Salary Caps in Professional Sports

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.

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

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y amount. Consequently, teams sign a free agent for an amount within the cap, tear up the contract the following year, and sign again at any amount under the incumbent exemption. But the cap did have a positive impact overall. In 1983, only five teams were making money. Four to seven teams were about to collapse altogether. After the salary cap and limitations on free agency, the NBA is once again profitable and on the verge of another expansion. Television ratings are higher than ever and franchises are more valuable than ever. The caps apparently have helped players as well. As shown in Table One, the average basketball player salary of $1.6 million per year is higher than in any other professional sport (Smith, 1994, p. 2). Stringent Salary Caps In 1994, the National Football League imposed a rather stringent salary cap on its players. Player salaries had just recently reached 67% of the league's gross revenue. In return for agreeing to the salary cap, the NFL players received the right to become unrestricted free agents after a period of four years with the league. Unlike the NBA, few opportunities were included in the agreement to allow teams to circumvent the caps. The salary cap in 1994 for each team is $34.6 million,
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Approximate Word count = 1588
Approximate Pages = 6 (250 words per page)

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