How Salary Caps Changed Sports

Salary caps are a hot topic in sports, debated by the most casual of sports fans as well as in the highest tiers of professional clubs. The concept of enforcing a limit to how much a team can spend on athletes' salaries has been around at least since the Great Depression.

For most professional sports, teams must adhere to a predetermined amount of money to find and sign their players. This is determined by a somewhat complicated mathematical equation involving adding up how much money the league made in the previous year in ticket sales, merchandise sales, and television contracts, and then dividing that figure by how many teams there are in a particular sport.

Major league baseball is the only sport played in the U.S. that does not have a salary cap. In the U.S., football, basketball, and hockey national sports leagues all have them.

Key Takeaways

  • Salary caps in professional sports are supposed to be an equalizer among teams.
  • Not all athletes and coaches believe in salary caps and over the years there have been issues and even strikes around them. 
  • Major League Baseball is the only American major sports league that does not have salary caps.

Highway Robbery, Minus the Highway

Anyone who's ever attended a professional sports game has probably felt like they paid a lot for their ticket. After all, you're only renting a space that's half the size you would take up if you were at home, and most people are getting a view that is worse than watching it on their own HDTV.

But everyone knows it's not about the seats; it's about the experience. So we pay.

But are the prices more expensive when there are no salary caps? Some research into the topic shows that ticket sales and merchandise sales aren't directly affected by salary caps.

Both tickets and merchandise are mainly determined by something much more basic—profits. According to a study by the University of Antwerp in Belgium, teams estimate the profits they want to make off of ticket sales, factoring in the demand for their team, and then set their prices based on those figures. Research also has shown that the more a team wins, the more ticket sales go up.

Think of it this way: when a team has a stadium, workers, and players on their payroll, those costs are part of the total expenses, regardless if one or 30,000 fans show up to watch a game.

Salary caps, high or low, do not have a trickledown effect to cheaper ticket prices.

What the Salary Caps Do Influence

Although salary caps don't directly influence merchandise and ticket prices, they do affect how teams acquire and retain athletes. The salary caps give teams in need of talent the opportunity to entice players away from better teams because all teams (theoretically) have the same amount of money to work with.

Instead of having some teams with deep pockets and some teams with little to spend on talent, all teams should have the same buying power and ability to build a strong franchise. That's the theory.

Obviously, capping the amount a team can spend on players affects how much athletes can earn in any given year. This can cause top-performing athletes to protest cap restrictions, with serious implications like player strikes.

Salary caps also affect how players get paid. When a multi-million dollar contract is awarded to a player, the salary isn't usually divided up evenly each year. A player may get less than a million dollars one year, more than a million the next, and then get the remaining millions he is owed during his third and fourth seasons.

This budgeting gives the team more room to get out of a contract and to be plan out how the team budget meshes with the actually salary-cap figures. Since this isn't the best set-up for players, teams may offer high-figure signing bonuses to key players, which may or may not be included in the overall salary cap structure.

Frequently Asked Questions

When Were Salary Caps Introduced in Pro Sports?

Salary caps are a relatively new development in pro sports. Basketball was the first to introduce them, for the 1984-1985 season. Football waited until 1994. They were successfully fought off in baseball, culminating in a 1994-1995 strike, and in hockey, with a lockout in the same year. Pro hockey finally adopted a salary cap system for rookies.

Why Do Team Owners Want Salary Caps?

Salary caps are a quid pro quo for the free agency system, according to Paul D. Staudohar, a professor of business administration at California State University. Players, once they achieve free agent status, can sell their services to the highest bidder. But salary caps place a limit on the amount each team can offer.

Can Teams Work Around the Salary Caps?

Sure! One favored tactic is the fat signing bonus. A multi-year contract is structured to include a massive upfront payment to protect the overall pot of money in future years.

The Bottom Line

As the salary cap debate continues, it's good to remember that the professional sports industry is big business with tons of financial factors that influence how salaries are paid, how high ticket prices are set, and how salary caps are established.

But at the end of the day, profits are what drive ticket prices because, in sports as in any business, it comes down to supply and demand.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Pro Football Network. "How Does the NFL Salary Cap Work in 2021?"

  2. The University of Kansas. "What Is a Salary Cap in Sports?"

  3. University of Antwerp. "Club Objectives and Ticket Pricing in Professional Team Sports," Page 549.

  4. U.S. Bureau of Labor Statistics. "Salary Caps in Professional Team Sports."

  5. U.S. Bureau of Labor Statistics. "Salary Caps in Professional Team Sports.

  6. The Bleacher Report. "The Art of Navigating the NFL Salary Cap."

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