How much are sports figures being paid, and who controls their salaries?
Having recently participated in the Hockey Arbitration Competition of Canada, I realized I knew almost nothing about the NHL salary caps. Below is my “idiots guide to salary caps,” for anyone else who might have been living under a rock.
A salary cap is an agreement or rule that puts a limit on the amount of money a team can spend on player salaries. The cap can be in the form of a per-player limit, a total limit for the team’s roster, or a combination thereof. Several sports leagues, especially in North America, have implemented salary caps to keep overhead low and to ensure parity between teams, to encourage competition and to allow less-wealthy teams to sign top players. Salary caps can be a major issue in negotiations between league management and players’ unions through arbitration, notably leading to strikes by players and lockouts by owners. Examples of salary cap systems include the NHL, NBA, MLS, CFL and others.
The benefits of salary caps are the promotion of parity between teams and controlling costs. The salary caps prevent wealthy teams from signing too many star players that end up sitting on the bench simply so that opponents don’t get them. With the salary cap, each club has roughly the same economic power to attract players. This plays into the mission of the various leagues and sports in general – to ensure a quality spectacle that is not a foregone conclusion. If only certain teams were to win year after year, the magic of sports will be lost and the competition will lose its luster; fans will come to less games and might tend to gravitate towards the teams that can consistently buy expensive players to ensure wins. Ad revenue would also theoretically drop due to fans’ disinterest in the outcomes of such games. Teams with less financial means would likely not remain viable for long, and may eventually cease to play. A prime example are the Cleveland Browns in 1946-49 in the All-America Football Conference, losing only three times in four years, and winning every championship, causing the league to fold.
“With the salary cap, each clubhas roughly the same economic power to attract players.”
Some examples that exist of current salary caps:
– Following the NHL lockout, the cap was set at $39 million per team, with a maximum of $7.8 million (20% of the team’s cap) for a player. The cap has been raised since ($69 million/team, $13.8 million/player), and there is also a lower limit as to what teams must pay players – the original limit was set to 55% of the cap, or $21.45 million. Players, agents or employees that violate the cap face fines of up to a million dollars, whereas teams face fines of up to $5 million and forfeiture of draft picks, deduction of points and/or forfeiture of games. The highest salaries for the 2014-15 season are $14 million (Shea Weber), $12 million (Sidney Crosby).
– MLS: for the 2014 season, the salary cap is $3.1 million per team for the players in the first 20 roster spots; there is an extra salary allowance for designated players – Beckham signing $6.5 million a year pre-empted this rule (nicknamed the Beckham rule), whereby a team is allowed players that normally wouldn’t fit within the cap to attract international talent. The maximum salary for any one player is $387,500. Designated players count as $387,500, while players in the lower roster spots, nicknamed off-budget players, have much lower minimum salaries.
The system that is present in European soccer is mainly based on the new Financial Fair Play regulations implemented in the 2011-12 season. The regulations limit the spending of clubs relative to their income, an alternate system to the salary cap. While there are differences between the leagues themselves, mostly related to the franchise model versus the promotion/relegation model, in which teams are at a threat of dropping to a lower division thus adding excitement, international competitions for which teams qualify (such as the Champions League for the top ranked domestic teams) allow teams to compete year after year against worthwhile rivals, even if they are ultimately dominant in their domestic league (i.e. Barcelona, Real Madrid). Some European association football leagues considered salary caps in the early 21st century. However, measures have been more focused on ensuring clubs spend responsibly rather than as a tool to create parity.
This is because there is a wider variety of leagues for each sport and players can freely move between the leagues, thus allowing players to move from capped teams to uncapped teams. As well, the fact that international competitions exist, which go beyond mere pride to include major opportunities in the form of lucrative TV broadcasting rights, encourage clubs to ensure dominance of their national leagues in order to reach those European competitions; unlike in the American leagues where salary-capped clubs don’t compete against teams in rival leagues without salary caps, needing a unanimous conversion. As well, the lack of a central governing body with ultimate power, like in the NHL, allows UEFA to only have control of the international competitions but not the domestic leagues themselves. The fact that clubs can also be promoted/relegated would wreak havoc on salary caps, as teams that get relegated would suddenly be much higher than the lower division’s cap.
The result has been the FFP regulations. They were implemented to introduce a more level playing field, whilst being cognizant of the unique challenges of football management in Europe, where billionaire owners (Roman Abramovich at Chelsea, Sheikh Mansour at Manchester City) used cash infusions to sustain teams that were facing losses. The ultimate penalty is disqualification from European competitions such as the Champions league and the Europea League, and other possible penalties include fines and withholding of prize money. In 2009, when the new legislation was announced, UEFA president Michel Platini noted that 50% of clubs are losing money – the staggering total debt in the English Premier League, according to Deloitte for the year 2008-09, stood at $5.63 billion (CAD).
While criticisms of the new system exists, in that clubs which generate the largest profits can then spend the most on transfers. Other criticisms focus on the questionable sponsorship deals which have resulted in inquiries, such as PSG’s deal with Qatari Investment Group, as the team is owned by Qatar Sports Investments. Such acts might be seen as a way to ‘game the system’ and get around the regulations via an infusion by the owner.
It remains to be seen whether the FFPs will result in a system that is fair and just, and whether the lessons from the North American cap system will be implemented. Teams have freedom to spend money, and buy expensive players, but the risk of being banned from UEFA competitions looms over them. There has already been a shift to balance the books, and sell players with higher salaries to make room for players with lower salaries or to allow for room on the budget to attract a world-class star. Teams like Anzhi Mahachkala, who bought up expensive players like Eto’o, have been forced to sell as they weren’t bringing in enough revenue to balance the expenses. There is also more incentive for teams to demand exorbitant transfer fees for their players, and other teams try to ensure secrecy by hiding the transfer fees or salaries of their players. The result is that players like Wayne Rooney of Manchester United, one of the world’s biggest sports brands, earn nearly $544,000 CAD per week (before tax), Lionel Messi earns $530,000 CAD per week after taxes, and a $136 million (CAD) was paid as a transfer fee for Real Madrid star Christiano Ronaldo!