The recent Sonny Bill Williams saga has brought into light the issue of salary caps in competitive sport. After fleeing the Australian NRL for French Rugby Union, SBW made the claim, among many other bizarre excuses, that the NRL’s salary cap was anti-competitive, in that it prevented players from earning their full-potential.
Does SBW have a valid point?
Essentially a salary cap is a buyers’ cartel – the sixteen NRL clubs band together to effectively form a monopsony. Each club needs a certain amount of players on their roster, without paying above a certain aggregate level. The salary cap is enforced, sometimes brutally, such as in 2002, where the Bulldogs were stripped of all their competition points at the end of the season for breaching the cap (when they otherwise would have likely qualified as minor premiers).
Worldwide, competitive sporting leagues are fairly evenly split among those with and without a salary cap. Those with a cap include NRL, NBA, NHL, NFL, Super League, AFL and A-League, while those without include EPL, MLB, Serie A, La Liga and French Top 14 Rugby (where SBW now plies his trade).
The rationale behind a salary cap is two-fold. Firstly, a salary cap allows for control of costs. Secondly, the cap promotes parity between teams in the competition. I’ll deal with each argument in turn.
The first reason for a salary cap is obviously true – lower aggregate salaries leads to lower costs. And placing an artificial ceiling on salary costs does prevent players from earning their full potential, as SBW suggests, through distorting the market for players and forcing those seeking higher salaries to move to non-salary capped leagues. (As an aside, does limiting the salary costs of the club also potentially limit the revenues of the club? It comes as no surprise that the clubs with the biggest worldwide followings are those that play in leagues without salary caps: New York Yankees (MLB), Manchester United (EPL) and Real Madrid (La Liga). These clubs pay big money for big players, generating a big following which leads to big revenues).
Evidence also supports the second reason provided for a salary cap. Compare for example the NRL with the EPL, my two favourite sports leagues. The EPL is dominated by a ‘big four’: Arsenal, Chelsea, Liverpool and Manchester United. Despite what deluded Spurs’ fans believe, it is very difficult for another club to break into the big four. Indeed, over the past three years no other club has finished in the top four, while for the last 13 years only three teams have won the EPL (sorry Liverpool fans). The NRL, on the other hand, has had seven different winners over the past ten years, with teams regularly moving from the top half of the competition to the bottom half. Dynastic behaviour is more observable in the non-salary capped EPL than the salary-capped NRL.
To be honest, I’m torn in my view as to whether I prefer a salary cap or not. The free-market fan within me believes that clubs should be able to pay what they want for players, allowing SBW to earn his millions in NRL if that is what a club values him at. On the other hand, as a sporting fan I really do enjoy a closely fought competition, where any club can potentially win on its day. And hence SBW’s preference for euros over aussie dollars raises an apparent efficiency-equity trade-off.