Effects of Salary Caps in Effects of Salary Caps in Professional SportsProfessional Sports

By: Matt Dutro, Steven Dulisse, Jacob Drerup, Jeremy Falk

Salary Cap

• Limit a team can spend on their player’s annual salaries

• Different for every sport– Punishments for going over salary cap

• Alex Rodriguez Salary

Salary Caps

• National Football League– $128 million per team

(32 teams)

• National Hockey League

• $56.8 million for the 2009-2010 season

• $11.36 million for a player

Major League Soccer

• $2.3 million as of 2008

• Does not count the Designated Player Rule “Beckham Rule”– Implemented in 2007– One player will only count as $415,000 toward

the salary cap no matter how good they are• David Beckham annual salary of $6.5 million

dollars

National Basketball Association

• $58.680 million salary cap for the 30 teams– Luxury Tax- is a mechanism that helps control team

spending– It is paid by high spending teams -- teams whose payroll

exceeds a predetermined tax level– For the 2009-2010 season, the luxury tax level is set at

$69.92 million– A team who exceeds $69.92 million, will pay a $1 tax for

each $1 they go over– NBA is estimating the teams under the tax will each get

around 4.4 Million for the teams over the tax

2010 – The Year of the Free Agent

• NBA 2010 Free Agency– LeBron James, Dwayne Wade, Chris Bosh, Michael Redd

– Luxury tax will play key role in this market

• Teams have cleared out line-up to make cap room– New York Knicks, New Jersey Nets, Detroit Pistons

• Combined wins: 37– 65 games under .500

Competitive Balance (NBA)

• 62 players make $10+ million

• Only three teams without a $10+ million player– Oklahoma City– Portland– Sacramento

Major League Baseball

• There is currently no salary cap in Major League Baseball – Luxury Tax system

Luxury Tax

• Luxury Tax- tax on teams if their team exceeds a numerical figure, determined annually.

• 1st offense = 17.5% of the amount over the cap

• 2nd offense= 20%

• 3rd offense/more= 40%

• Luxury Tax Caps from 2003-2011

– 2003= $117m

– 2004= $120.5m

– 2005= $128m

– 2006= $136.5m

– 2007= $148m

– 2008= $155m

– 2009= $162m

– 2010- $170m (estimated)

– 2011- $178m (estimated)

All Stars vs. Second Stringers

• MLB – Teams are able to buy the best players

• New York Yankees had ten times more money spent on players than the Washington Nationals– Result: NYY: (89-73)*

WN: (59-102)*

*September 30, 2008

All Stars contd.

• Competitive advantage can be bought in MLB– Alex Rodriguez 2006 salary

• $21,000,000

– Division rival Tampa Bay Rays 2006 team cap• $14,000,000

Positives of Salary Cap

• Keep owners from squandering money– Less wasteful with monetary habits

• Helps small market teams– Fair competition

Negatives of Salary Cap

– Market forces can find ways around the salary limits

• Endorsements – not included in salary

• Under the table – cars, etc.

– Team owners, not athletes, would keep more revenue.

Destructive BehaviorsSalary caps: protect teams from themselvesAdvantages

• Buy high-cost contracts to receive popularity and sell tickets

– Immediate success figures

Disadvantages

• Eventual financial difficulty– Risk losing fans

• Long term instability

Keeping the Fans Interested

• Unbalanced leagues threaten weaker teams– If a fan’s team keeps losing they may gravitate

to another team or sport

The Numbers Don’t Lie

Cleveland Cavaliers (41-11) Indiana Pacers (18-33)

Real Life Examples

• Houston Rockets star Tracy McGrady– Top five highest paid NBA player despite not

playing– 46 minutes played entire season– $22,843,124 annual salary

• If he continues to not play, he will make $496,589.65 per minute

Overpaid, Underplayed

• Jermaine O’Neal– Third highest paid NBA player– $23,016,000 this year

• 13 points, 7 rebounds per game

Performance Based Salary

• Base pay dependent on total income of the sport– Different sports may have higher or lower base

pay depending on revenue generated

• Performance based pay rewards for personal athletic achievement and team success– Awards, records, wins, postseason, etc.

– More incentive to perform at highest capability

Pro Bowl

• Some players no longer care about going to the Pro Bowl– Receive a bonus for being selected

• NOT for attending

– “Some of the guys missing make it not a true all-star game” - Antonio Gates

• World’s best players?– Many players this year had to be filled in because

players decided to not come

Putting the Entertain Back in Athletic Entertainers

• If pay reflects success on the playing field, players will work harder to perform at a higher level

• Better for fans– Top tier players less likely to sit on the bench