Until the World Series was sacrificed in 1994, it was easy to ignore the issue of salary caps in sports. Then the National Hockey League season was put on hold and remains in peril. The National Basketball Association began rumors of canceling their season if the players refused to accept salary caps. The one sport that seemed to demonstrate the merit of salary caps, the National Football League, also became newsworthy when prime players started losing their jobs and many others took dramatic cuts in their salaries. Suddenly, salary caps are an integral aspect of professional sports that affect the economics of sports teams and raise emotions between owners, managers, players and fans.
This research examines the economic impact of salary caps in sports and explores some of the arguments for and against ceilings. First, the meaning of salary cap arrangements in the various sports will be discussed, followed by an examination of their economic impact. The Nature of Salary Caps
Owners claim that salary caps could be the salvation of sports. Players denounce salary caps as a gimmick to enrich unfairly the wealthy owners of sports. And sports managers feel left out in the cold altogether.
Salary caps are in fact nothing new in sports. Baseball had worked with a salary cap in 1889. While that experiment was later set aside, versions of salary caps have been attempted since then on an occasional basis.
The concept of a salary cap is simply a device for somebody's benefit to get an advantage over market forces. It is the equivalent of rent control or minimum wage. In sports, a salary cap enables owners to get around the market values of their players. Put in its simplest terms: caps control payroll costs for owners and limit the amount players can earn and where they can earn it.
Although the concept of salary caps tends to violate the American principle of a free market, players in two professional sports have voluntarily acc...