In professional sports, a salary cap (or wage cap) is an agreement or rule that places a limit on the amount of money that a team can spend on player salaries. The limit exists as a per-player limit or a total limit for the team's roster, or both. Several sports leagues have implemented salary caps, both as a method of keeping overall costs down, and to ensure parity between teams so wealthy teams cannot entrench dominance by signing many more top players than their rivals. Salary caps can be a major issue in negotiations between league management and players' unions, and has been the focus point of several strikes by players and lockouts by owners and administrators.
- 1 Adoption
- 2 Benefits of salary caps
- 3 Hard cap, soft cap and salary floor
- 4 Reserve clause
- 5 Salary caps in North American leagues
- 6 Salary caps in Europe
- 7 Salary caps in Australia and New Zealand
- 7.1 Australian rules football
- 7.2 Rugby league
- 7.3 Rugby union
- 7.4 Association football (soccer)
- 7.5 National Basketball League
- 7.6 Netball (ANZ Championship)
- 8 Salary caps in rugby union
- 9 References
- 10 External links
Salary caps are used by the following major sports leagues around the world:
- North America: The National Hockey League, National Football League, Major League Soccer, National Lacrosse League, Canadian Football League, National Basketball Association and minor leagues in various sports.
- United Kingdom:
- Australia and New Zealand: Most major leagues operating in the two countries have salary cap provisions:
- The Australian Football League (Australian rules football), which operates only in Australia.
- The National Rugby League (rugby league), A-League (football (soccer)) and National Basketball League, each of which is based in Australia but has one team in New Zealand.
- The ANZ Championship in netball, which has 10 teams evenly divided between the two countries.
- In rugby union, New Zealand's ITM Cup is capped. In addition, the Australian teams in the Super Rugby competition operate under a unilaterally adopted cap (teams from the other two SANZAR countries, New Zealand and South Africa, are not subject to any cap at present, although New Zealand does impose a cap and floor on individual player salaries).
- Eurasia: The Kontinental Hockey League, based in Russia and also including teams in Belarus, Croatia, the Czech Republic, Kazakhstan, Latvia, Slovakia and Ukraine, has operated with a salary cap since its creation in 2008.
- France: The country's top-level rugby union league, Top 14, instituted a salary cap effective with the 2010–11 season.
Recently, several European association football leagues have also discussed introducing salary caps.
Benefits of salary caps
Primarily, an effective salary cap prevents wealthy teams from certain destructive behaviours, such as signing a multitude of high-paid star players to prevent their rivals from accessing talented players and ensuring victory through superior economic power. With a salary cap, each club has roughly the same economic power to attract players, which contributes to parity by producing roughly equal playing talent in each team in the league, and in turn brings economic benefits, both to the league and to its individual teams.
Leagues need to ensure a degree of parity between teams so that games are exciting for the fans and not a foregone conclusion. The leagues that have adopted salary caps generally do so because they believe letting richer teams accumulate talent affects the quality of the sporting product they want to sell. If only a handful of dominant teams are able to win consistently and challenge for the championship, many of the contests will be blowouts by the superior team, reducing the sport's attractiveness for fans at the stadium and viewers on television. Television revenue is an important part of the income of many sports around the world, and the more evenly matched and exciting the contests, the more interesting the television product, meaning the value of the television broadcast rights is higher. An unbalanced league also threatens the financial viability of the weaker teams, because if there is no long-term hope of their team winning, fans of the weaker clubs will gravitate to other sports and leagues.
One famous example of this occurring was in the Union Association, which operated in 1884. The league was dominated by St. Louis Maroons, whose owner, Henry Lucas, was also league president in an obvious conflict-of-interest situation which is now banned. Lucas bought all the best players for his own franchise, and the Maroons easily won the pennant with a record of 94-19 (.832 winning percentage), 21 games ahead of their nearest rivals. The league folded at the end of the season.
Another famous example is the All-America Football Conference, which operated between 1946 and 1949. Despite starring many top players and innovative coaches, the AAFC was dominated by one team, the Cleveland Browns, who lost only three games in four years and won every championship in the league's four year existence, being unbeaten in 1948, and winning three of the championships in blowouts. Attendances and profits constantly fell after the league's second season, for the Browns as well as their rivals, and the league folded at the end of 1949.
The need for parity is more pronounced in leagues that use the franchise model, rather than the promotion and relegation model, used in European football. The structure of a promotion and relegation system means weaker teams struggle against the threat of relegation, adding importance and excitement to the matches of weaker teams. International club competitions such as the UEFA Champions League also means that the top clubs always have something to play for, even in the most unbalanced of national leagues.
A salary cap can also help to control the costs of teams and prevent situations in which a club will sign high-cost contracts for star players in order to reap the benefits of immediate popularity and success, only to later find themselves in financial difficulty because of these costs. Without caps, there is a risk that teams will overspend in order to win now at the expense of long term stability, and team owners who use the same risk-benefit analysis used in business may risk not just the fortunes of their own team but the reputation and viability of the whole league.
Sports fans are generally looking to support a team for life, not just a product to purchase for the short term. If teams regularly go bankrupt or change markets the same way businesses do, then the whole sport looks unstable to the fans, who may lose interest and switch their support to a more stable sport where their team and their rivals are more likely to be playing in the long term.
Hard cap, soft cap and salary floor
A salary cap can be defined as a hard cap or a soft cap.
A hard cap represents a maximum amount that may not be exceeded for any reason. Contracts which cause a team to violate a hard cap are subject to major sanctions, including the voiding of violating contracts, and the stripping of championships won while breaching salary cap rules, which happened to the Melbourne Storm in the NRL. Hard caps are designed so that penalties deter breaking the cap, but there are numerous examples of clubs who have occasionally and/or systematically cheated the cap.
A soft cap represents an amount which may be exceeded in limited circumstances, but otherwise exceeding the cap will trigger a penalty which is known in advance. Typically these penalties are financial in nature; fines or a luxury tax are common penalties used by leagues.
A salary floor is a minimum amount that must be spent on the team as a whole, and this is separate from the minimum player salary that is agreed to by the league. Some leagues, in particular the NFL, have a hard salary floor that requires teams to meet the salary floor every year, which helps prevent teams from using the salary cap to minimize costs.
