007 under a reduced salary cap of $3.15 million (and a reduced salary floor of $2.79 million).
- 2007: The Canberra Raiders were fined $175,000 but did not lose any points.
- Six clubs were fined in 2008: South Sydney ($71,000), Wests Tigers ($47,000), Canberra ($46,000), Bulldogs ($25,000 with a further $25,000 suspended), Melbourne ($14,000) and Brisbane ($10,000).
Football (Soccer)
The recently established A-League national football (soccer) competition utilized a universal salary cap of AU$1.5 million for each squad in its inaugural 2005/2006 season. However, each team could also sign one "marquee player" whose salary was privately funded, and not included in the team's salary cap (similar to the Designated Player Rule in Major League Soccer in North America).
The cap has been increased to AU$1.85 million for the 2007/2008 season.
The cap is expected to reach AU$2 million by its fifth year.
National Basketball League
The NBL's salary cap is AU$776,000 for the 2006-07 season but will increase to AU$810,000 for the 2007-08 season. The cap has now risen for two consecutive years due to the continued growth for the League.
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