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The Impact of Effective Salary Cap Management on Team Success in the NFL

The salary cap is defined as a rule that places a limit on the amount of money a team can spend on players' salaries. Since its implementation, it's had a widespread impact on teams and organizations in the sports industry. It has changed how organizations invest in their players and the future as a whole. It has proven to be an obstacle in the pursuit of sustained success. Since, 1994, The National Football League has only experienced a handful of repeat Super Bowl appearances. In one of his most prominent studies, James Carrey researched salary and performance data across the NFL over a 10 year period. Ultimately, his study showed that strategic management of player compensation directly resulted in an increase in wins.

Salary figures across the four major professional sports leagues in the United States can be compared. Doing so better enables one to understand the impact the cap has on a broader scale. Andrew Zimbalist argues that the data collected by revenue analysts across the respective leagues can be misinterpreted. This misinterpretation comes from the disparities in organizational structures across the leagues. In his study, Andrew Zimbalist collects compensation logistics for athletes. He subsequently relates it to overall revenue generated by a sports organization. The concept of adjusted data analytics is used in this study to compare the salary and revenue shares of the National Football League, National Hockey Association, National Basketball Association, and Major League Baseball. In all, Zimabalist analyzes how salary caps have impacted controlling player costs. The study shows how the cap has affected the way organizations invest in and compensate their players.

There is a perceived sunk-cost assumption that has arisen from the NFL's salary cap. This assumption underlines an analytical approach on the topic. In one of his studies, Quinn Keefer ran a regression on the structure of the NFL draft. The regression relates playing time amongst players to the regulations that have come from the salary cap. It was concluded that there is a positive correlation between salary and games started. An increase in salary cap value results an increase in games started for the players who were selected in the first two rounds of the draft. Despite no acknowledgeable differences in productivity, the salary cap enables first round selections to receive compensation premiums and signing bonuses. These benefits result in those particular players starting more games than players who weren't selected early on in the draft.

The salary cap, and the regulations that are a part of it, come from the NFL collective bargaining agreement. This is an agreement between the league and its player association that discusses the sharing of revenue and other compensation rules. Quinn Keefer, in his analysis, primarily focusses on the section of the agreement regarding player compensation. He highlights that two major changes came from the 2011 collective bargaining agreement. One major change was rookie wage scale and how their selection in the draft notably affected their compensation and playing time. The second change was a limit placed on the first-year salary for players. Although these changes led to a higher first-year compensation for rookies-especially those selected in the first two rounds–they ultimately resulted in decreased salaries in the years after. Keefer concluded that there were diminishing returns. Overall, the 2011 collective bargaining agreement resulted in a negative effect on player salaries. This effect has led to a restructured management of rookie contracts over the last decade.

Salary dispersion and incentive pay affect team performance across the NFL. Mike Mondello and Joel Maxcy examine this effect through collecting data from the NFL between 2000 and 2007. Mondello and Maxcy performed regression analyses that used both fixed and random effects models. Their study was geared towards establishing a relationship between performance and payroll. A positive relationship between on-field performance and increased payroll was found. Mondello and Maxcy also found a relationship between on-field performance and salary dispersion. Team revenue production, analyzed as a means to measure team performance, was also used in this analysis. Mondello and Maxcy's findings suggest that incentive pay is effective when a pay structure differentiates players based on productivity and quality of performance. The findings in their study have implications that could expand across different sports leagues.

Player compensation across the NFL has been widely examined since 1994. Richard Borghesi analyzed the relationship between player compensation and franchise performance in the league between 1994 and 2004. The evidence gathered from these years shows that team success is dependent on both the actual and perceived fairness of player compensation. The data collected also shows that teams who implement the super-star approach to personnel decisions were worse on average when compared to teams who took a different approach. Borghesi shows how the most successful approach to player compensation and salary cap management is to concentrate on players' salaries on a group level. Tthe super-star approach to player compensation leads to a lack of success on the field due to the dissatisfaction among players who recognize a substantial inequality in salaries.

There are many factors that have been analyzed as determinants of success in the National Football League. Sine the implementation of the salary cap in 1994, there has been an increased interest in identifying these main driving factors– truly understanding them will lead to an organization being more apt to sustain success. In his study, Joshua Pitts investigates factors that affect likelihood of success across the NFL He uses 4 empirical methods to examine different factors on an individualistic level. While his study suggests that previous playoff experience has a negligible impact on future success, Pitts highlights how certain factors such as strength of schedule and player performance ratings (QBR) have an impact on success both presently an in the future.