|
 Much of the recent history of labour relations in North American professional sports has revolved around the issue of the salary cap. MLB forewent a World Series in a futile attempt to implement a salary cap. The NHL owners shut down their league for an entire season in order to implement a salary cap. The NFL owners reticently agreed to the current CBA in large part to preserve a salary cap. Management has traditionally favoured the salary cap because it provides cost certainty (which investors and banks like), curbs the reckless spending of the more competitive and ego driven owners, limits player compensation and contributes to competitive balance/parity.
Proponents of the salary cap frequently cite the success of the NFL as evidence that a “cap league” is the best model for the “stick and ball” leagues. These proponents argue that the “any given Sunday” “competitive balance” in the NFL is responsible for the league’s extraordinarily valuable TV rights deals. That same vast pot of shared TV revenue has mitigated against the disparities between large and small markets, i.e. Green Bay is competitive with NYC.
But is the salary cap in the NFL still doing what it is meant to do? If a new CBA is not finalized before March, the 2010 NFL season will be “uncapped”. This provision exists because the two sides agreed that the threat of an “uncapped” season would accelerate agreement on the next CBA. But as the 2009 season unfolds there is evidence that the salary cap is not as effective as it once was and some speculate that there are an increasing number of owners who would prefer to operate in an “uncapped” system.
David Naylor wrote recently in the Globe and Mail;
Have trouble finding a close game on the NFL slate last Sunday?
In Week 7, six of the 13 games were decided by 28 or more points, 11 of 13 by double digits, and just one determined by less than a touchdown.
The results last weekend glaringly exemplified a season in which good teams are dominating bad ones, with true upsets harder to find than a Cleveland Browns touchdown pass.
In the standings, teams with the five best records have an overall mark of 29-3 while the five worst are 2-32.
What’s happened to the NFL’s supposed parity?
Reed Albergotti of the WSJ also noted the relative lack of “competitive balance” in the NFL this season and questions if it is a result of the clubs increasingly adroit “cap management”. Mr. Albergotti reports that there is a trend of more clubs both exceeding the cap and spending less than the “salary floor” (85% of the cap).
According to team executives, agents and union officials, this season's results point to a larger truth about the league that has, until now, only been the subject of whispers. The engine the NFL uses to enforce parity—a cap on player salaries—has so many loopholes, they say, that it no longer prevents teams from spending drastically different amounts on talent. And while it's difficult to make a precise connection, there's evidence that this imbalance may be responsible for lackluster games.
AND
A person familiar with the finances of the Tampa Bay Buccaneers says that last season, the team signed two free-agents, running back Noah Herron and defensive end Patrick Chukwurah, for contracts that totalled $25 million. Under the rules of the salary cap, the Buccaneers were charged that full amount for the players. But to actually earn that money, each player had to, among other things, block six punts apiece—an exceedingly difficult prospect. In the end, neither player ended up taking a single snap. Mr. Herron was paid $157,000 and Mr. Chukwurah $71,000, although the team's salary-cap number reflected the full value of their contracts. Tampa Bay, which ranked among the lowest teams in spending last season, has lost all six of its games. Tampa Bay and NFL officials declined to comment.
On the other side of the ledger, teams that want to spend more than the cap allows have found ways to do so. This season, the Minnesota Vikings have surged to an unbeaten start after putting on one of the league's biggest spending sprees. According to people familiar with the numbers, the Vikings spent $7 million in cash over the cap last season to get free agents like defensive end Jared Allen. In the off-season, the team picked up quarterback Brett Favre for $12 million.
Last season, six teams spent less than the league's official salary minimum in actual dollars, while 13 teams spent above the maximum, according to a person familiar with the matter. This season, the spread between the league's biggest payroll and the smallest was a whopping $66 million, enough to cover Indianapolis quarterback Peyton Manning's salary six times over.
While it's not clear how much a team's actual spending translates to wins and losses, a person who has seen these figures says that some of the NFL's better teams, the Vikings, the New York Giants and last year's champions—the Pittsburgh Steelers—have been near the top of the pile in actual spending while two of its worst—the Kansas City Chiefs and the Tampa Bay Buccaneers, are at the bottom.
