Essay Example on Pro Sports: Big Money, Big Opportunities

Over the last several decades, professional sports have become massive income generators. The amounts of money clubs make from sporting activities, merchandise and sponsorships have increased as companies tend to market themselves using professional sports clubs. Television tokens have also been introduced in sporting leagues enabling even small teams to compete with the big teams in terms of attracting, contracting, and maintaining to keep good players. With the increase in the value of sports and franchises, the local economies connected to the sports clubs have gained economically (Staudohar, 1998). The fans have always prided themselves when teams perform well, and they are happy to pay to go and watch their teams play in their stadiums, home, and way. Sponsorship deals, which are global brands, always inject seasonal or annual sponsorships or endorsements worth millions of money to clubs in exchange for representation and marketing. For this and other reasons, professional sports have become a billion-dollar industry (Thurman, 2016). Core to the sporting industry is the player salaries and terms of sports contracts that comfortably keep players in their clubs. Every major sports league has different rules touching on player wages and salaries. These leagues are in various countries and include the National Football League (NFL), the National Baseball Association (NBA), the Major League Baseball (MLB), and the National Hockey League (NHL).

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The expenditure of clubs in their players has wage rules. In professional sports including football, basketball, and baseball, salary caps refer to rules or caps that regulating or limiting the amount of money that professional clubs can spend in paying salaries to their players ("What is a Salary Cap in Sports?", 2018). Salary caps are also meant to normalize win percentages in the league. A 'free agency' period allows players to move to their teams of choice, but there are caps put in place to limit or prevent big teams from snatching all top players (Totty and Owens, 2011). This paper explores salary caps and their disparities in the major professional sports leagues with importance attached to the amount of money that sports generate.

While other sports leagues have salary caps on player compensation, others do not. All major sports leagues differ in terms of policies handling player compensation (Staudohar, 1998). However, the major difference can be observed in the degree of restrictiveness in salary caps that dictate player salaries. On focus here is the comparison or trend among the major leagues in the United States including the Major League Baseball (MLB), the NBA, NHL, and the NFL. There are essential pieces of evidence supporting the fact that player prowess and compensation strategies are directly proportional to team performance. MLB has the greatest flexibility when it comes to freedom in deciding how they want to spend on player wages. They are followed closely by the NBA. The NFL and the NHL have the strictest polices dealing with player wages. For the MLB, no caps are utilized, but they have implemented a luxury tax dictating that teams whose overall payroll exceeds a particular figure are taxed highly than others (Grow, 2014). This strategy is put in place to discourage teams that seek to topple other teams in the league in terms of total payroll. Only seven different teams have paid luxury taxes since 2013. The NBA combines a luxury tax and a soft cap allowing exemptions that enable teams to exceed certain pre-determined limits. However, teams whose payrolls surpass the cap by a certain amount are made to pay a luxury tax (Dietl, Lang and Rathke, 2009). Notably, unlike the MLB, the NBA franchises have frequently exceeded this limit, and up to 26 teams have been forced to part with luxury taxes since 2003. There is always about five to six annual offenders who pay luxury taxes. The NHL and the NFL are known to employ the strictest salary caps on the amounts that teams can spend on players. This has allowed zero flexibility which comes with severe punishments to teams that are found to pay players more than what the caps propose (Staudohar, 1998). In the case of the American sports leagues, especially except for soccer, salary caps are used to regulate compensation but there is no clear impact or relationship between wages spent on players, and team success (Grow, 2014). The hard salary cap for the NFL has an exception called the carry-over rule. It dictates any team that has spent way below the salary cap for one financial year has the freedom to carry over the difference to the following year. The team, however, has to notify the relevant league authority of the intention and the changes made (Brandt, 2017). For instance, the NFL salary cap in 2014 was $133 million. Any team that spent $128 million the in that year was allowed to carry over the difference of $5 million to the following year of 2015 season. Whether luxury taxes or caps, there are regulatory strategies put in place for each league.

Lack of salary caps in the American sports league has led to stark disparities in terms of team payrolls than in other sports (Kesenne, 2000). The differences between high and low team expenditures in the US leagues are massive in other clubs than their counterparts with very strict rules on spending ("What is a Salary Cap in Sports?", 2018). In the current or recent seasons, the MLB teams have spent about $252 million on the higher side, and $78 million on the lower side bringing creating a disparity of $174 million. The high and low expenditures for the NFL teams are $210 and $113 million respectively, with a disparity of $97 million. The high and low expenditures for the NBA teams are $137 and $79, with a disparity of $58 million. The NHL teams have spent as high as $81 and as low as $48 million, bringing a disparity of $33 million (Brandt, 2017). From these figures, it can seen that the stricter the cap rules, the lesser the spending of teams in the major American sports leagues. The reasons behind the MLB being unable to implement cap rules are down to the Baseball Players Association and their leaders who have maintained the status quo for years now. It is understood that there are difficulties involved in negotiating newer terms as compared to continuing with the old ones (Totty and Owens, 2011). The MLB owners have also not been insistent on having wage caps. For both teams, however, these expenditures are representative of the huge economic influence of sports.