When the salary cap and floor are the same, the result is a standard form contract model of payment, in which each player is paid the same amount, sometimes varying by position. The standard form contract model is used extensively in North American minor leagues.
Before the implementation of salary caps, the economic influence of clubs on player markets was controlled by the reserve clause, which was long a standard clause in professional sports player contracts in the United States. The clause forbade a player from negotiations with another team without the permission of the team holding that player's rights even after the contract's term was completed. This system began to unravel in the 1970s due largely to the activism of players' unions, and the threat of anti-trust legal actions. St. Louis Cardinal star Curt Flood started the ball rolling when he refused a trade to the Philadelphia Phillies. He had been a player for 12 years and felt he should have a voice in where he played baseball. Even though he lost his case in the Supreme Court he was the first baseball player to try to end the reserve clause. Although anti-trust actions were not a threat to baseball, which has long been exempt from anti-trust laws, that sport's reserve clause was struck down by a United States arbitrator as a violation of other labor laws.
By the 1990s most players with several years' professional experience became free agents upon the expiry of their contracts and were free to negotiate a new contract with their previous team or with any other team. This situation, called Restricted Free Agency, led to "bidding wars" for the best players—a situation which inherently gave an advantage in landing such players to more affluent teams in larger media markets.
Salary caps in North American leagues
National Hockey League
- For a more detailed discussion, see the article NHL salary cap.
A salary cap existed in the early days of the National Hockey League (NHL). During the Great Depression, the league was under financial pressure to lower its salary cap to $62,500 per team and $7,000 per player, forcing some teams to trade away well-paid star players in order to fit the cap.
Player salaries first became an issue in the 1970s, when Alan Eagleson founded the NHL Players' Association (NHLPA) and the upstart World Hockey Association began competing with the NHL for players. Not all NHL owners were willing to engage in a bidding war, in particular, Harold Ballard of the Toronto Maple Leafs spent as close to the league minimum on rosters as he could. Since Maple Leaf Gardens was consistently sold out no matter how poorly the Maple Leafs played, Ballard's team was by far the most profitable.
Eight NHL franchises were based in Canada at the time of the lockout. Until the 1990s, the Canadian teams usually paid player salaries in Canadian dollars, but with the rise of free agency and a decline in the value of Canadian dollar, players and their agents increasingly demanded to be paid in U.S. dollars. Canadian teams' revenues were, then as now, mostly in Canadian dollars, and the effects of the discrepancy were particularly acute for the small market franchises. The financial difficulties and uncertainties of competing in smaller Canadian markets led to two clubs moving to the U.S.; the Quebec Nordiques to Denver, and the Winnipeg Jets to Phoenix. NHL Commissioner Gary Bettman successfully persuaded the US-based teams to donate towards a pool to mitigate the adverse effects of the exchange rate.
The negotiations for the most recent[when?] NHL Collective Bargaining Agreement revolved primarily around players' salaries. The league contended that its clubs spent about 75% of revenues on salaries, a percentage far higher than existed in other North American sports; NHL Commissioner Gary Bettman demanded "cost certainty" and presented the NHLPA with several concepts that the Players' Association considered nothing more than euphemisms for a salary cap, which it had vowed it would never accept. The previous CBA had expired on September 15, 2004, and a lockout ensued, leading to the cancellation of the entire 2004–05 NHL season, the first time a major sports league in North America had lost an entire season to a labor dispute.
Current salary cap
The lockout was resolved when the NHLPA agreed to a hard salary cap based on league revenues, with the NHL implementing revenue sharing to allow for a higher cap figure. The NHL salary cap is formally titled the "Upper Limit of the Payroll Range" in the new CBA. For the 2005–06 NHL season, the salary cap was set at US$39 million per team, with a maximum of $7.8 million (20% of the team's cap) for a player. The CBA also mandated the payment of salaries in U.S. dollars, codifying what had been a universal practice for more than a decade.
Revenues for the six Canadian teams that were in the league at the time of the lockout have all increased significantly since then, and because the US dollar fell to relative parity with its Canadian counterpart, league-wide revenues measured in U.S. dollars have been inflated accordingly.
As a result of these factors, the cap has been raised each year of the 2005–12 CBA to $64.3 million for the 2011–12 season, with a cap of $12.86 million for a player. The CBA also contains a salary floor which is formally titled the "Lower Limit of the Payroll Range", the minimum that each team must pay in player salaries. The lower limit was originally set at 55% of the cap, but is now defined to be $16 million below the cap, therefore the 2011–12 minimum was $48.3 million. The difference between the salary cap and a team's actual payroll is referred to as the team's "payroll room" or "cap room".
Each year of an NHL player contract, the salary earned contributes to the team's "cap hit". The basic cap hit of a contract for each year it is effective is the total money a player will earn in regular salary over the life of the contract divided by the number of years it is effective. This, in theory, prevents a team from paying a player different amounts each year in order to load his cap hit in years in which the team has more cap room. Teams still use this practice, however, for other reasons. Performance bonuses also count towards the cap, but there is a percentage a team is allowed to go over the cap in order to pay bonuses. A team must still factor in possible bonus payments, however, which could go over that percentage.
Salaries for players sent to the minors, under most circumstances, do not count towards the cap while they are there. If a player has a legitimate long-term injury, his cap hit is still counted; however, the team is permitted to replace him with one or more players whose combined salary is equal to (or less than) that of the injured player, even if the additional players would put the team over the salary cap. If the team's cap room is larger than the injured player's cap hit, they may take on as much as their cap room; however, the injured player may not return to play until the team is again compliant with the original cap.
The NHL has become the first of the major North American leagues to implement a hard cap while retaining guaranteed player contracts. Guaranteed player contracts in the NHL differ from other sports, notably the NFL, where teams may opt out of a contract by waiving or cutting a player. NHL teams may buy out players' contracts, but must still pay a portion of the money still owed which is spread out over twice the remaining duration of the contract. This does not apply for players over 35 at the time of signing; in this case a team cannot buy out the player's contract to reduce salary. Any other player can be bought out for ⅓ of the remaining salary if the player is younger than 28 at the time of termination, or ⅔ of the remaining salary if the player is 28 or older. Trading cash for players or paying a player's remaining salary after trading him have been banned outright in order to prevent wealthier teams from evading the restrictions of the cap.
