By: Mendy Cohen, @mendy_coh
The salary cap is often brought up in sports discussions, particularly with regard to the NFL. It is a particularly hot topic nowadays, in the age of the coronavirus, when there are rumors of the salary cap possibly being reduced for the 2021 season. To understand why this is a factor and a worry for players and teams, we have to understand what the salary cap is.
The salary cap is an agreed-upon percentage of the NFL’s revenue that a team can spend on their roster. This helps balance out the small-market teams (Tennessee Titans) and big-market teams (Dallas Cowboys) and allow both to remain competitive. Other leagues, like the MLB, operate under a soft cap, which allows teams to exceed the “limit” on how much money they can spend on players. This gives big-market teams an advantage over smaller market teams as they can spend excessive amounts of money on top players. In the NFL, each team must strictly adhere to the allowed player budget.
For the 2020 season, the cap is at roughly $209 million (per overthecap.com), which was determined by the total gross revenue of the 2019 NFL season. Local Revenue and TV revenue (NBC, CBS, ESPN, NFL Network, etc.) all accumulate to total revenue, of which 47% is allocated to players.
Since the salary cap is based on revenue from the previous league year, the 2020 season will not be affected as the 2019 season occurred before the pandemic. The following season, however, will potentially suffer significant ramifications. The prospect of not having fans attending games will all but cancel out local revenue as tickets, merchandise, ads, and stadium sales (including concerts and other events) will be no more.
TV revenue, on the other hand, will still be alive and prospering, since that might now be the only way to watch your favorite team on Sunday. TV revenue accounts for more than 50% of each team’s total revenue, so they will still be earning significant money, but still much less than what they would if they had their stadiums open. With jersey sales and TV deals still in place for next season there will still be revenue, albeit much less than what could have been with local revenue in place.
The side effect of the NFL’s total revenue being hit hard is a lower salary cap for next season (2021). This would put a lot of teams in difficult situations with their cap space. An option for the NFL could have them “borrowing” money from future years’ salary cap, implementing it into the 2021 cap, and then having a few straight years of a salary cap with no annual growth (flat cap).
If this option is not taken and they have to lower the salary cap, the estimated drop would be roughly $40 -$80 million, according to Jason Fitzgerald of OTC. Having it drop $80 million from the potential cap ($215-$220 million) would bring the cap to about $130 million, the lowest it’s been since 2013.
With the cap potentially falling between $130-$180 million, there are 23 teams with projected cap under the $180 million line for 2021. Those teams should have an easier time adjusting for the lower cap than the 9 teams above them. An example of a team that will have some trouble is the Philadelphia Eagles. The Eagles, without the cutback, were already going to be in a $50 million hole over the projected cap for 2021 ($215 million). With the cutback, they could be roughly $100+ million over the cap.
The Eagles would then be forced to cut ties or reconstruct contracts with key high-priced players. This is not what either side wants. The team has spent several years devising a salary cap strategy to use which will result in, if things work out, having a consistent playoff team vying for a Super Bowl. Teams have to plan for the future under financial constraints to consistently create the best possible product. If those constraints change, the strategy is rendered useless, and the team has to create a whole new blueprint due to the numerous big contracts they have.
As another example, Jared Goff, the quarterback for the Rams, takes up 16.1% of the 2021 cap on its projected amount. Hypothetically, if it drops to $130 million, he is now taking up a whopping 26.6% of the cap. No team can pay a full roster when they have one player taking up over a quarter of its budget. The only viable solution is to hope that he is understanding of the situation and is willing to restructure his contract to alleviate the high cap hit that he would create.
This is all being affected by something out of everyone's control, so each side has a legitimate perspective. Though as with all things in the NFL, the owners run a business where the players are the product and if they need to cut a player, even a star or popular one, they will do it.
We have seemingly 2 options if the salary cap is reduced:
Borrow from future cap years so the cap doesn’t have to be lowered and then have a flat cap for the next couple of seasons.
Let the salary cap fall as is and leave it to teams to fit their roster under the reduced cap.
Both of these ideas are doable and possible, though the first option seems most realistic. I am not an NFL owner and can only speculate as to what they might do. Teams adapted to the salary cap era when it was introduced in 1994, so surely they can work together and adapt to these crazy times.