How does the salary cap work in professional sports?

Answer 1

It's a method of placing an artificial ceiling on salaries.

In the NFL, NBA and NHL, the salary cap is determined in the collective bargaining agreement. In those leagues, the cap is set against a certain percentage of revenues, and the cap changes as year as do revenues. That's why the NHL's cap will apparently increase by about $2-3 million for next season, and both football and basketball see their caps increase each year. Every time there's an increase in ticket prices, TV rights, concessions prices or merchandising, more revenues are generated and the cap accordingly increases. In the NFL, teams often try to get around the cap by signing players to contracts with reasonable salaries but that have huge signing bonuses. The reason for this is that teams can prorate that signing bonus over an extended period of time, thereby not taking such a hit on their cap space.

In most leagues - especially the NBA - it's far from being a "hard" cap. For example, in the NBA, there are several exceptions to the cap that a team is allowed. There is the mid-level salary exception, which allows a team already at or over the cap to sign a player to a contract at the average league salary. This is the type of deal which might net a championship contender a veteran contributor. There's also the "Larry Bird Exception" that allows teams to exceed the cap in order to sign their own free agents.

While baseball doesn't have a salary cap, they do have a luxury tax based on salary thresholds. If teams spend over a certain amount - again based on the collective bargaining agreement with players - that team will be taxed on the amount by which they exceed the cap. In 2007, that applies only to the Yankees, since the salary cap is set at $148 million this season. When they signed Roger Clemens for $18.7m this season, they had to pay MLB an additional $7.5m or 40% because they were over the threshold.

Answer 2

total payroll for year can only be a certain amount