Players, agents or employees found to have violated the cap face fines of $250,000 – $1 million and/or suspension. Teams found to have violated the cap face fines of up to $5 million, cancellation of contracts, forfeiture of draft picks, deduction of points and/or forfeiture of game(s) determined to have been affected by the violation of the cap.
National Football League
The new collective bargaining agreement formulated in 2011 had an initial salary cap of $120 million. While the previous CBA had a salary floor, the new CBA did not have one until 2013. Starting with that season, each team is required to spend a minimum of 88.8% of the cap in cash on player compensation, and 90% in future years. However, the floor is based on total cash spent over each of two four-year periods, the first running from 2013–2016 and the second from 2017–2020. A team can be under the floor in one or more seasons in a cycle without violating the CBA, as long as its total spending during the four-year period reaches the required percentage of the cap.
The NFL's cap is a hard cap that the teams have to stay under at all times, and the salary floor is also a hard floor; penalties for violating or circumventing the cap and floor regulations include fines of up to $5 million for each violation, cancellation of contracts and/or loss of draft picks.
The cap was first introduced for the 1994 season and was initially $34.6 million. Both the cap and the floor are adjusted annually based on the league's revenues, and they have increased each year. In 2009, the final capped year under that agreement, the cap was $128 million per team, while the floor was 87.6% of the cap. Using the formula provided in the league's collective bargaining agreement, the floor in 2009 was $112.1 million. Under the NFL's agreement with the NFLPA, the effects on the salary cap of guaranteed payments (such as signing bonuses) are, with a few rare exceptions, prorated evenly over the term of the contract.
In transitions, if a player retires, is traded, or is cut before June 1, all remaining bonus is applied to the salary cap for the current season. If the payroll change occurs after June 1, the current season's bonus proration is unchanged, and the next year's cap must absorb the entire remaining bonus.
Because of this setup, NFL contracts almost always include the right to cut a player before the beginning of a season. If a player is cut, his salary for the remainder of his contract is neither paid nor counted against the salary cap for that team. A highly sought-after player signing a long-term contract will usually receive a signing bonus, thus providing him with financial security even if he is cut before the end of his contract.
Incentive bonuses require a team to pay a player additional money if he achieves a certain goal. For the purposes of the salary cap, bonuses are classified as either "likely to be earned", which requires the amount of the bonus to count against the team's salary cap, or "not likely to be earned", which is not counted. A team's salary cap is adjusted downward for NLTBE bonuses that were earned in the previous year but not counted against that year's cap. It is adjusted upward for LTBE bonuses that were not earned in the previous year but were counted against that year's cap.
One effect of the salary cap was the release of many higher-salaried veteran players to other teams once their production started to decline from the elite level. On the other hand, many teams have made a practice of using free agents to restock with better personnel more suited to the team. The salary cap prevented teams with superior finances from engaging in the formerly widespread practice of stocking as much talent on the roster as possible by placing younger players on reserve lists with false injuries while they develop into NFL-capable players. In this respect, the cap functions as a supplement to the 55-man roster limit and practice squad limits.
Generally, the practice of retaining veteran players who had contributed to the team in the past, but whose abilities have declined, became less common in the era of the salary cap. A veteran's minimum salary was required to be higher than a player with lesser experience, which means teams tended to favor cheaper, less experienced prospects with growth potential, with an aim to having a group of players who quickly develop into their prime while still being on cheaper contracts than their peers. To offset this tendency which pushed out veteran players, including those who became fan favorites, the players' association accepted an arrangement where a veteran player who receives no bonuses in his contract may be paid the veteran minimum of up to $810,000, while accounting for only $425,000 in salary-cap space (a 47.5% discount).
The salary cap also served to limit the rate of increase of the cost of operating a team. This has accrued to the owners' benefit, and while the initial cap of $34.6 million has increased to $123 million (maximum in 2009), this is due to large growths of revenue, including merchandising revenues and web enterprises, which ownership is sharing with players as well.
The owners opted out of the CBA in 2008, leading to an uncapped season in 2010. During the season, most NFL teams spent as if there was a cap in place anyway, with the league warning against teams front-loading contracts during the season. The Dallas Cowboys, New Orleans Saints, Oakland Raiders, and Washington Redskins all ignored the warning, and in 2012 the Cowboys and Redskins (the top two NFL teams by revenue in 2011) were docked $10 million and $36 million respectively from their salary caps, to be spread over the next two seasons. This $46 million would subsequently be divided up among the remaining 26 NFL teams ($1.77 million each) as added cap space (this excludes the Raiders and Saints, the latter of which was also dealing with their ongoing bounty scandal, as both teams were over the cap, though to a lesser degree than the Cowboys and Redskins).
|Year||Maximum team salary|
|2014||$133 million |
Major League Soccer
Here are some major points of the MLS rules and regulations for the 2014 season.
- A team's roster can be made up of up to 30 players. They are eligible to be selected to the 18-player team for each game.
- The salary cap will be $3.1 million per team, not counting the extra salary of designated players. Players in the first 20 roster spots will count against the cap.
- The maximum salary for any one player is $387,500.
- A designated player counts $387,500 against a team's cap. However, if a player joins his team in the middle of the season, the charge against the budget will be $193.750.
- Players who are in the roster spots from 21-30 will not count against a team's cap. They will be known as off-budget players. Generation adidas players are off-budget players and not counted against the cap. Those in roster spots from 21–24 have a minimum salary of $48,500, and slots 25–30 have a minimum salary of $36,500. Additionally, those who earn the lowest possible league salary must be 24 or younger during the 2014 calendar year.
Since the 2012 season, the cap number for international designated players has depended on the players' ages. Since the 2013 season, players 20 or younger have counted $150,000 against the cap and those age 21 to 23 have counted $200,000, with older players remaining at the standard cap number ($368,750 for 2013 and $387,500 for 2014). For the purpose of determining a cap number, the player's age is determined solely by his year of birth.
National Basketball Association
- For a more detailed discussion, see the article NBA salary cap.
The NBA's most recent collective bargaining agreement was approved in December 2011, ending a five-month-long lockout of players from team facilities. The new CBA made no immediate change to the numeric value of the team salary cap from the previous CBA; however, the cap was prorated for the shortened 2011–12 season. In addition, as in the previous CBA (and also in the NFL), caps after the initial season are calculated as a percentage of league revenues. The cap for the 2010-11 season was $58.04 million.
