The Salary Cap
How does it work?
The NRL Salary Cap for 2006 is $3.366m for the 25 highest paid players at each Club. If each player was paid an equal amount, they would get $134,640 each. Each Club can exercise its discretion in relation to how much individual players are paid providing that in total the payments do not exceed the $3.3m Cap.
Why have a Salary Cap?
The Salary Cap serves two functions within a competition. The first is to assist in "spreading the playing talent" so that a few rich Clubs can not simply out-bid poorer teams for all of the best players. The NRL believes that if a few Clubs were able to spend unlimited funds in such a way, that it would both reduce the attraction of games to fans, sponsors and media partners, due to an uneven competition, and drive some Clubs out of the competition. Another reason for having the cap is to ensure that Clubs are not put into positions where they are forced to spend more money than they can afford in terms of player payments, just to be competitive.
Where did it come from?
Salary Caps have been part of sport for many years. The NSWRL first introduced a Salary Cap to Rugby League in 1990 and the NRL has had a Salary Cap since its inception in 1998. The AFL introduced a Salary Cap in 1985 and major overseas sports such as the NFL and NBA in the USA also use Salary Caps.
Salary Cap Timeline
1990 Salary Cap introduced by NSWRL with a cap ranging from $800,000 to $1.5m depending on individual Club circumstances.
1991 NSWRL lifts Salary Cap to $1.6m.
1994 NSWRL approves rise in maximum Salary Cap to $1.8m.
1997 Super League war. No Salary Cap in place.
1998 NRL formed and proposes $3.25m Salary Cap for 1999. Cap acknowledges "notional values" of players from contracts signed during the Super League war.
1999 NRL Club Chief Executives, Chairmen and NRL Board recommend retention of the $3.25m Salary Cap for next two seasons.
2000 NRL provides guidelines for breaches of the Salary Cap including fines and the loss of competition points for breaches from 2001 and beyond.
The Sponsor Servicing Allowance was introduced lifting the effective Salary Cap from $3.25m to $3.325m.
2001 Sponsor Servicing Allowance further increased lifting the effective Salary Cap $3.347m.
2002 Clubs which could increase overall sponsorships were provided with an extension of the Sponsor Servicing Allowance bringing the total available allowance to $200,000 and an effective Salary Cap of $3.45m. In August 2002 the Bulldogs were penalized 37 competition points and received a $500,000 fine as a result of instigating the game's largest and most complex Salary Cap breach.
2003 Long Serving Player Allowance introduced to encourage Clubs to retain players who have served a continuous period of 10 years in first grade. This $100,000 allowance lifted the effective cap to $3.55m.
2004 The NRL and RLPA agree via a Collective Bargaining Agreement the Salary Cap for 2005 will be $3.3m and for 2006 $3.366m.
How much can Clubs spend?
The Salary Cap for 2003 and 2004 was a maximum limit of $3.25m for the 25 highest remunerated players at each Club. All other players that play NRL in the current year must fit under a $300,000 Salary Cap. There is no Cap on players who fall outside these two categories such as juniors.
The Salary Cap Value for a player each year is broken down into the following categories:
Playing Fee - fully included in the Salary Cap
Included Benefits - all benefits provided to players including accommodation, travel, motor vehicles, interest free loans and manager's fees and any applicable fringe benefits tax.
Win bonuses & appearance fees - Payments for appearing in or winning a game are calculated based on the number of NRL games the player played in the prior year multiplied by any applicable bonuses. For win bonuses, the calculation is capped at 13 wins.
Example: A player, appeared in 10 NRL in 2005 and now has a 2006 Contract for a $50,000 contract fee plus $1,000 per game. His Salary Cap Value would be $50,000 plus 10 times $1,000 = $60,000.
Other Bonuses - Any other bonus contained in a player's contract will be calculated in the Salary Cap if the NRL Salary Cap Auditor expects him to achieve the bonus based on his prior year's performance.
Example: A player played State of Origin in 2005. His 2006 Contract includes a $20,000 State of Origin bonus. This bonus will be included in the player's 2006 Salary Cap Value.
Note: Where a bonus is achieved by a player but was not assessed in the player's Salary Cap Value, the bonus is carried forward and calculated in the player's Salary Cap Value for the following year.
Is any Remuneration excluded?
In addition to allowances, the Salary Cap Auditor has specifically excluded the following benefits to players:
Tertiary education (TAFE & University)
Approved Traineeships
Medical insurance costs
Relocation & temporary accommodation costs
Are there any allowances?
