Effects of Salary Caps in Professional Sports By: Matt Dutro, Steven Dulisse, Jacob Drerup, Jeremy Falk

Salary Cap Limit a team can spend on their player’s annual salaries Different for every sport Punishments for going over salary cap

Alex Rodriguez Salary

Salary Caps National Football League National Hockey League $128 million per team (32 teams) National Hockey League $56.8 million for the 2009-2010 season $11.36 million for a player

Major League Soccer $2.3 million as of 2008 Does not count the Designated Player Rule “Beckham Rule” Implemented in 2007 One player will only count as $415,000 toward the salary cap no matter how good they are David Beckham annual salary of $6.5 million dollars

National Basketball Association $58.680 million salary cap for the 30 teams Luxury Tax- is a mechanism that helps control team spending It is paid by high spending teams -- teams whose payroll exceeds a predetermined tax level For the 2009-2010 season, the luxury tax level is set at $69.92 million A team who exceeds $69.92 million, will pay a $1 tax for each $1 they go over NBA is estimating the teams under the tax will each get around 4.4 Million for the teams over the tax

2010 – The Year of the Free Agent NBA 2010 Free Agency LeBron James, Dwayne Wade, Chris Bosh, Michael Redd Luxury tax will play key role in this market Teams have cleared out line-up to make cap room New York Knicks, New Jersey Nets, Detroit Pistons Combined wins: 37 65 games under .500

Competitive Balance (NBA) 62 players make $10+ million Only three teams without a $10+ million player Oklahoma City Portland Sacramento

Major League Baseball There is currently no salary cap in Major League Baseball Luxury Tax system

Luxury Tax Luxury Tax- tax on teams if their team exceeds a numerical figure, determined annually. 1st offense = 17.5% of the amount over the cap 2nd offense= 20% 3rd offense/more= 40% Luxury Tax Caps from 2003-2011 2003= $117m 2004= $120.5m 2005= $128m 2006= $136.5m 2007= $148m 2008= $155m 2009= $162m 2010- $170m (estimated) 2011- $178m (estimated)

All Stars vs. Second Stringers MLB – Teams are able to buy the best players New York Yankees had ten times more money spent on players than the Washington Nationals Result: NYY: (89-73)* WN: (59-102)* *September 30, 2008

All Stars contd. Competitive advantage can be bought in MLB Alex Rodriguez 2006 salary $21,000,000 Division rival Tampa Bay Rays 2006 team cap $14,000,000

Positives of Salary Cap Keep owners from squandering money Less wasteful with monetary habits Helps small market teams Fair competition

Negatives of Salary Cap Market forces can find ways around the salary limits Endorsements – not included in salary Under the table – cars, etc. Team owners, not athletes, would keep more revenue.

Destructive Behaviors Salary caps: protect teams from themselves Advantages Disadvantages Buy high-cost contracts to receive popularity and sell tickets Immediate success figures Eventual financial difficulty Risk losing fans Long term instability

Keeping the Fans Interested Unbalanced leagues threaten weaker teams If a fan’s team keeps losing they may gravitate to another team or sport

The Numbers Don’t Lie Cleveland Cavaliers (41-11) Indiana Pacers (18-33)

Real Life Examples Houston Rockets star Tracy McGrady Top five highest paid NBA player despite not playing 46 minutes played entire season $22,843,124 annual salary If he continues to not play, he will make $496,589.65 per minute

Overpaid, Underplayed Jermaine O’Neal Third highest paid NBA player $23,016,000 this year 13 points, 7 rebounds per game

Performance Based Salary Base pay dependent on total income of the sport Different sports may have higher or lower base pay depending on revenue generated Performance based pay rewards for personal athletic achievement and team success Awards, records, wins, postseason, etc. More incentive to perform at highest capability

Pro Bowl Some players no longer care about going to the Pro Bowl Receive a bonus for being selected NOT for attending “Some of the guys missing make it not a true all-star game” - Antonio Gates World’s best players? Many players this year had to be filled in because players decided to not come

Putting the Entertain Back in Athletic Entertainers If pay reflects success on the playing field, players will work harder to perform at a higher level Better for fans Top tier players less likely to sit on the bench