MIMS: The NFL Salary Cap
History
The National Football League first gripped the nation in 1958 when the Baltimore Colts took on the hometown New York Giants in the championship game. The first sudden-death overtime game in the young league’s history brought in almost fifty-million national viewers and began the rapid ascension of football past horse racing, basketball, and eventually baseball, to become the most watched sport in the United States.
In the coming decade, the National Football League would make peace with and absorb its only rival league (the American Football League), transform them into a rival conference (now the AFC), and create one annual championship game between the best team from each: The Super Bowl.
While the decision to absorb the AFL may have been based more in financial self-defense than a desire to create the country’s greatest rivalry game, they managed to check both boxes. After the Green Bay Packers won the first two official Super Bowls by a combined total of 68-24, the NFC quickly received a gut-check from the New York Jets. In Super Bowl III, Broadway Joe Namath and the Jets won the AFC’s first ever Super Bowl despite being 18 point underdogs before kickoff.
The rivalry created by Namath and the Jets has carried on until today, with the NFC ahead in the all-time series by one game (29-28).
The Need for a Salary Cap
The NFL maintained its relative parity of teams and conferences until the mid 1980s when players began demanding higher pay. This increase in pay left the NFL vulnerable to rich owners paying for talent and winning against teams whose owners only cared about winning enough to line their own pockets from ticket sales.
The decision to add the salary cap was also created in order to keep a single team from reinvesting the money generated by their winnings to create a monopoly. While in premise it seems fair for a team to keep and spend their own revenue as they see fit, the result quickly becomes an impenetrable dynasty team that makes the league less exciting. For example, the Yankees won half of all World Series titles from 1923-1962 – an era which was soon followed, by no coincidence, with the NFL soaring past the MLB in national viewership.
While it didn’t come close to the Yankees’s startlingly unchecked purchase of success in baseball, the 1980s brought the NFL’s first major imbalance in team talent. From 1982-1997, the NFC took home all but one Super Bowl title. Of those fifteen Lombardi trophies, thirteen were won by the Giants, Cowboys, 49ers, and the Commanders (then Redskins).
Naturally it wasn’t the owners that stepped up to address the lack of equality of talent across the league, but the players who were being forced to play for terrible teams and make less money doing it.
In 1994, the NFL implemented the salary cap and unrestricted free agency. This both gave players an unprecedented ability to control the course of their career and forced owners to participate in revenue sharing with the league and other owners to ensure equality.
The Effect of the Salary Cap
As important as it was for the NFL to cap the amount of money a team can spend on their roster, it was just as important to enforce a minimum. While the exact minimum percentage and timespan the money must be spent over fluctuates, the current Collective Bargaining Agreement has determined this number to be 90%.
The 90% minimum is not enforced by year, but in 3-4 year spans that are determined in advance by the publicly available CBA. This allows owners and front offices to strategically save up money while ensuring that the money eventually does find its way to the players.
Since the introduction of the salary cap neither conference has won more than four consecutive Super Bowls. Tom Brady winning nearly a fourth of all Super Bowls since 1994 makes it more difficult to display the change created by the cap, but for more info on how Brady and the Patriots used the cap to their advantage, click here.
The NFL expanded from twenty-eight to thirty-two teams between 1995 and 2002, and with the salary cap, these teams were able to be on an even playing field with their opponents within a couple years of their creation.
Despite having thirty-two teams, this version of the NFL’s salary structure has allowed every team in the league except the Jets to appear in at least one playoff game in the past decade.
The salary cap has also given power to the players in their ability to negotiate contracts, knowing their market value based on position and performance. It is now far more difficult for owners to underpay players and abuse rookie contracts.
How it Works
The current cap figure that no team can exceed is $224,800,000.
Each team’s total active salaries cannot exceed this number by the annual league deadline, the start of the league year, which typically falls in the middle of March.
This creates an element of strategy for owners and front offices in determining how to pay their players. If a player and owner agree that a player’s value is $40 million over four years, it isn’t as simple as signing a contract to pay the player $10 every year. They must determine how much is guaranteed, exactly how much will be paid in each year, and agree on a signing bonus.
As common as it is to see absurdly rich contracts signed by franchise players, it’s quite rare that the player is paid the full amount shown in the headlines. Since the players are agreeing to terms before they play the games they’re being paid for, it makes sense to incentivise performance instead of just handing over a large bag of money (unless you are the Cleveland Browns). The terms are further established to determine what happens if the player is cut, based on why and when they may be cut (injury, performance, issues with a team’s cap space).
Either the player stays with the team for the extent of the contract and is paid in full, renegotiates their contract to account for an improvement or decline in performance/injury availability, or is cut/traded away from the team.
In the case of the latter, the money guaranteed to that player (if their agent did a good job) still needs to be paid. This creates “dead money,” which is used to refer to any money a team is spending on a player who is no longer on the team. This can also be caused by an unexpected player retirement.
For all of these reasons, the competence of a team’s front office is almost as important as their ability to scout player talent.
When contracts are signed, they are most often accompanied by signing bonuses for the player. In essence, the bonus allows front offices to push money into the future, stacking the current team with more talent than otherwise possible.
Because this money is unconditionally guaranteed, players don’t care as much when the money is paid out. This money still falls under the salary cap, but it can be paid up to five years in the future. Since the salary cap grows in accordance with the NFL’s growth in revenue, team’s will leverage this, pushing the actual spending of money into a future where they’ll (hopefully) be able to spend said money.
Pushing a team’s spending into the future can be beneficial if the team manages to find success, but only one team each year can experience the NFL’s most important measure of success.
This is one of the reasons the salary cap is as functional as it is necessary. A good front office has to determine how much to spend at each position, negotiate individually with every member and potential member of the team, and surround them with a coaching staff to bring the best performance possible out of everyone.
