NFL 101: Understanding Salary Cap Basics

The NFL season is full of jargon that can be a bit confusing to the uninitiated: what is a "football move", for example. But, if in-season talk can be a little troublesome, the off-season conversations are oftentimes downright mind boggling. This series of "primers", known as "NFL 101", aims to break down the communication barriers between Joe and Jane Football Fan and those of use who obsess over every detail.

In the first several installments of this series, we will be taking a look at one of the fundamental building blocks of NFL knowledge: the salary cap. It's not necessary to know all the ins and outs, but it's certainly helpful to know how to speak the language.

What is a "Salary Cap"?

Put simply, a salary cap is a ceiling dollar amount that can be spent on a salary. It's not unique to professional sports; government employees are often capped at a maximum pay amount for a given level of experience and expertise, and many private companies do the same. Typically, though, those apply to individual salaries. In sports, the idea of a salary cap applies across an entire roster.

Some professional sports use no cap -- for instance, Major League Baseball, where the contract of a top impending free-agent player like Mike Trout is predicted to go as high as $400 million on his next contract. The NFL, however, implements a cap. For the 2016 season, that number is expected to be as much as $155 million.

If only it was as simple as adding up all the salaries for 2016.

While the NFL cap is referred to as a "hard cap", the reality is that it's not as hard as some people would like us to think -- basically, it allows for a certain number of accounting practices that hide the true amount of money any player receivers in a given year. That's because of a variety of optional bonuses a team can include as part of a player's contract, each of which are accounted for differently. We will explore those bonuses a little later in the series.

Further muddying the waters is that the number of contracts a team can carry varies throughout the year, as well as the number of those contracts the team is required to actually count against the salary cap.

Why does a salary cap matter?

The reason to have a salary cap is simple: different cities have different economical conditions and different-sized populations. Small markets -- Pittsburgh, Tampa Bay, Jacksonville, Kansas City, etc. -- don't have the local populations of teams from places like New York City -- which is large enough that it can adequately support two teams. This means that ticket demand is lower, and individual incomes are typically lower, too, resulting in less disposable income that a fanbase can spend on its team. By implementing a salary cap, it helps level the playing field by not allowing large-market teams to outbid small-market teams for marquee free agents. The NFL has also implemented other mechanisms to help close the gaps between markets, including a rookie pay scale and a revenue-sharing system that sees much of each team's revenue go into a pool, from which it is disbursed evenly around the league. This also applies to league television and sponsor contracts, further ensuring that no team is at a major financial disadvantage.

The league implemented these measures to achieve parity, which it has done to a greater or lesser extent. Some teams typically do a better job than others at managing their salaries each year and, while the approaches are often different from one team to another, some teams are perennially successful.

In the next installment, we will continue looking at the salary cap, and will explore the differences in how salaries and bonuses are accounted for each season.