Due to a 92% drop in attendance during the COVID-19 pandemic, the National Football League (NFL) salary cap will be 8% lower this season, going from $ 198.2 million in 2020 to $ 182.5 million. USD will rise in 2021. The NFL has had a salary cap since 1994. The cap regulates the amount teams can spend on players in a given year. That amount usually changes every year, and in fact, the caps had increased every year since 2011 when the cap was $ 120 million. The final figure for 2021 was the result of negotiations between the owners and the players union based on projected earnings and other factors.
The NFL salary cap was reached by the league, which allowed unrestricted free action from the 1993 season. Prior to 1993 there was very limited free agency in the NFL as the teams could protect up to 37 players on their rosters. This system was challenged in court by a group of gamblers, and in 1992 a federal jury ruled that it violated antitrust laws. Following this decision, the owners and the players’ association resumed negotiations, which resulted in unrestricted freedom of action in exchange for the introduction of a salary cap to protect the competitive balance for smaller market teams.
The presence of a salary cap has improved the playing field in sport so that teams in smaller markets like Green Bay or Kansas City can spend as much as teams in large markets like New York City and Los Angeles. Indeed, this has helped small market teams achieve tremendous success in the field, such as Green Bay winning the Super Bowl twice since the cap went into effect and Kansas City winning it in 2019.
Unlike some leagues that have a “soft” cap and associated luxury tax payments for teams that go beyond that, the NFL uses a “hard” cap that teams must stay below at all times. There are also wage floor provisions that discourage teams from saving money by spending below the ceiling, as any deficiencies are pooled and distributed among the players on that team’s list during a four-year floor cycle, where The payments to the players are proportionately proportionate to the time on the roster during the period in question. While teams are not allowed to exceed the cap, they can be creative in structuring player contracts to stay within the cap. For example, they can reload contracts so that a player is promised more money in the later contract years. The benefit of this is that the teams retain the option to release the player or renegotiate the contract to avoid hitting a high salary cap in the later years. Often times, to convince players to sign reloaded deals, teams pay a signing bonus, which is guaranteed money that the player receives regardless of whether or not they are eventually released. However, the teams can distribute the signing bonus money for cap purposes over several years. In this way, if a Star Free Agent receives a substantial signing bonus, the team’s salary cap is not lowered for the year in question, which gives the team the flexibility to keep the desired players in the roster or to sign new players. Another mechanism teams are using to save space on salary caps is what Tampa Bay just did in renegotiating Tom Brady’s contract by signing a four-year extension that is invalid for one year. The invalid years will count towards cap in years to come, but the team has saved $ 19 million in cap through 2021, which fits in with their win-now strategy given Brady’s likely resignation after a further seasons or two.
In leagues like Major League Baseball, which have no salary cap, there is much greater variation in spending between small and large market teams. While this is not always a determining factor in team performance, it is more difficult for small market teams to be successful over long periods of time because once they reach the free hand, they can no longer afford star players. The presence of a salary cap in the NFL generally allows teams to keep their franchise players, which helps with branding and maintaining a team identity in the eyes of fans. Indeed, part of the business that led to the salary cap was the advent of a “franchise tag,” which allowed teams to make a year-long offer to a player who would otherwise be a free agent, the offer being the average of the top five salaries in the player’s position for the current year or 120 percent of their previous salary, whichever is greater. If this tender is made, the player will not be able to negotiate with another team for that particular year.
The league’s steadily growing income from television rights and the high number of visitors before COVID are proof of the success of this model. The decline in the NFL salary cap appears to be temporary as attendance numbers are expected to rise again in 2021 and the NFL negotiates new television law deals this year. Currently, however, it is expected that the lower salary cap will result in more players entering the free hand as teams work to hit the reduced cap and fewer high dollar deals going on as teams do less for free agents need to spend.
© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume XI, Number 87