The presence and absence of salary caps have led to income disparities for sportspersons in line with the kind of contracts they sign with their clubs. The contract value for NBA players is superior to that of NFL. Top NBA players including but not limited to LeBron James, Paul George, and Chris Paul sign yearly contracts with a value up to or exceeding $40 million (Lyons, Jackson and Livingston, 2015). This can be compared to the annual earning of NFL's elite quarterbacks which is $10 million below their NBA counterparts. It is a huge surprise to notice that restricted free agents like Zach LaVine signed $80 million contracts in the NBA stretching for four years. While in the NBA players sign highly valuable contracts than the NFL, few NFL players can sign contracts valued in the region between $80 and $100 million depending on the time span and other player qualities. However, the difference in these numbers is down to the security, strength, and reality of the contracts.

The security of the NFL contracts if often only guaranteed in the year of its signing. Only players that have some leverage can enjoy at least two years of contract security before the club can take control and dictate whether they remain or put on the transfer list. In some cases, the elite few might be lucky to have three years of secured earning, and then the contracts are controlled by the team (Shorin, 2017). Often, the NFL players can have their contracts value worth millions slashed off in February and early March despite them having some cap issues, but that severing has negligible financial consequences on the contract. On the other hand, the NBA contract value is fully maintained over the number of years for which it is signed. For instance, if a contract is for $100 million over four years, then the value will hold until the five years elapse (Brandt, 2017). In the NFL, a player can be contracted for $40 million in the first or second year, and then the third year is not guaranteed. Unlike the NFL, NBA players can cut ties with the club, but they must be fully paid as per the terms of the contract. NBA players, therefore, have more contract security and value than the NFL players. Thus, for the NBA, having more years of the contract is a favor to the player, while the same favors the team in the NFL. In 2018, the NBA team cap allocation was $101.8 million. This allows an average salary of $6.67 million per each of the 15 players in a team. For the same year, NFL team cap stood at $177.2 million allowing an average compensation of $2.8 million per each of the 63 players in a team (Thurman, 2016). Income disparities are so stark in this case considering the high extraneous cap charges that apply to the NFL teams and not the NBA teams. However, having a limit for league expenditures is beneficial to all NBA and NFL teams.

Conclusion

In conclusion, the revenue generated by the major sports leagues and teams is massive. That is why it is important to narrow down on salary caps and their disparities to find how the two relate. The strengths of salary caps include limiting the dominance of one or few teams through the acquisition of all-star players; allowing growing franchises to flourish and remain competitive while growing their fan base; and, raising the standard of the league to attract fans and sponsors. The weaknesses include creating huge disparities in contract value and security for players, limiting players' income potential, and, building the owners and suppressing the players. What is missing is the involvement of other parties including players association and fans. Future research should dwell more on how a balance can be achieved between the positive and negative impacts of salary caps in a major sports league.

References

Dietl, H., Lang, M., & Rathke, A. (2009). The Effect of Salary Caps in Professional Team Sports on Social Welfare. The B.E. Journal Of Economic Analysis & Policy, 9(1). doi: 10.2202/1935-1682.2034

Brandt, A. (2017). https://www.si.com. Retrieved from https://www.si.com/mmqb/2017/07/11/nfl-contracts-mlb-contracts-baseball-week-themmqb-andrew-brandt-business

Kesenne, S. (2000). The Impact of Salary Caps in Professional Team Sports. Scottish Journal Of Political Economy, 47(4), 422-430. doi: 10.1111/1467-9485.00171

Lyons J.R., Jackson J., & Livingston, A. (2015). Determinants of NBA Player Salaries. The Sport Journal. doi: 10.17682/sportjournal/2015.019

Shorin, G. (2017). Team Payroll Versus Performance in Professional Sports: Is Increased Spending Associated with Greater Success? [Ebook]. Durham, North Carolina: Duke University. Retrieved from https://dukespace.lib.duke.edu/dspace/bitstream/handle/10161/14332/Shorin2017.pdf?sequence=1

Staudohar, P. (1998). Salary Caps in Professional Team Sports [Ebook]. Hayward: California State University. Retrieved from https://static1.squarespace.com/static/5bc02d0d7a1fbd0d56ea7ec7/t/5bef9d9f562fa7828701204a/1542430112175/Staudohar_1998_Salary_Caps.pdf

Thurman, J. (2016). Income Inequality in American Professional Sports Leagues[Ebook]. Fayetteville: University of Arkansas. Retrieved from https://scholarworks.uark.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&ar...