There are two allowances that a Club can use to pay players outside of the $3.366m Salary Cap for 2006. These are:
1. The Sponsor Servicing Allowance - Clubs can qualify to spend up to an additional $200,000 on players if they can prove that they have raised additional cash sponsorships through players providing additional services to these sponsors.
2. The Long Serving Player or Veterans' Allowance - This allowance takes effect for the 2003 season onwards. The allowance provides an exemption of up to $100,000 for each Club if they have a player or players that have been at their Club for ten years since they first played grade for their Club. For the Storm, Cowboys and Warriors the player must have been at the Club since its inception.
What about money paid from other people or companies?
The basic guide is that if a player is receiving money from any person as a way of inducing him to play for the Club, then that money will be included in the Salary Cap.
Income that a player earns from parties not related to his Club is generally not included in the Salary Cap, however the details of the agreement must be advised to the Club by the player. The Club must then get approval for the agreement from the Salary Cap Auditor in order for the Remuneration to be excluded.
For season 2006 the NRL has also introduced an allowance for players who enter into Third Party Agreements with Club sponsors. Two of the top five players are allowed to earn up to an extra $50,000 each from sponsorship leveraging.
How can some Clubs have so many elite players and still be under the Salary Cap while other Clubs at the bottom of the table seem to be just under the Salary Cap?
The reality is all Clubs spend the Salary Cap but not all are successful on the field and, someone has to come last and someone has to win, regardless of what they spend. Some Clubs will attract players on the basis of what the Club can offer a player's career rather than just money. Other Clubs may need to spend more money to attract the same player.
Many factors affect individual player's Remuneration levels. Some of the reasons why a player may sign for less would include:
Staying close to the player's home town and family.
The chance to work with one of the top coaches in the game.
Being part of a winning team and the potential to play in the Telstra Premiership Finals series or Grand Final.
Increased opportunity to play NRL with that Club due to a lack of competition for the player's preferred position.
The increased profile a player may enjoy in a one-team town.
The number of support staff, their expertise and the support facilities
Education and welfare support structures
In addition, a player's salary package may include benefits that are specifically excluded from the Salary Cap such as the payment of medical premiums, university fees etc.
How does the Salary Cap Auditor monitor the Salary Cap?
All NRL Player contracts must be lodged with the Salary Cap Auditor. These contracts are reviewed and each player's remuneration is included in the Salary Cap. In addition the CEO and Chairman of each Club must provide a statutory declaration to the NRL at the beginning and end of each season in support of the Club's Salary Cap calculation..
The Salary Cap Auditor monitors each Club's Salary Cap position throughout the year based on the information provided by Clubs. In addition the Salary Cap Auditor may perform investigations into the Remuneration of players if discrepancies arise. These investigations usually involve the Club and its associated entities and cover all payments made and agreements entered into that may result in benefits being provided to players.
The Salary Cap Auditor also continually monitors media reports and makes enquiries in an effort to uncover any information that may have Salary Cap implications.
When Clubs have been found to either breach the Salary Cap or have made undisclosed payments to a player, then the Club is issued with a breach notice.
Why hasn't the Salary Cap gone up?
The Salary Cap has in fact risen substantially since its introduction in 1998. In that year the Salary Cap was $3.25m for the top 25 players and $500,000 for all players outside of the top 25 regardless of whether they played in the NRL.
As well as the $3.25m the previously mentioned allowances for 'long serving players' and 'new sponsorship money' have taken the available spending per Club to $3.66m.
In addition, payments for players outside the Top 25 have been relaxed. Where Clubs previously could only offer $500,000 in contracts to their second tier players regardless of whether they were fielded in the NRL, Clubs can now spend as much as they choose in this area. They are however restricted to a $300,000 cap for second tier players who take part in the NRL side that year. The end result of this has been to allow Clubs more ability to invest in young players without breaching the cap.
Why do Clubs have to let players go after they have been successful?
The value of a player rises when they have played well and the Club has a successful year. If players improve their worth by becoming a representative player for example, then the Club needs to increase their pay or face the fact another Club will poach them and pay him his new market rate. It is fair to say that a Club will release a player and blame Salary Cap pressures but this is not always the case as quite often the Club will not look to re-sign a player in favor of upgrading another player or recruiting another player from outside the Club. It is easy to blame the Salary Cap when the real reason may be quite different but the Club does not want to be painted as the 'bad guys'.