Through 2010–11, the NBA's salary cap was a "soft" cap, meaning that teams were allowed to exceed the cap in order to retain the rights to a player who was already on the team. This provision was known as the "Larry Bird" exception, named after the former Boston Celtics great who was retained by that team until his retirement under the provisions of this rule. The purpose of this rule was to address fan unease over the frequent changing of teams by players under the free agency system, as fans became displeased over their favorite player on their favorite team suddenly bolting to another team. The "Larry Bird" provision of the salary cap gave the player's current team an advantage over other teams in free agent negotiations, thus increasing the chances that a player would stay with his current team.
The provision tended to result in most teams being over the cap at any given time. Teams that violated the cap rules faced fines of up to $5 million, cancellation of contracts and/or loss of draft picks, and are prohibited from signing free agents for more than the league minimum. The NBA also has a salary floor, but teams are not penalized as long as their total payroll exceeds the floor at the end of the season.
The NBA also had a luxury tax system which is triggered if the average team payroll exceeds a certain amount higher than the cap. In this case, the teams with payrolls exceeding a certain threshold had to pay a tax to the league which is divided amongst the teams with lower payrolls. However, this penalty was levied against teams in violation only if the league average also breached a separate threshold.
The NBA also implemented a maximum salary for individual players. This was done following a dramatic increase in player salaries, in spite of the salary cap, in the mid-1990s. Under the CBA, a player's maximum possible salary increased along with his time of service in the league. For a player of five years' experience, the maximum salary threshold began at 25% of the salary cap, with annual increases of up to 10.5% possible beyond that for players re-signed by their original team, or 8% annual increases for free agents that signed with new teams. For players of greater experience, the salary limit was higher - but the 10.5% limit on annual increases remained the same.
The 2011 CBA resulted in several major changes to the salary cap scheme.
First, the cap remains a soft cap. The Bird exception remains in place, but teams will have less financial room to retain a player with Bird rights than under the previous agreement.
The new CBA also reduced the maximum length of a contract by a year, and reduced allowable annual raises. Bird free agents are entitled to 5-year contracts with 7.5% raises; all other players (including sign-and-trade acquisitions) are limited to 4-year deals with 4.5% raises. Maximum salaries remain at 25, 30, or 35% of the cap, depending on years of service. A player coming off his rookie scale contract, who would normally be eligible to receive a salary of 25% of the cap, will be eligible to receive 30% if he is named MVP, makes an All-NBA Team twice, or is selected as a starter in two All-Star Games.
Substantial changes were made to the luxury tax regime. The dollar-for-dollar tax provisions of the previous CBA remain in effect through the 2012–13 season. Starting in 2013–14, the tax changes to an incremental system. Tax will be assessed at different levels based on the amount that a team is over the tax threshold, which remains at a level above the actual cap. The scheme is not cumulative—each level of tax applies only to amounts over that level's threshold. For example, a team that is $8 million over the tax threshold will pay $1.50 for each of its first $5 million over the tax threshold, and $1.75 per dollar for the remaining $3 million. In addition, "repeat offenders", subject to additional tax penalties, are defined as teams that paid tax in four of the five previous seasons. As in the previous CBA, the tax revenue is divided among teams with lower payrolls. However, under the new scheme, no more than 50% of the total tax revenue can go exclusively to teams that did not go over the cap; the use of the remaining 50% was not specified in the new agreement.
|Amount over tax threshold||Standard tax per excess dollar||Repeat offender tax per excess dollar|
|$5 million or less||$1.50||$2.50|
|$5 million to $10 million||$1.75||$2.75|
|$10 million to $15 million||$2.50||$3.50|
|$15 million to $25 million||$3.25||$4.25|
|Each additional $5 million||$3.25 + $0.50 per $5 million||$4.25 + $0.50 per $5 million|
Taxpaying teams have additional spending limits under the new agreement. They have a smaller "midlevel exception" (another cap provision that allows teams to go over the cap to sign at least one player per season), and can acquire less salary in a trade. Also, beginning in 2013–14, teams that exceed the cap by $4 million or more cannot receive a player in a sign-and-trade deal.
The midlevel exception itself also changed with the new CBA. The maximum duration of midlevel contracts was reduced from 5 years to 4 for non-taxpaying teams and 3 for taxpaying teams, and maximum allowable raises were also reduced. In addition, the midlevel exception was extended to teams under the salary cap for the first time; these teams received a 2-year exception.
Under the new CBA, teams are allowed to "amnesty" one player before the start of any season, as long as his current contract was signed during the 2005 CBA. The amnestied player is waived from the team; although the player's former team remains obligated to pay his salary under the old contract (with a credit for any salary paid by a future team), that salary is no longer counted for purposes of the cap or luxury tax calculations. This provision can be used only once per team during the duration of the CBA, which lasts for 10 years with either side able to opt out in 2017.
The salary floor, previously 75% of the cap, increased to 85% in 2011–12 and 2012–13, and 90% in future years.
In the NBA, the salary cap has not had the same effect of breaking up championship teams and movement of veteran players between teams that has occurred in the NFL. Repeat championship winners have been far more likely to occur in the NBA than in the NFL in the salary cap era. Also, the overall rate of salaries paid and the expense to operate a team rose more rapidly in the NBA than in the NFL. The average NBA salary in 2010–11 was $5.356 million, the highest of any major North American sports league. This is mitigated by the NBA roster size of 15 as opposed to 55 for NFL teams, 23 for NHL teams, and the varying 24-40 man rosters (24 or 25 after opening day, 24-40 beginning September 1) of Major League Baseball.
Major League Baseball (luxury tax)
- for reference please see List of Major League Baseball teams by payroll
Instead of a salary cap, Major League Baseball implements a luxury tax (also called a competitive balance tax), an arrangement in which teams whose total payroll exceeds a certain figure (determined annually) are taxed on the excess amount in order to discourage large market teams from having a substantially higher payroll than the rest of the league. The tax is paid to the league, which then puts the money into its industry-growth fund.
A team that goes over the luxury tax cap for the first time in a five-year period pays a penalty of 22.5% of the amount they were over the cap, second-time violators pay a 30% penalty, and teams that exceed the limit three or more times pay a 50% penalty from 2013 onwards. There is also an incentive to lower payroll; if in any year a team goes under the threshold, the penalty rate decreases to 17.5%, 25% or 40% (depending on prior record over the previous five years) for the next time the tax is paid, which will apply from 2013.
