May 28, 2024

The NFL and the NBA both have salary cap and revenue-sharing structures in place that impact and regulate player salaries. Both leagues have a Collective Bargaining Agreement (CBA) between the players and the owners which govern those structures. There are major differences and similarities in the league structures.

 

NFL Hard Cap vs. NBA Soft Cap

The NFL is designed to be a hard salary cap, meaning the NFL teams have an absolute limit of how much of their spending they can account for against the salary cap in any given year.

In theory, the NFL salary cap limits player salaries in any given season. However, NFL teams can still pay bonuses to players during a season and then potentially account for those bonuses in future years against future salary caps). But the cap is still a “hard” cap in that it truly is the max that any team can charge against the cap in that season. Any additional spending must be accounted for and then charged against future salary caps in future years.

In contrast, the NBA operates with a “soft” salary cap, allowing the teams to exceed the salary cap under certain circumstances. NBA teams can go above the soft cap by utilizing various (easily available) exceptions. There are several types of contracts in the NBA, and some of those types have exceptions built into them—basically, some types of contracts allow NBA teams to designate a portion of the contract that does not count against the cap at all.

 

NBA Luxury Tax

In addition to the exceptions, NBA teams can also go above the “soft” cap by paying a luxury tax. The NBA teams that elect to go above the salary cap are then subject to pay a tax on every dollar they spend above the salary cap.

The money derived from the teams that paid the luxury tax is then divided up and redistributed to the other NBA teams, that paid less to their players. The monies often get given to the teams in smaller markets, presumably to help them have more money to devote toward player contracts in the future.

However, the NBA does not have a mechanism to force these owners to spend those monies on future players, therefore it functionally (potentially) becomes a mechanism to allow some owners to simply turn a higher profit.

 

Player Salaries and Limits

NBA players generally earn higher salaries on average compared to NFL players. The nature of the sports and revenue structures contribute to these differences. NBA teams (on average) make less money than NFL teams (on average), but NBA teams have a lot less overhead and costs. They typically are in much smaller less-expensive venues and their insurance costs are less. Also, the NBA has much smaller rosters, so there’s much more money on a per-player-basis.

In the NFL, the salary cap is for the entire team, collectively. There is no individual cap on players. There is no limit to what an NFL team can pay any one specific player (rookie contracts are the exception to this).

However, in the NBA, there is both a collective team salary cap and per player salary cap. There are indeed limits to what teams are allowed to pay individual players—determined by two things: the player’s performance in previous years and the number of years they’ve played in the NBA. However, there are also exceptions to the individual player limits. Teams only get a certain number of exceptions at any given time.

 

Salary Cap Exceptions

The NFL has limited exceptions to the salary cap. There are some types of contracts where the teams can pay a player and allow a portion of the contract to become exempt from the salary cap. This includes some veteran minimum contracts, minimum salary benefit, and performance-based pay.

However, NFL teams don’t leverage exceptions to get under the salary cap, instead they pay players cash today and then can charge those monies against future salary caps in future seasons.

In contrast, the NBA does not allow teams to make payments today that can be charged in future years. In theory, every dollar paid by NBA teams to NBA players in this season must be charged to this season’s salary cap. However the NBA does have several common exceptions that allow teams to sign a player and designate a portion of those monies to be exempt from the salary cap. This allows teams to only charged a portion of player salaries toward the cap, without ever having to charge those monies against any cap in future years.

NBA teams are given a limited number of exceptions, and they are given to teams based on various factors (and it can be somewhat convoluted, but it’ll definitely be a topic of a future article). The types of exceptions that exist are the mid-level exception, bi-annual exception, and various trade exceptions, which provide more flexibility for teams to sign or retain players even if they are over the salary cap.

The most notable exception that exist is the exception for superstar players. The NBA “supermax” contract exception allows NBA teams to offer higher salaries and longer contract terms to their own superstar players as a way to retain them. But NBA teams can only offer these to players that meet certain requirements (based on their performance).

 

Salary Cap Calculation

The NFL’s salary cap is calculated based on the previous league year’s total revenue, with a fixed percentage allocated to player salaries, as prescribed in the CBA.

The NBA’s salary cap is also calculated using a percentage of the league’s revenue, but it considers additional factors such as projected revenue growth and all expected basketball-related income over the next year. The NBA cap is determined by the amount of money that the NBA assumes (or projects) it will generate, but the NFL determines their salary cap by the previous year’s revenues.

 

Guaranteed Contracts

In the NFL, contracts are not fully guaranteed. Players can be released before their contracts are completed which results in the balance of the contract being voided. This often results in potential salary cap savings for the team. However, teams may elect to guarantee portions or NFL contracts. The percentage of guaranteed monies in any contract is negotiated between a player and the team.

In the NBA, all standard contracts are fully guaranteed. When a team signs a player, they’re on the hook for the entire amount of that contract. This provides greater financial security for players and can also handicap a team’s ability to revamp or retool their rosters if they sign players that don’t pan-out well. The guaranteed contracts in the NBA have also partially contributed to the larger overall player salaries than what we see in the NFL.