Sports Economics: Current Research

By John Fizel; Elizabeth Gustafson et al. | Go to book overview

16
The Impact of the Salary Cap and Free Agency on the Structure and Distribution of Salaries in the NFL

Sandra Kowalewski and Michael A. Leeds


INTRODUCTION

On May 6, 1993 the National Football League (NFL) Management Council and the NFL Players' Association (NFLPA) entered into a new collective bargaining agreement (CBA). The new CBA, which is binding until the year 2000, has brought significant changes in the labor market for professional football. In this chapter we examine specific aspects of the new CBA, particularly the total team salary cap and free agency, and to a lesser extent the rookie salary cap, to determine their effect on the structure and distribution of salaries in the league.

While many studies examine salary determination in baseball ( Scully, 1974b; Daly, 1992; Quirk and Fort, 1992; Kahn, 1993a), the only major study of the NFL is Kahn ( 1992). Kahn's study, however, was based on the monopsonistic market structure that prevailed prior to the new CBA. The introduction of free agency and salary caps has completely changed the way teams evaluate and assemble talent. Quirk and Fort ( 1992), for example, find that free agency has introduced greater inequality into the salary structure of Major League Baseball (MLB), exaggerating the superstar or winner-take-all effect noted by Frank and Cook ( 1995). One would thus expect that similar changes in the NFL should also lead to a new salary structure.

The remainder of the chapter is organized as follows: it begins with a brief history of free agency in the NFL and outlines the specifics of the collective bargaining agreement. The next section presents a simple empirical model of salary determination and describes our data. In "Results" we interpret and discuss our results, showing the winners and losers under the new CBA. The last section contains our conclusions.

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