In the aforementioned piece from David Naylor, he also attributes the increased competitive imbalance in the league this season, at least in part, to a less effective salary cap. Under the former CBA, the salary cap was calculated on the players’ share of national revenues. The current CBA was changed to include local revenues in calculating the players’ share. The introduction of many new stadiums generating greater local revenues via premium seating, better signage, better concessions etc., has resulted in local revenues now accounting for upwards of 20% of overall league revenues. This is a drastic change from early 90s (when antitrust litigation ended a long era of labour wars and resulted in the 93 CBA) when local revenues were a relatively paltry sum of league revenues.
The cap is supposed to force teams to make tough choices on talented players for financial reasons, in theory freeing some of those players to sign with lesser teams. But the rejigging of the cap formula in 2006 – to include local revenues – contributed to an increase of more than 50 per cent from its 2004 level of $80.6-million (all currency U.S.). Since then, 2006: $94.5-million; 2007: $109-million; 2008: $116-million; 2009: $127-million.
By result, the better teams have had more latitude to keep their best players. When the cap was more stable, it served to equalize talent around the league.
If the salary cap is contributing less and less to the goal of competitive balance, has it also outlived its usefulness in limiting player compensation? The MLB players have long had the reputation of being the best compensated amongst their peers in the “stick and ball” leagues due to their PA’s long and steadfast opposition to a hard salary cap. However, depending upon how you interpret the numbers, the MLB owners are paying out a smaller percentage of league revenues to players than the owners in the other “capped” “stick and ball” leagues. In December, Liz Mullen reported for The SportsBusiness Journal.
Major League Baseball players received about 52 percent of leaguewide revenue last season, said MLB’s Rob Manfred, which would appear to leave baseball players with the lowest percentage of revenue among the Big Four team sports.
Under their respective collective-bargaining agreements, NHL players received 56.7 percent last season, NBA players about 57 percent and NFL players about 59 percent.
AND
Baseball also stands out as the only major league without a salary cap. Caps are something that leagues long have fought for and players unions have fought against, but Ganis said that thinking is changing. (SportsBusiness Journal reported in April that some NFL officials and NFL owners were considering operating the business in the future without a salary cap.)
Ganis said that NFL owners “have concluded themselves that they would be better off without a salary cap.” (Biz of Football note; Ganis is Marc Ganis, President of SportsCorp Ltd.)
The relative competitive imbalance in the NFL this season could be greater in an uncapped 2010. Not only will clubs be allowed to increase spending, perhaps more significantly, there will no “salary floor” to adhere to. Some disagree with this hypothesis, pointing to the arguments made in Mr. Albergottis’ aforementioned WSJ piece, that the cap and floor are increasingly ignored anyway. As well, the uncapped 2010 would include new rules on free agency eligibility which would limit the amount of talent available. In September, Daniel Kaplan and Liz Mullen reported in The SportsBusiness Journal on the possibility of an “uncapped” 2010.
….the loss of a cap also means the loss of a salary floor. Currently, teams are required to spend around 85 percent of the salary cap. Without a floor, teams would be free to operate as do some MLB clubs, who work in a capless system. Some teams, instead of spending millions on a season that all but certainly will end with losses both on the field and on the balance sheet, opt to rein in their spending so that at least the off-the-field losses are minimized.
All of the “stick and ball” leagues CBAs are set to expire in 2011. What is the future of hard salary caps in these leagues? Some argue that the implementation of a salary cap in the NHL has caused the owners more problems than it has resolved. (Some “small revenue” franchises, particularly in the “Sun Belt” are negatively impacted by having to spend to the salary floor) The absence of a salary cap in MLB has not resulted in their players earning a greater share of revenues than their peers in the “cap leagues”. While much of the public conjecture over an “uncapped 2010” in the NFL can be attributed to bargaining gamesmanship, the possibility appears real. The results of an “uncapped 2010” would have important, longer term implications for teams, players and fans in all of the “Big 4”.
OTHER NEWS FROM THE BUSINESS OF SPORTS NETWORK
(THE BIZ OF BASEBALL)
(THE BIZ OF HOCKEY)
(THE BIZ OF BASKETBALL)
Pete Toms is an author for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.
 |
Articles and Opinion 
Follow the Business of Sports Network on Facebook
Subscribe to this comment's feed