The cap limit for 2011-2013 is $178 million, and for 2014-2016 $189 million.
The following teams have been subject to luxury tax as of 2013:
|Luxury tax threshold||117||120.5||128||136.5||148||155||162||170||178||178||178|
The New York Yankees have paid 88.66% of all luxury tax collected by MLB.
Money collected under the MLB luxury tax are apportioned as follows:
- The first $5m is held in reserve, to pay for possible luxury tax refunds. Once it is clear that there are no refunds to be issued, this $5m is then earmarked for the Industry Growth Fund (IGF).
- 50% of the remaining money is used to fund player benefits, 25% is used to fund baseball programs in developing countries with no high-school baseball, and 25% is put into the Industry Growth Fund (IGF).
Measuring the success of the luxury tax in bringing the benefits of parity has brought mixed results.
A team with a $100 million plus payroll has won the World Series seven times (the 2009 Yankees, the 2004, 2007 and 2013 Red Sox, the 2011 St. Louis Cardinals, and the 2010 and 2012 San Francisco Giants); however, while $100 million plus payrolls have only existed since 2001, the last team to win the World Series with a payroll less than $100 million was the 2008 Philadelphia Phillies (payroll $98.26 million). However, this can be explained by the fact that the majority of elite players require high salaries when they hit free agency (unless team extends them beforehand)and teams with those players generally are going to perform better.
While a top tier payroll increases a team's chances of making the playoffs, it does not guarantee they will consistently win championships. On the other hand, the New York Yankees have consistently had the highest total payroll in MLB, and they have appeared in 40 of the 109 World Series for 27 wins as of 2013 (36.7% of all World Series for a 24.8% success rate).
In the past 30 years, 19 different teams have won the World Series. In comparison, only 14 different teams won the NFL Super Bowl, 13 won the NHL Stanley Cup and 8 won the NBA championship in that same time frame.
Other pundits, such as Michael Lewis, the author of the bestseller Moneyball, have argued that using World Series championships as an example of parity may be misleading, and playoff appearances may be a better indicator of relative team strength. The playoff system used in baseball comprises a small number of games compared to success over a long season, and has been described as a "crapshoot" by Oakland A's General Manager Billy Beane (the central figure of Moneyball). In fact, teams with consistently high payrolls, including the New York Yankees and Boston Red Sox, have secured high numbers of playoff berths (the two teams have combined to win the AL East 17 out of 20 seasons from 1994-2013). In contrast, teams with low payrolls are far less likely to make the playoffs—for example, the Pittsburgh Pirates went 20 years without a winning season before making the 2013 playoffs.
A number of the small market teams, notably the Milwaukee Brewers, have called for the introduction of a salary cap, but any introduction is opposed by the MLB players' union and the Yankees' ownership group; the latter have threatened legal action if such a cap is implemented.
Although some saw the success of NHL owners in their 2004–05 lockout as an opportunity for MLB to reform its collective bargaining agreement, baseball owners agreed to a new five-year deal in October 2006 that did not include a salary cap. Unlike the other three major North American sports, MLB also has no team salary floor: the only minimum limits for team payrolls are based on the minimum salaries for individual players of various levels of experience that are written into MLB's collective bargaining agreement.
Canadian Football League
On June 13, 2006, a proposed salary management system featuring a Maximum Salary Expenditure Cap (SEC) was ratified at the Canadian Football League board of governors meeting in Winnipeg, Manitoba.  The CFL began enforcing strict salary cap regulation for the 2007 season, which was set at $4.05 million with a salary floor of $3,746,250 (92.5% of the cap); the cap will be set at $4.45 million for the 2013 season, with a salary floor of $4.11625 million. 
Penalties for teams found to have breached the salary cap or salary floor regulations are :
|Amount involved in breach||Penalty for each $1||Draft picks forfeited|
|$100,000 to $300,000||$2||First Round|
|More than $300,000||$3||First and Second Round|
The following breaches of the salary cap have occurred (no team has yet been penalized for violating salary floor regulations):
- In 2007, the Montreal Alouettes were fined $116,570 and forfeited a first-round draft pick after a CFL investigation found that they had exceeded the salary cap by $108,285 during the season.
- The Saskatchewan Roughriders were also fined in 2007 ($76,552) for a string of minor breaches in relation to benefit payments to injured players.
- In 2008, the Saskatchewan Roughriders were fined $87,147 for exceeding the salary cap by that amount.
- In 2009, the Winnipeg Blue Bombers were fined $44,687 for minor breaches in relation to player bonuses.
- In 2010, the Saskatchewan Roughriders were fined $26,677 for exceeding the salary cap by that amount.
Other North American leagues
Salary caps are common in other leagues.
The salary cap of the first Arena Football League was $1.82 million per team in its final season in 2008. In 2005, the Tampa Bay Storm were fined $125,000 for salary cap violations and their head coach Tim Marcum was suspended for four games (last two of the 2005 season and first two of the 2006 season) and fined $25,250; Marcum was suspended for a fifth game the next day for criticizing the decision at a press conference.
When the Arena Football League returned in 2010, it instituted a standard salary of $400 per game and a salary cap of $1.5 million, considerably lower than that paid by teams in the previous AFL; given that the new AFL had a 16-game season in 2010, this effectively means that its players are semi-professional.
The National Women's Soccer League, launched in 2013, was initially planned to have a team cap of $500,000, but that was later lowered to $200,000. However, the sport's three North American national federations—the United States Soccer Federation, which runs the league; the Canadian Soccer Association; and the Mexican Football Federation—committed to paying the league salaries of many national team players. For the league's first season, 23 US players, plus 16 players each from Canada and Mexico, had their salaries paid by their respective federations; these players' salaries do not count against the team cap. In a player allocation held before the inaugural season, each of the eight charter teams received two Canadian and two Mexican internationals; seven of the eight teams received three US internationals and the Western New York Flash received two.
