NFL Salary Cap
In the National Football League, the Salary Cap is the limit on the amount of money a team can spend on player salaries, either as a per-player limit or a total limit for the team's roster (or both). It serves both as a method of keeping overall costs down, and a mechanism to balance the league so a wealthy team cannot become dominant simply by buying all the top players. The salary cap is often the major issue in negotiations between league management and the players' union (although less so than in other major pro leagues).
The NFL's cap is a so-called "hard cap", which no team can exceed for any reason under penalty from the league. A lesser-known fact is that the NFL also has a hard salary floor—a minimum team payroll that no team can drop beneath for any reason. The cap was introduced for the 1994 season and was set at $34.6 million initially. Both the cap & floor are increased annually based on growth of the league's revenues. As of 2006 the NFL salary cap is approximately 102 million US dollars per team, while the salary floor is roughly USD 75 million per team. This number has increased annually and will likely increase after a new collective bargaining agreement is signed. The NFL's agreement with the NFLPA lets teams release players in the middle of contracts without being responsible for the player's salary owed for remaining years on the contract. As a result, players and their agents realize that contracts with large signing bonuses are optimal.
Due to bonuses, the amount of a player's salary counts towards the salary cap is not necessarily the same as the amount which he is actually paid in the current year. For example, if a player signs a six-year contract and is paid a signing bonus, only one sixth of the bonus counts towards the salary cap in the first season, with the remaining five sixths divided equally over the remaining five years of contract. If a player is traded or retires, the entire remaining amount of his signing bonus which has not yet been accounted for will count against the team's salary cap for that season. (Additionally a signing bonus is merely guaranteed payment, and is not necessarily paid in its entirety upon signing. Part of the bonus can be placed in escrow to be paid at a later date negotiated in the contract.) Incentive bonuses require a team to pay a player additional money if he achieves a certain goal. For the purposes of the salary cap bonuses are classified as either "likely to be earned" which requires the amount of the bonus to count against the cap, or as "not likely to be earned" meaning it will not count against the team's salary cap. NLTBE status can be re-evaluated if a player actually achieves an unlikely goal. Large NLTBE bonuses are written into contracts to make them sound larger in the media.
Teams usually design contracts so that the player's cap salary is highest in later years of the cap. They accomplish this by setting the player's base salary at lower amounts in the first years of the contract than the higher years. This effectively results in real salaries being slightly higher than the cap for a given season, unless a team finds itself in 'salary cap hell' and has a large portion of its cap space devoted to players who are no longer on the roster.
The effect of the salary cap has been the release of many higher-salaried veteran players and their replacement by lower-salaried younger players. The salary cap prevents teams with a superior financial situation from the formerly widespread practice of stocking as much talent on the roster as possible by placing younger players on reserve lists with false injuries. This was often used to allow an inexperienced player to learn valuable skills, and some money, while not counting as a player on the active roster. This practice allowed teams to keep an experienced, capable quarterback, whose skills were beginning to decline with age or who was merely nearing retirement, to train a potentially great, but inexperienced young quarterback. (A notable example is the case of the San Francisco 49ers playing Hall of Famer Joe Montana while grooming future Hall of Famer Steve Young.
Generally, the practice of keeping older players who had contributed to the team in the past, but whose abilities have declined, had fallen out of favor, as a veteran's minimum salary was required to be higher than a player with lesser experience. To prevent this, a veteran player who receives no bonuses in his contract may be paid the veteran minimum of $650,000, while only accounting for $450,000 in salary cap space.
The salary cap has also served to limit the rate of increase of the cost of operating a team. This has accrued to the owners' benefit, and is widely regarded as being responsible for the NFL being overall the most financially stable of the major North American sports organizations. While the initial cap of $34.6 million has increased to $102 million, this is due to large growths of revenue, in all probability because of the pragmatism of the cap, and financial flexibility it gives to owners.
