The NFL's Parity Perplex 

How the dismal science applies to your life.
June 23 2000 9:30 PM

The NFL's Parity Perplex 

The salary cap is one of the mysteries of the universe

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Does pro football's incredibly complex salary cap really make small market teams competitive with the big market ones?

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In 1776, mathematician Pierre Simon de Laplace declared that the evolution of the universe is completely determined by the laws of physics. In his view, one second after the big bang, when everything was still crammed into a space the size of a teapot and boiling at a 100 billion degrees, the details of the NFL salary cap were already formed.

Modern philosophers scoff at the notion that a structure as complex as the salary cap could have emerged spontaneously from the seething initial chaos. They believe the cap was fashioned not by the laws of physics but by the minds of men—men seeking the elusive goal of parity, which is sports-talk for a more equal distribution of talent among teams.

According to Laplace's vision, it is an inevitable law of nature that each NFL team's annual salary payments must be limited to a fixed number of dollars (currently just over $62 million). Except, of course, that signing bonuses must be prorated over the life of the contract, so that a $5 million signing bonus to a player with a five-year contract counts as $1 million against the cap each year.

Unless, of course, the player is traded or retires, say, two years into his five-year contract, in which case the remaining $3 million counts against the cap immediately. And unless, of course, the signing bonus was part of a renegotiation, in which case it would be prorated over six years (including the year in which it's renegotiated) instead of five.

Unless, of course, the bonus is contingent on performance, in which case it counts against the cap in the current year if it is deemed "likely to be earned," but in the following year if it is "unlikely to be earned," with the distinction resting on whether the player or the team met the designated performance goals in the previous year. Except, of course, in the case of rookies, for whom the "likely to be earned" calculations rely on arcane charts decipherable only by the most proficient cabalists.

The critics of Laplacian determinism argue that none of this was inevitable. The designers of the cap had the power of free will and could have designed something very different if they'd wanted to. There is, after all, more than one way to achieve parity. In 1911, Charles Freedman, the owner of the New York Giants, proposed that the league should own all the players and apportion them to the teams. Major League Soccer is now trying that experiment.

The problem with the Freedman proposal is that it threatens to undermine fan loyalty. A team that's been shipped to you prepackaged might not generate the same warm feelings as a team that's been painstakingly assembled by local owners, general managers, and other strategists, with plenty of input from sportswriters and armchair critics.

On the other hand, it's hard to know how seriously to take that criticism because nobody really knows what does and doesn't inspire fan loyalty. The advent of free agency was supposed to be a death blow to fan loyalty, but it appears to have had very little impact. In professional basketball, the "Larry Bird rule" exempts established stars from the salary cap on the grounds that it's important to keep them on the hometown team. The NFL has made the judgment that retaining longtime players isn't that important. Nobody knows who's right.

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If you don't like the Charles Freedman route to parity, here's another option: The NFL could create more teams in large markets. If the Giants had to compete for fans against three other New York teams, they'd lose their income advantage over teams from cities one-fourth the size of New York.

The example of the Giants points up another important truth: Contrary to popular belief, the threat to parity comes not from the richest teams but from the teams with lots of fans who are willing to pay high premiums to see good players. If quarterback Joe Btfsplk adds $5 million to the revenue of the Chicago Bears, then the Bears will offer him up to $5 million (and no more) regardless of whether the owner is rich or poor. This analysis assumes that NFL owners are rational profit-maximizers, and, of course, there is room to question that assumption.

How will the salary cap evolve in the future? Like the universe itself, it might continue to expand forever or suddenly vanish in a final "big crunch." Either prophecy can be self-fulfilling. Take the big-crunch theory: If teams believe the cap will be abandoned in a few years, they'll sign a lot of long-term contracts with large signing bonuses (figuring that most of the bonus will be scheduled to "count" in years when there will be no cap to count against). Once they've signed those contracts, they'll bring pressure on the league to abandon the cap. That's where the prophecy becomes self-fulfilling.

On the other hand, if teams believe the cap is here to stay—even with continuous adjustments and new exceptions and exceptions to the exceptions—those signing bonuses become less attractive, there will be fewer of them, fewer teams will be desperate to escape the constraints of the cap, and the cap has a better chance of surviving.

When two conflicting prophecies can each be self-fulfilling, we economists say we're in a situation with "multiple equilibria" and usually throw up our hands when it comes to making predictions. So the cap might or might not survive, but in any event it's a pretty good bet that the league has a long-run commitment to the conservation of parity. Closer contests mean more revenue, and professional sports organizations don't walk away from revenue. That's a law of nature you can take to the bank. 

Steven E. Landsburg is the author, most recently, ofMore Sex Is Safer Sex: The Unconventional Wisdom of Economics. You can e-mail him at armchair@landsburg.com.