The NFL’s $116 million question

The NFL’s salary cap has been set at roughly $116 million for the 2008 season. The salary cap is set equal 57.5% of the projected total revenue for the average team in the league. Total revenue includes the national televison contract, ticket sales, and NFL merchandise sales as well other local sources of revenue including such other items as naming rights and local advertising. While less well advertised, the NFL also has a salary floor equal to 86.4% of the cap in 2008, or about $100 million.

Although the NFL has the most equally distributed revenue of any of the big four American leagues, mainly thanks to the evenly shared national television contract, large differentials have recently become evident between teams at the top such as the Redskins and Cowboys and those at the bottom like the Vikings and Falcons.

So, what does a league do when team salaries are mandated for all teams as a percentage of average team revenues which can be pushed upwards by the high revenues of a handful of large market teams? The function for determining the salary cap and floor can easily create a situation where the cap and floor are simply unaffordable for some teams if revenue disparities grow too great. It’s potentially a formula for putting some of their own teams out of business. Already the minimum team salary requirements exceed 50% of expected revenues for a number of teams in the league.

Look for this to be a major source of concern as the NFL looks ahead to the renegotiation of its collective bargaining agreement in the next couple of years.

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Author: Victor Matheson

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