Salary Cap: What you want to know

Salary Cap Overview

Overview|Paying the Players|Signing Bonuses and Incentives|Miscellaneous Rules

Major League Baseball's 30 teams can dole out the dough as much as their pocketbooks can take. The teams of the NFL, however, like their professional athletic brethren in the National Basketball Association and National Hockey League, don't have that luxury.

In 1994, the NFL's salary cap came into effect via the League's Collective Bargaining Agreement (CBA) between the owners and players.

"The Collective Bargaining Agreement basically gave players free agency&and in return, the owners got a hard salary cap, which allowed them to spread the compensation and to limit player costs." Falcons Director of Football Administration Brian Xanders said.

Salary Cap Figures
Year	Approx. Cap
2004	$78.780 million
2003	$75.007 million
2002	$71.100 million
2001	$67.400 million
2000	$62.172 million
1999	$58.353 million
1998	$52.388 million
1997	$41.450 million
1996	$40.777 million
1995	$37.100 million
1994	$34.600 million

The salary cap for the NFL in 1994 was $34.600 million per team. In other words, no team could spend more than that amount on its players for the 1994 season.

But a very important step to understanding the cap is first knowing from where, exactly, the NFL gets the money to pay its players.

"The player costs (the salary cap) are driven by a calculation from the CBA," Xanders continued. "They get a percentage of the DGR, which is the NFL's Designated Gross Revenue."

And not surprisingly, the bulk of the NFL's DGR comes from two main sources: broadcasting (television and radio) and ticket sales.

"For the Defined Gross Revenue, the biggest piece of it is the national TV contract," Falcons Vice President of Finance Greg Beadles said. "Second are gate receipts, ticket receipts. Those are, by far, the two largest elements."

Just how large, you ask? The money that the NFL receives from its national television contract and its ticket sales comprises just shy of 90 percent of the League's Designated Gross Revenue.

But keep in mind that only a percentage of the DGR, not the whole, goes to making up the cap.

For the 2004 season, the NFL's players receive 64.75 percent of the projected DGR, but that comes with an asterisk. After the league arrives at that 64.75 percent of the projected DGR, it subtracts the total amount of money projected to be paid to the players in the form of benefits packages (401-k, etc&) from that number. The pool of money left, divided by 32, is the salary cap for each team for the season.

And in 2004, the NFL's salary cap is roughly $78.7 million, well more than double the original cap figure from 1994. But why has it grown so immensely? Multiple reasons.

"That's the growth of the percentage of the DGR that goes to the players," Xanders responded. "From 1998-2001, it was at 63-percent. Now it's at 64.75.

"Another big part is the growth of the revenue streams," Xanders continued. "The TV deal is getting bigger every year. The ticket prices are going up. The attendance is going up."

In other words, the better the league does, the more the league grows, the more money teams can afford to spend on talent.

But note, in the checks-and-balances system spawned by the CBA, NFL teams not only have a salary cap, but a salary floor' as well.

"There's a minimum amount that teams have to spend on the salary cap," Beadles said. "So you couldn't just come in and say, This year instead of $79 million, we're going to only spend $10 million and the owners are going to make nearly $70 million."

But with the cap being a limit, what would happen if a team spent more than the cap allowed? The short answer is: no team is able to. This is due in most part to the fact that teams have to have all player contracts approved by the league.

"By the first day of the new league year (which this year it's March 2) we have to be in compliance," Xanders said. "Our salary cap has to be under $78.7 million. If you're not in compliance by March 2, you have seven days to be."

And if you're not in compliance after those seven days?

"The last contracts that you signed players to automatically become void and those players become free agents until your charges do come under the cap," Xanders replied. "But that's never happened."

"It's different from the NBA where, if you go over, you have to pay a luxury tax," Beadles echoed. "In the NFL, if you're over the salary cap, then they start making contracts void.

"If you don't decide which players you don't want on your roster, the league will."