Salary caps are a controversial issue in any collective bargaining situation in professional sports. The salary cap issue caused another season disruption in 2012-13.
In short, salary caps limit the amount of money a professional sports team can spend on their athletes.
Until the last two collective bargaining agreements, the salary cap was at 50 per cent of the NFL revenues.
Manipulating the salary cap
However, this strategy can result in “dead money” counting towards the salary cap if a player leaves the team. Quarterback Jared Goff’s contract with the Los Angeles Rams is an example of this.
Last year, Goff renegotiated his contract and received another US$9 million signing bonus.
However, the Rams traded Goff to the Detroit Lions and even though Goff is no longer with the team, the Rams will have to count the signing bonus ($22.2 million in total) towards the salary cap for the next four years.
The cryptocurrency loophole
One advantage of fan tokens is that they are cheap for the issuing team, but provide real value to the recipient.
The Messi situation likely means two things are happening now in other professional leagues: franchises are investigating using the same crypto tool to circumvent salary caps and leagues are considering ways to close the loophole. Ironically, rich teams in North American pro leagues (the Yankees, the Dodgers, the Lakers) that might issue fan tokens will become even richer because they have the biggest following of fans.
The effect of salary caps on players’ salaries
Game theory is the study of strategic interaction among players (individuals or firms) to explain their behaviours. Businesses, sport teams, military organizations and governmental policy makers commonly use it on a regular basis for strategic decision making.
This type of analysis leads to an interesting and unexpected insight — salary caps increase the payroll spending of teams.
Without salary caps, the “have not” teams might feel like they have no real chances against the “haves.” But because of salary caps, these teams do feel like they have a fighting chance, so they spend money on player salaries, which increases the average team payroll spending.
in turn can increase the league’s revenues, leading to a higher cap and, ultimately, higher salaries.
To show this, I analyzed the average team payroll in the NHL since the introduction of the salary cap.