Riders exceed cap, but CFL may have best cap out there

The CFL announced today that after an extensive auditing process that seven of the league's eight teams were under the $4.25 million salary cap for 2010. The outlier is the Saskatchewan Roughriders, who were over the cap by $26,677 (probably thanks to midseason signings like kicker Warren Kean and punter/holder Eddie Johnson, pictured above in the 2010 Grey Cup). Of course, that could pave the way for plenty of jokes about how Saskatchewan's a big-market team (which in the CFL, they are), but the key point here is that the league's cap seems to actually be doing what it's intended to accomplish; allowing teams to compete on a relatively equal playing field with regard to salaries. From that perspective, it may be the most effective salary cap out there.

For reference, take a look at the history of the CFL's current cap system, which dates back to 2006 and was brought in during Tom Wright's time as commissioner. There was a cap before that, but it was loosely monitored and didn't include particularly notable penalties for violations, which meant that it was mostly a joke; the official cap in 2005 was $2.6 million, but according to former Stampeders' co-owner and then-president Ted Hellard (who stepped down from all his roles with the team at the end of last season), teams were spending an average of $3.75 million on salaries then. That wouldn't be too bad if that spending was equally distributed, but it wasn't; Hellard told the CBC that "the spread between the top and bottom was $700,000." When you're discussing numbers of that magnitude, that can translate to a significant competitive advantage for the teams at the top and a significant disadvantage for the teams at the bottom.

In response to that, the new cap brought in an escalating scale of penalties. Teams up to $100,000 over the cap in any given year would be fined $1 for each extra dollar they spent (thus, Saskatchewan will be fined $26,677 this year). If a team went over the cap by $100,000 to $300,000, they would be fined $2 for each dollar they spent in excess of the cap and would also lose their first pick in that year's draft. Teams more than $300,000 above the cap would be fined three dollars for each extra dollar they spent, and would lose their first two draft selections as well.

The CFL's system is probably closest to the NBA's in terms of other sports leagues; it isn't a hard cap like the current ones in the NHL or NFL, which essentially force teams to stay under them at all times, but it isn't a luxury-tax-only system like Major League Baseball's, which only includes financial penalties. The CFL's system is far less complicated than the NBA's (which includes a wide variety of specific exceptions), but it works on the same general principles; a salary cap figure is established, teams can exceed it, they face fines for doing so if they're only slightly over, but competitive penalties (i.e. forfeiture of draft choices) come into play if they're too far over.

You can make an argument that the CFL's cap actually produced more parity in 2010 than any of those other systems, though. Of course, we don't know how far below the cap teams other than Saskatchewan were, but it would seem likely that most teams can afford to spend close to it. In fact, they're forced to; the new CBA signed in 2010 includes specific cap floors as well as ceilings, and the floor (or minimum team salary) in 2010 was $3,900,000. No violations of that were announced, so it would seem that every team's payroll was between $3,900,000 and $4,276,677 (the $4,250,000 cap plus the $26,677 the Riders were over it by), a span of $376,677. By comparison, the gap between the biggest and smallest 2011 payrolls in MLB (the New York Yankees and Kansas City Royals) is a staggering $166,563,028. Considering how much larger those payrolls are, a percentage comparison may be more fair, but the CFL still comes out ahead of any other league there; its largest payroll is only 109.66 per cent of its smallest (if there is a team actually spending right at the floor, otherwise the gap's even less), while the NHL's is 238.75 per cent and MLB's is 561.06 per cent. As you can see, the floor is in some ways even more important than the ceiling; a close floor and ceiling make it so teams are spending similar amounts on salaries, while a widespread floor and ceiling can create substantial gaps between the top and bottom teams. Here's a handy chart I've put together showing several North American leagues' top team by payroll, bottom team by payroll, raw gap and percentage gap.

Of course, payroll doesn't necessarily directly correlate with wins. For example, in the NFL's uncapped 2010 season, the Washington Redskins spent a league-high $178,200,000, while the Tampa Bay Buccaneers spent a league-low $80,800,000. Tampa Bay finished 10-6, though, while the Redskins went 6-10. However, there are plenty of counter-cases where teams with the top payrolls do substantially better, and an even playing field in terms of salaries certainly promotes fairness. The CFL's 2010 season saw quite a bit of parity, and part of that might be due to the salary cap preventing any particular team from spending way more than anyone else.

What does the CFL's cap actually cover? In essence, it looks at all forms of player compensation a team delivered in a given season, including base salaries and bonuses. That can be tough to work out exactly and requires a thorough audit and review of each franchise's books, which is why this information has come out almost half a year after the 2010 season ended. However, the detail involved means it would be pretty difficult to get around the cap via creative accounting measures, and that's a good thing for the enforceability of this system. It's also notable that the CFL's cap is low enough that most teams should be able to spend close to it while still at least having the chance to turn a profit.

For example, Winnipeg had by far the worst on-field record (4-14) last season, but the Blue Bombers still posted a $409,191 profit. From the sixth page of their complete report (PDF), we find that "league revenues increased by $122,271 in 2010 from 2009, representing an increase of 6.7%". Keep in mind that that figure represents the portion of league revenues paid to the Blue Bombers ($1,950,621 in 2010) rather than the complete revenues of the league, and that's pretty close to what every other club is getting (the Eskimos' financial statements, which I discussed here, show that they got $1,960,735 from the league; I'm not sure exactly how league revenue is split amongst the clubs, but it seems to be a relatively even dispersal). With substantial and rising league payments to clubs as well as strong television ratings and other positive economic indications about the financial health of the league's teams (for example, the Bombers have a plan to contribute $85 million to their new stadium that doesn't necessarily seem all that far-fetched), it would appear that most clubs probably can afford to spend an amount close to the cap on player salaries. We can't tell that specifically from the financial information we have, though, as the Bombers and Eskimos divide their accounting of football spending somewhat differently, and neither includes a line item for player salaries (the Eskimos do include a line item of $6,567.33 for "players and coaches").

If most of the teams under the cap are in fact spending close to it, the system is working well; teams appear to be competing on a similar financial plane with respect to players' salaries (wealthier teams could of course find advantages in other areas of football operations, such as boosting their coaching or scouting budgets or building better weight-training and rehab facilities). At least one team has exceeded the cap in each CFL season so far (Montreal and Saskatchewan in 2007, Saskatchewan in 2008, Winnipeg in 2009 and Saskatchewan again this year), but every violation except Montreal's has been by less than $100,000, and the Alouettes lost their first-round pick and paid a hefty fine for that excess. Cap violations of less than $100,000 don't really pose a significant competitive imbalance (I'd imagine Saskatchewan's violations this year are probably thanks to midseason signings they had to make, thanks to injuries to the likes of Luca Congi and Rob Bagg), so a relatively mild financial penalty seems sufficient, and the threat of losing top draft picks and paying stiffer fines seems to be enough to deter teams from going too wild. From a parity perspective both on the field and in the books, the CFL appears in excellent shape, and we can thank the current salary cap system for at least part of that.

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