Salary caps in Europe
Salary caps are rarely used in Europe. However, several European rugby competitions, as well as ice hockey leagues have successfully instituted salary caps. Rugby league's Super League, mainly in England with a team also in France (and formerly one in Wales), is capped. Historically, Super League had used promotion and relegation, but changed in 2009 to a licensing system with some similarities to the North American franchising model. In rugby union, two of the continent's three main domestic/regional leagues—the English Premiership and the French Top 14—instituted caps despite both being at the top of extensive pyramid structures with promotion and relegation throughout. The most notable European ice hockey league with a salary cap is the Kontinental Hockey League (which uses the franchising model), and that league implemented a cap despite currency issues.
The Premiership's salary cap has been in place since the late 1990s. By 2007–08, the cap reached £2.2 million. In the following season, it nearly doubled to £4 million, and remained at that amount through the 2011–12 season. A provision applicable only in seasons that run up against the quadrennial Rugby World Cup, such as 2011–12, gives teams a £30,000 credit for each player in the squad participating in the competition, helping them to manage their reduced squads in the season's early weeks. In addition, each club has a salary cap of £200,000 for its academy players, and is allowed to provide an unlimited educational fund to allow its players to pursue university or vocational training. Finally, each club has a separate cap of £400,000 for use in signing replacements for players lost to long-term injuries (12 weeks or more).
Through 2011–12, the cap remained at £4 million. However, academy credits were introduced that season. Teams now receive a £30,000 credit for each home-grown player in their senior squads who is under age 24 at the start of the season and earns more than £30,000, with a maximum of eight such credits. This increased the effective cap to a maximum of £4.24 million (not counting World Cup roster credits).
Two substantial changes took effect for 2012–13. First, the cap increased to £4.26 million before academy credits and up to £4.5 million with credits. The most significant change is that each team is now allowed to sign one player whose salary does not count against the cap, similar to the Designated Player Rule in MLS. The player so designated must meet one of the following three criteria:
- Played at least two full seasons with his current club before his designation.
- Played outside the Premiership in the season before his designation.
- Included in the official squad of any participant in the 2011 Rugby World Cup final tournament.
French Top 14
In December 2009, Ligue Nationale de Rugby (LNR), operator of the Top 14, announced it would impose a cap of €8 million, effective with the 2010–11 season. Previously, the only restrictions on team salaries were that wage bills were limited to 50% of turnover and that 10% of the salary budget had to be held in reserve. Along with the announcement of the cap, LNR also declared that the reserve requirement would be raised to 20%, with the previous limitation of 50% of turnover remaining in effect.
The new cap was slightly higher than the highest official wage bill in the 2009–10 season. Also, due to the complex nature of French club administration, clubs were seen as likely to find creative ways to skirt the cap. This was publicly admitted in 2014 by Mourad Boudjellal, owner of current Top 14 power Toulon. Boudjellal found a loophole that allowed him to set up a separate company to supplement the salary of star Jonny Wilkinson by a six-figure amount while staying under the cap.
The Top 14 salary cap was set at €9.5 million for 2012–13. For 2013–14, the cap was increased to €10 million, and in addition youth players are excluded from the cap unless their salaries are more than €50,000. The €10 million total cap will remain in place for three seasons (through 2015–16), but the threshold for exclusion of youth players may be adjusted before any of those seasons. Additionally, each club that has a member of the France national team on its roster is allowed to exceed the cap by €100,000 per national team member.
Welsh rugby union
On 20 December 2011, the four Welsh regional sides that participate in the Pro12 competition announced that they would impose a salary cap of £3.5 million, effective with the 2012–13 season. The cap covers only the registered squad for European competitions—at the time of announcement, the Heineken Cup and European Challenge Cup, and from 2014–15 the European Rugby Champions Cup and European Rugby Challenge Cup. It does not cover players in the regions' academies.
This cap was unilaterally instituted only on the Welsh teams. The Pro12 league is uncapped, and none of the other three countries involved in the Pro12 (Ireland, Italy, and Scotland) are known to have formally instituted such a system.
Kontinental Hockey League
When the Russian Superleague was dissolved to make way to the modern-day KHL, the Kontinental Hockey League Players' Trade Union (KHLPTU) agreed to the implementation of a salary cap. When first implemented there was a salary cap, as well as a salary floor. For the 2009-10 KHL season, the salary cap was 620 million rubles ($US18.3 million) and the salary floor was 200 million rubles ($US5.9 million).
The KHL's cap operates despite the KHL's multinational nature, with teams in Belarus, Kazakhstan, Latvia, Slovakia, the Czech Republic, Ukraine and Croatia, in addition to its primary base of Russia. The seven non-Russian countries use six different currencies, with most floating against the ruble.
From 2011-12, each team can sign up to two "designated players" whose salaries are not counted against the cap. Up until 2011, the KHL salary cap was a soft cap, with a luxury tax amounting to 30% of the payroll that is over the cap paid to the special stabilization account, which helps KHL teams facing financial hardship. From the 2012-13 KHL season onward, the KHL uses a hard cap, set at 1.25 billion rubles ($US36.5 million).
Salary caps in European football
Several European association football leagues have considered introducing salary caps in the early 21st century. In 2002, BBC reported  that the G14 group of 18 leading European football teams would cap their payrolls at 70% of team's income, starting from the 2005/2006 season, however this did not occur. Serie A, the leading Italian football league and The Football League in England have also considered salary caps.
These measures would be implemented to ensure clubs spend responsibly rather than as a tool to create parity. Top executives in European football have acknowledged that a number of challenges not present in North America would confront anyone who tried to implement an effective cap across European football or even across a single league with a view to creating competitive balance:
- The various national leagues are in competition with each other for the best players because there is free movement of players between the leagues. Football leagues in European Union countries have been forbidden from prohibiting the signing of EU players from other nations, or even from limiting their numbers. Therefore, if one league imposed a strict cap on its teams, the best players from the country in question would still be free to move to uncapped rival leagues.
- The existence of lucrative and prestigious international club competitions encourage clubs to ensure dominance of their national leagues in order to play in the higher-level European leagues. For many top clubs, the domestic league is little more than a stepping stone to the European league. Success in European club competitions is not only a matter of national pride, as the number of places allocated to each country for these competitions is determined by that country's teams' past performances in Europe. Salary capped clubs in a franchise structure do not have to compete with teams in rival leagues where there is no salary cap.
