It’s no secret that NFL players are some of the highest-paid athletes in the world. Just take a look at Aaron Rodgers’ 2022 season contract extension with the Green Bay Packers. Rodgers was set to earn a cool $150 million between 2022 and 2024. Not a bad payday, right? Players in the NFL are paid so well, primarily due to how much revenue the industry generates as a whole. Despite the NFL being a cash cow, the league introduced salary caps in 1994 to keep those handsome paychecks in check. So, considering what a contract like Rodgers’ is worth, just how effective is the salary cap in its current form? Let’s take a closer look.
What is the NFL Salary Cap?
It is an agreement between the NFL and its players on how much teams are allowed to spend on player salaries. It is considered to be a “hard cap” that cannot be exceeded under any circumstances. Its reasons for being implemented were two-fold:
- By controlling spend on player salaries, the NFL limits its exposure to financial risk
- It prevents rich team owners from buying the best players, thereby ensuring a level playing field.
Think about how skewed the betting odds would be if a few teams had all the star players. It would give stronger teams a massively unfair advantage, eliminating the excitement of the game.
The salary cap was set at $34.6 million per team when it was first introduced in 1994. It is reviewed and adjusted annually depending on how much revenue the NFL generated in the last year. At the time of its introduction, revenue was defined as returns earned through contracts with networks as well as ticket and merch sales. This has changed throughout the years to encompass naming rights, advertising, and almost any other stream of revenue the NFL generates.
The cap is generally announced prior to the season, with team managers having to guarantee cap compliance before the season commences.
What are the Current Cap Constraints?
Jump to 2023 and the salary cap now sits at $224.8 million per team. It is worth noting the salaries of coaches, team owners, and NFL staff do not count towards the cap.
How do Contracts Impact the Salary Cap?
Let’s use Aaron Rodgers again as our example for how contracts are structured around the salary cap. When you initially hear that Rodgers signed a contract worth $150 million, you immediately think, “Hold on! How will the team afford to pay anyone else fairly?!” Contracts are structured over several years, so Rodgers, for example, would receive $150 million over three years, with an option to extend the contract for an additional two years. This would potentially divide $150 million over five years.
Sometimes, contracts are structured in such a way that players will receive larger payouts with every passing year. These are referred to as back-heavy contracts.
Are Signing Bonuses Included Under the Salary Cap?
Signing bonuses are something of a salary cap loophole. Most often, they are offered to players as an incentive to agree to back-heavy contract terms. The money is guaranteed, even if the player chooses to leave the team before the contract ends.
Say a player is offered a signing bonus of $30 million for a five-year contract, it would count $6 million against the cap for every year of the contract. If they chose to leave their team before the contract was up, the team would be in the red for whatever they still owed to the player. So, if the player were to leave after two years, the team would be down $15 million in the following season and have to adjust salaries accordingly to remain compliant.
What About Cash Incentives? Do They Fall Under the Cap?
Cash incentives work in a similar way to signing bonuses, except they are broken down into two categories. The first is Likely To Be Earned (LTBE) and is usually performance-based. These specific goals can be on the field, at training camps, as well as in off season workouts.
Not Likely To Be Earned cash incentives are structured in the same way, except they assume a player will not achieve the goals because they failed to do so the previous season. As a result, they do not count towards the cap.
Bottom Line: Is the Cap Effective?
Now that we have a good understanding of the cap and its potential loopholes, we can gather that it appears to be functioning well to keep player salaries in line. While loopholes like signing bonuses and cash incentives could potentially upset the applecart, all in all, the salary cap achieves its goal of limiting financial risk and ensuring equitable shares of the profits are received by all players.
