Introduction
Topic: Salary Cap in Professional Sports
Essential Question: To what extent does the salary cap have a positive or negative impact on the athletes or their respective sport?
Essential Question: To what extent does the salary cap have a positive or negative impact on the athletes or their respective sport?
The Origin of the salary cap
In the early years, the salary cap did not exist. The economic influence of clubs on the player market was controlled by a system called the "Revenue Clause". It was a standard clause in professional sports players’ contract in the United States. It forbade a player to negotiate with another team without any permission of the team holding the player’s right even after the contract was completed. It was introduced in 1970s because of the activism of the players’ union and the threat of anti-trust. Now known as Competition Law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. A superstar from the St. Louis Cardinals was the first baseball player to try to end the Revenue Clause, he felt players should have a voice in where they played baseball. On December 23, 1975, the Reserve Clause was officially struck down; Major League Baseball players became free agents after playing one year with their team without a contract. By the 1990s, most players with several years of professional experience became free agents and were able to negotiate their contract with their previous or a any other team.
The beginning of the salary cap in major leagues
NBA: The salary cap was first introduced in 1940, but it was abolished after only one season. The league continued to operate without a cap until 1984-1985. The cap was reestablished in the '84-'85 season and set at $3.6 million to balance all NBA’s teams and to ensure competitive balance for the League in the future.
NHL: Before the real salary cap was introduced, there had been two lockouts about the players' salaries. The NHL was the only major North American professional league that had no luxury tax, no salary cap and a very limited revenue sharing. In 1994-1995, the season was partially cancelled with 48 games and the playoffs being played. In 2004-2005, the NHL was the first major sport league in North America to lose an entire season due to a labor dispute. The lockout was resolved when the NHLPA agreed to a hard salary cap based on the league revenues. In the 2005-2006 season, the cap was finally introduced and was set at $39 million/team, with a maximum of $7.8 million for a player.
NFL: The salary cap began to operate in 1994 and was initially set at $34.6 million. The cap has increased every year, both the cap and floor are adjusted annually based on the league's revenues. Because NFL has a hard cap and floor cap, every team must stay under the cap at all times. There are penalties for violating the cap and floor regulations includes fines up to $5 million for each violation, cancellation of contracts and/or lost of draft picks.
MLB: The MLB is the only major league in North America that operates with a different system other than the salary cap. The league has a luxury tax, also known as competitive balance tax. Any team whose total payroll exceeds a certain amount must pay a tax to the league in order to prevent large market team from having a higher payroll than other teams. If a team exceed their payroll excessively, they will be charged with a higher tax.
AFL: The salary cap started in 1987 in the Australian Football League. The cap was built to prevent rich and successful clubs like Carlton, Collingwood, and Essendon to dominate the competition. As part of the salary cap agreement, two new teams were admitted: Brisbane and West Coast. The first two years, the cap was set at $1.25 million with the salary floor at 90% fo the cap.