- Different governing bodies have authority over domestic and international competitions. For example, UEFA governs European football and organizes the prestigious Champions League and Europa League, but its authority over the domestic leagues is very limited. Although UEFA could, in theory, impose a salary cap, it would only apply to UEFA's club competitions and to the portion of each team's payroll paid to players registered with UEFA. A wealthy Champions League team could then sign players who would play exclusively in domestic competitions. In other sports that have a single governing body which oversees a single premier competition, the power to enforce salary cap rules is much greater.
- The pyramid structure of European leagues means the number of small clubs in the various lower divisions can run into the thousands. The promotion and relegation system which allows transfers between these divisions presents challenges to a cap system. A club that is relegated to a lower league after a poor season may find themselves significantly over the lower division cap. Similarly, a promoted club might have to face the challenge of hastily finding players who it could then pay under a higher cap. A salary cap exacerbates the problem of players switching clubs along with the clubs' movement between tiers.
- European tax systems and rates vary greatly from country to country. One prominent club, AS Monaco, plays in Monaco, a principality with no income tax at all. A flat payroll limit would therefore equate to aggregate take home pay that varied greatly from one club to the next, which would make it difficult for teams in countries with higher taxation to attract the best players. By comparison, the differences between the tax systems and tax rates of Canada, the US and between their respective provinces and states are not nearly as great.
- Europeans use multiple currencies and football wages are usually paid in the local currency. Although the countries hosting all but one of the most prominent European leagues now use the Euro, the one exception, England, has the richest league. Even if a hypothetical UEFA-wide cap were denominated in Euros, fluctuating exchange rates would make it difficult for the cap to be fairly administered in the United Kingdom since its salaries are paid in pounds sterling. By comparison, most player salaries paid to players on Canadian major sports teams are paid in U.S. dollars; in fact this is now mandated in the NHL to ensure that payrolls do not fluctuate with exchange rates. On the other hand, trying to force British clubs to pay wages in Euros so that their payrolls could not exceed a cap would meet with opposition from clubs since their revenues are collected in pounds, and might even provoke political opposition from Britons determined to prevent the Euro from replacing the pound.
Salary caps in Australia and New Zealand
Australian rules football
The Australian Football League has implemented a salary cap on its clubs since 1987, when Brisbane and West Coast were admitted, as part of its equalization policy designed to neutralize the ability of the richest and most successful clubs, Carlton, Collingwood and Essendon, to perennially dominate the competition.
The cap was set at A$1.25 million for 1987–1989 as per VFL agreement, with the salary floor set at 90% of the cap or $1.125 million; the salary floor was increased to 92.5% of the cap in 2001, and to 95% of the cap for 2013 onwards due to increased revenues. The salary cap, known officially as Total Player Payments, is A$9,630,000 for the 2014 season with a salary floor of $9,148,500 except for the Gold Coast, whose salary cap will be A$9,880,000 with a salary floor of $9,398,500, and Greater Western Sydney, whose salary cap is $10,344,000 with a floor of $9,862,500.
Both the salary cap and salary floor has increased substantially since the competition was re-branded as the AFL in 1990 to assist in stemming the dominance of other high membership clubs, such as Adelaide, Hawthorn and the West Coast Eagles.
Certain payments are excluded from the cap, and concessions are available for some players, in particular "veteran" players (those over the age of 30 and/or who have completed 10 seasons with their current club) and "nominated" rookie list players, who are discounted by 30% or 50% for purposes of the cap, depending on the number of these players at each club.
The AFL Players Association negotiates for players with the AFL on the topic of average salary.
The breaches of the salary cap and salary floor regulations are exceeding the TPP, falling below the salary floor, not informing the AFL of payments, late or incorrect lodgement or loss of documents relating to player financial and contract details, or engaging in draft tampering. Trading cash for players and playing coaches, formerly common practices, are also prohibited to prevent wealthier clubs from circumventing the restrictions of the salary cap and salary floor.
Penalties for players, club officials or agents include fines of up to one and one half times the amount involved and/or suspension. Penalties for clubs include fines of up to triple the amount involved, forfeiture of draft picks and/or deduction of premiership points. As of 2013, no club has been penalised for breaches of the salary floor regulations, and no punishment has included the deduction of premiership points.
Success of the cap
The VFL/AFL's salary cap has been quite successful in terms of parity: since the cap was introduced in 1987, 16 of the 18 teams have played in a Preliminary Final, 14 teams have played in a Grand Final, and eleven teams have won the premiership. The three richest and most successful clubs, Carlton, Collingwood and Essendon, who won 42 of the premierships between  1897 and 1987, have only won five of the premierships since.
Criticism of the cap
The AFL salary cap is occasionally controversial, as it is a soft salary cap and can sometimes be slightly different for each club. Clubs in poor financial circumstances have not always used their full cap, in some circumstances not even reaching the salary floor. The cap is only for the Total Player Payments of each club and not the club's football department. This has caused concern in recent years; for instance, three of the four top-spending clubs in played in the Preliminary Finals in 2012, and the last team to win the premiership outside the top eight spending teams was North Melbourne in 1999. There have been calls for a separate cap for the football department, or to reform the salary cap to include football department spending, but this has been opposed by the wealthier clubs. The AFL has also used the cap to pursue its policy of supporting clubs in non-traditional markets such as Sydney and Brisbane.
State and regional leagues
Apart from the AFL, several regional leagues also have salary caps which although widening between them and the AFL and overall less than national competitions, are substantial enough to dictate the movement of semi-professional and professional players between states and the overall playing quality and spectator attendance of the state leagues.
The National Rugby League adopted a hard salary cap model in its first season in 1998. The NRL's stated purposes for having a salary cap are "to assist in spreading the playing talent" and "ensure that clubs are not put into positions where they are forced to spend more money than they can afford in terms of player payments, just to be competitive."  Before the 2012 season, the NRL's then Chief executive David Gallop said "The cap's there to make sure that pure purchasing power cannot dominate the sport... It means we can genuinely say that all 16 teams ... have a chance. For the fan every week, every game is a contest. That's at the core of why rugby league is so successful."
The breaches of the salary cap and salary floor regulations outlined by the NRL are exceeding the salary cap, falling below the salary floor, not informing the NRL of payments, late or incorrect lodgement or loss of documents relating to player financial and contract details or engaging in contract tampering. Trading cash for players is also prohibited to prevent wealthier clubs from evading the salary cap and salary floor regulations.
