A Brief History of the NFL Salary Cap

During the NFL offseason, teams make a multitude of player personnel decisions. Several factors matter in the decision to retain, restructure, or cut a player, but perhaps none have as large an impact as a player’s impact on the salary cap.

I realized, as much as I hear about the NFL salary cap, I really didn’t understand why it was necessary and how it came to be. Salary caps are used mainly for two reasons: maintaining league parity among teams and controlling operating costs for league franchises.

Back in the days of the All-American Football Conference of the 1940s, the Cleveland Browns, yes the Cleveland Browns, were so dominant that no other teams could compete with their level of spending and ability to hoard the league’s best talent. The league folded after four years in which the Browns won every game but three and took home the title each time as well.

When a league employs a salary cap, the hope is that each team holds roughly the same economic power to attract and retain quality players. In the Major League of Baseball, for instance, there is no salary cap. This allows financial powerhouse teams like the New York Yankees to operate a 2018 player payroll of $115,711,450 while the lowly Oakland A’s have to patchwork together a competitive team with a 2018 player payroll of $56,780,833.

The 2011 hit movie Moneyball shed perfect light on the struggles of general managers like Billy Beane, who had to resort to a sophisticated sabermetric approach to scouting and signing players. There are a couple of alternatives to the no cap approach of the MLB.

A hard salary cap, like the NFL’s, is a set amount that may not be exceeded for any reason. A soft salary cap, like the NBA’s, is an amount which may be exceeded, but will trigger a penalty - in this case, a luxury tax - which is known in advance. The NFL also operates with a hard salary floor that requires teams to spend a minimum amount of the salary cap.

In the NFL, penalties for violating the salary cap and/or floor include fines of up to $5 Million per violation, cancellation of contracts, and/or loss of draft picks. The Saints almost drew a penalty in 2010, which, after NFL owners opted out of the 2008 Collective Bargaining Agreement, became an uncapped year.

New Orleans joined Dallas, Washington, and Oakland in spending like crazy. Only Dallas ($10 Million) and Washington ($36 Million) were fined, and their fines were divided equally among the other 28 teams (excluding New Orleans and Oakland) who had not exceeded the salary cap.

Because teams must remain under the salary cap at all times, NFL contracts almost always include the right to cut a player before the beginning of the season so his remaining salary cannot be held against the cap. Like my Dad says about the NFL in comparison to the NBA, “the teams aren’t going to guarantee a player’s health until their contracts are guaranteed too.”

NFL bonuses, for the purposes of the salary cap, are classified as either “likely to be earned,” and count against the cap, or “not likely to be earned,” and not count. NFL franchises can stay under the cap a multitude of ways but the main effect of a hard salary cap was the release of higher paid veteran players in favor of younger players still playing out their cheaper rookie contracts.

The NFLPA had to step in and create the veteran’s minimum salary which paid, without bonuses, up to $810,000, while accounting for only $425,000 (47.5% discount) against the cap. A small reprieve, it’s still going to be hard to keep between 53 (in-season) and 90 (off-season) player salaries from exceeding the 2018 NFL salary cap of $177.2 Million.

Divided among 53 players, that comes to an average of $3,342,396 per player. For perspective, the 2018 NBA salary cap of $101.869 Million, divided by a roster of 15, allows an average of $6,791,266 per player salary. That’s about $3,447,870 more in salary per player than the NFL.

Maybe that would make sense if the NBA made tons more money than the NFL, but the exact opposite is the case. The total worth of all NBA franchises combined is roughly $40.8 Billion while the total worth of all NFL franchises combined is about $64 Billion.

Even though I’d make the argument that the NBA has better international appeal and growth potential than the NFL, NFL players need to bring this misappropriation of profits to the forefront during their renegotiations of the CBA in 2020. Perhaps they could take another note from the NBA playbook and institute mandatory salary increases based on performance accolades.

An NBA player coming off his rookie scale contract, for instance, is eligible to receive 30% of the cap if he was named MVP in any of the previous three seasons, named Defensive Player of the Year in the immediately preceding season (or two of the three most recent seasons), or named to an All-NBA team in the immediately preceding season (or two of the three most recent seasons).

The main problem with this system, however, is that really good players are often overlooked because they didn’t receive the media hype and attention that leads to winning one of those distinctions. In fact, being left off an Associated Press All-NBA list can literally cost players millions of dollars as they negotiate their next contracts.

No matter what the NFLPA’a game plan is for the 2020 CBA, hopefully it includes discussing the topics of guaranteed contracts, retooling the rookie wage scale for fairer pay earlier in contracts, and, most of all, raising the hard salary cap more than a meager 6-8% annually. The profits are there, even after a year of downward ratings and fan favorability.

NFL players are getting hip to this. They are starting to demand guaranteed contracts. Word on the street is Aaron Rogers may very soon sign the largest fully guaranteed contract ever. But until the hard cap goes up as astronomically fast as recent player salaries, all Rogers’ contract will mean is a win for him and a loss for the four or five guys who the Packers now can’t afford to pay.