Penalties for players, club officials and agents include fines of the lesser of 10% of the amount involved or $100,000 and/or suspension. Penalties for clubs include fines of the lesser of half the amount involved or $500,000 ($2,500 for each document that is late or incorrectly lodged or lost) and/or deduction of premiership points.
The NRL is one of the few major leagues to implement a salary cap in a sport that has competing leagues in other countries where there is either no salary cap or a much higher cap per club. As a result, there has developed a tradition of players from Australia moving to Europe where salaries for the elite, and even for average players, were considerably higher. The NRL chooses to continue with the cap, believing that any reduction in quality of the sporting product due to the loss of these players is less than allowing richer clubs to dominate. In practice, the goal of parity has been quite successful, with nine different clubs winning the premiership in the 14 seasons between 1998 and 2013.
Australia: Super Rugby
The five Australian teams playing in rugby union's Super Rugby competition face a salary cap. The Australian Rugby Union decided in 2011 to introduce the salary cap because of financial pressures. The 2012 salary cap of A$4.1 million was raised to $4.5 million for 2013 and 2014 to take pressure off the teams' ability to recruit and retain players. The salary cap is a key component of the negotiation between the ARU and the Rugby Union Players Association over the collective bargaining agreement. The fact that the Australian teams in Super Rugby face a salary cap has been attributed as a factor that makes it more difficult for Australian teams to win the title.
The cap regulations have some small concessions:
- Five players on each team may be paid $30,000 each per season by team sponsors; this amount is not included in the team cap.
- The maximum cap charge for a non-Australian player is $137,000, regardless of his actual wages.
New Zealand: ITM Cup
The 14 teams participating in New Zealand's ITM Cup currently face a salary cap that is the lesser of $NZ 1.35 million or 36% of the union's commercial revenue. Maximum player salaries are $55,000, and minimum salaries are $18,000. In August 2013, it was announced that the cap would be further reduced, with the team cap for the 2015 season set to $1.025 million.
New Zealand first implemented the salary cap in the 2006 season. The purpose of the salary cap was to ensure an even spread of players to produce competitive matches and higher television audiences for the new, fully professional competition.
The salary cap had been as high as $2 million in 2008. However, the competition had generated losses of approximately $9.6m in 2007, and salary payments had increased by 75% in the previous four years. Some teams were reported to be in dire financial position, with four teams having payrolls of $1.75 million or more. The salary cap was cut in "one of the most dramatic changes to domestic rugby since the game went professional" in that the salary cap reductions would convert the ITM Cup into a semi-professional competition, with players needing to find other part-time jobs.
Association football (soccer)
The A-League national association football (soccer) competition has set a salary cap of A$2.48 million (excluding Marquee, guest and replacement players) for the 2012/2013 season, with a salary floor of $2.294 million. Each team can sign one "marquee player" and one "guest player", whose salaries are excluded from the team's salary cap. The A-League has also introduced a "junior marquee" for eligible under 23 year old players with the aim of keeping young talented players in Australia (or New Zealand for the Wellington Phoenix) for a longer period, similar to the Designated Player Rule in Major League Soccer in North America.
The breaches of the salary cap and salary floor regulations outlined by the A-League are exceeding the salary cap, falling below the salary floor, not informing the A-League of payments, late or incorrect lodgement or loss of documents relating to player financial and contract details or engaging in contract tampering. Penalties for players, club officials or agents include fines of up to one and one half times the amount involved and/or suspension. Penalties for clubs include fines of up to triple the amount involved ($7,500 for each document that is late or incorrectly lodged or lost) and/or deduction of competition points. In the 2006-07 season, Sydney FC were fined $174,000 and deducted three competition points after it was found that they had exceeded the salary cap by $110,000 and failed to declare third-party payments during the 2005–06 season in which they were premiers.
National Basketball League
The National Basketball League has a salary cap of A$1 million for each of its eight teams, for the 2012–13 season. In addition, since 2003-04, the NBL has used a "points cap" to encourage spread of talent: players are assigned points on a 1-10 basis each season "based on their performance in the NBL or based on the league they have participated in for the season just concluded", and each team's player roster (of between 10 and 12 players) must fall within a "Total Team Points" limit.
Netball (ANZ Championship)
In netball's ANZ Championship, each of the 10 franchises are each restricted to a NZ$300,000 salary cap from which player salaries are paid. Salary amounts vary among players, but each player receives a retainer of at least NZ$12,000 per season; high-profile players are expected to earn up to NZ$50,000.
Salary caps in rugby union
Salary caps and currency conversions accurate as of 2014.
(adjusted to euros)
(in local currency)
|Cap Introduced||Exclusions from cap|
|France||Top 14||10.0m||10.0m[a 1]||2010-2011||Youth players earning no more than €50,000|
|England||Premiership||6.2m||5.0m[a 2]||1999-2000||One player per club|
|Wales||Pro12[a 3]||4.4m||3.5m||2012-2013||Academy players|
|Australia||Super Rugby[a 4]||3.1m||4.5m||2011||None (but see Super Rugby section)|
|New Zealand||ITM Cup||0.9m||1.4m||2006||None|
- Does not include €100,000 "bonus" per France national team member on the roster.
- Maximum possible cap after academy credits. Base value of cap in local currency, before credits, is 4.76m. Does not include separate caps for academy players and injury replacements.
- The other countries in the Pro12 – Ireland, Scotland, and Italy – do not impose a salary cap.
- The other countries in Super Rugby are New Zealand and South Africa. New Zealand imposes a cap on individual player salaries, but does not impose a separate team cap. South Africa imposes no cap of either type.
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- This figure includes the drawn and replayed 1948 and 1977 Grand Finals, and Carlton's premiership in 1987, which was the first year of the cap, while in 1897 and 1924 Essendon won both the round-robin outright, meaning that no Grand Final was required. The clubs appeared in 76 of 91 Grand Finals (83.5%) for a 46.2% premiership success rate.
- This figure includes the drawn and replayed 2010 Grand Final, and the clubs appeared in 10 of 27 Grand Finals (37%) for an 18.5% premiership success rate.
- Sydney Morning Herald, Thursday March 1, 2012, page 1
- This excludes the 2007 and 2009 premierships, which the Melbourne Storm were stripped of due to gross long-term salary cap breaches.
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