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ECO 330 > Ch. 10 Quiz > Flashcards

Ch. 10 Quiz Flashcards

1
Q
  1. Be able to describe what a salary cap is and how it promotes competitive balance.
A

a. Salary caps are neither a salary limit nor a cap
b. They set a band on salaries: both upper and lower limits to payrolls (not individual salaries)
c. Take qualifying revenue (QR) of league
Not all revenue “qualifies”
Definition varies from league to league

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2
Q
  1. How does the salary cap promote competitive balance?
A

a. It keeps spending within certain limits leading to no team with the absolute best players

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3
Q
  1. In the NFL, what is the player’s share of ‘average revenue’?
A

a. 42% of all revenue

Of that 42%, 55% of broadcasting revenue, 45% of licensing, 40% of local revenue (parking, concession, etc)

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4
Q
  1. In the NFL, what is the minimum the league must spend? What is the minimum each team must spend?
A

a. Of the 42%, each team must spend 89% of the total cap and the league must spend 95%

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5
Q
  1. What is a credited season
A

a. Must be on the 52-man roster and play in at least 3 games

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6
Q
  1. Under what conditions could a player not earn a credited season?
A

i. Exempt Commissioners Permission List
ii. Reserve/Physically Unable Perform List
iii. Practice squad
iv. Injured Reserve

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7
Q
  1. How are player minimum salaries determined?
A

a. The number of credited seasons

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8
Q
  1. What impact does injured reserve have on the player and the team?
A

a. They are typically out for the remainder of the season
b. Not on the 52-man roster
c. You can be cut and signed by another team
d. Salary still counts towards the cap
e. IR-Return designation – allowed to come back after being on IR

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9
Q
  1. What are split contracts and how do they impact the cap?
A

a. Your contracts are set at a certain level, then when you get hurt it drops to a lower level
Players try to avoid split contracts
Typically used on young unproven players (late draft picks)
Veterans will sign splits to prove they can stay healthy
You cannot sign a split contract if you’ve had 6 or more accrued seasons (6 credited games)

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10
Q
  1. How does deferred compensation impact the salary cap (what is it and how do players and teams benefit)
A

a. Players receive salary for services rendered in previous seasons
b. A team and player can agree to defer any type of compensation
c. Teams are legally obligated to pay deferred compensation
d. Money counts toward the cap in the year it’s secured
e. The cap hit is the PV of the amount being differed

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11
Q
  1. What cap relief can a team get for signing a qualified veteran player?
A

a. They can sign ‘qualified contracts’
They will get paid their minimum and the cap hit will be based on a two year level
b. Paid in cash at the minimum salary based on their experience

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12
Q
  1. In the NFL, what is the Top 51 Rule?
A

a. An offseason rule
b. Teams can expand their roster size from 52 to 90
c. Helps teams accommodate 90 salaries
The top 51 contracts in the offseason count towards the cap

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13
Q
  1. In the NFL, what is the rookie salary cap?
A

a. A cap within the salary cap
b. Teams must set aside funds to pay newly drafted players.
c. This is not additional money to spend, all rookie salaries count toward the cap.
d. Actually, the calculation is kept secret

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14
Q
  1. How does the Top 51 rule impact the draft?
A

a. Assume team has $6,046,013 to spend on rookies
b. Team has 6 draft picks: 6, 37, 70, 104, 224, and 225.
c. The #6 pick will cost $3,002,182 against the cap.
d. However, once signed, he will bump out the number 51 player, who had a base salary of $510,000.
e. Thus effective cap cost is $2,492,182

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15
Q
  1. In the NFL, what is meant by ‘black-loading’ contracts?
A

a. The big money is paid near the end of the contract

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16
Q
  1. In the NFL, what is the 30% rule?
A

a. The contract/year cannot increase by more than 30% each year

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17
Q
  1. In the NFL, distinguish between likely to be earned incentives and not likely to be earned incentives. Understand how each impacts the cap.
A

a. Likely to be earned – included in the cap
Achieved it in the last season
b. Unlikely to be earned – not included in the cap
Did not achieve it in the last season

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18
Q
  1. If a team submits an offer for a restricted free-agent, how does that impact the cap?
A

a. The amount gets transferred to the new team

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19
Q
  1. What is dead money and how does it impact the cap?
A

a. The cap hit from a player being cut from the team that still has money left in the contract

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20
Q
  1. In the NFL, explain the Barry Sanders Rule
A

a. Prevents players from signing a huge contract, collecting the signing bonus, then retiring
b. If you retire soon after signing a contract, you must pay back some of the bonus

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21
Q
  1. In the NHL, explain the relationship between league revenue and the salary cap.
A

a. The cap is based on league revenue
b. When League Revenue is below $2.2 billion = 54%.
When League Revenue is between $2.2 billion and $2.4 billion = 55%
When League Revenue is between $2.4 billion and $2.7 billion = 56%
When League Revenue is exceeds $2.7 billion = 57%

22
Q
  1. Be able to define the salary cap ceiling and salary cap floor
A

a. Salary cap ceiling
Maximum a team must spend
Varies year to year. Dependent on previous seasons revenue.
No player may earn more than: 20% of that team’s cap
b. Salary cap floor
Minimum a team must spend
Varies year to year. Dependent on previous seasons revenue.

23
Q
  1. In the NHL, how much can a team exceed the cap to pay performance bonuses?
A

a. Performance bonuses

7. 5% of the cap can be spent on the performance bonuses

24
Q
  1. How does long-term injured reserve impact the salary cap?
A

a. It gets some relief

25
Q
  1. When does a team take a full cap hit vs. a discounted cap hit?
A

a. Full cap – If you play more than 50 games

b. Discounted cap hit – If they play in less than 50 games

26
Q
  1. Be able to calculate a discounted cap hit.
A

a. (Accrued games * cap hit) / number of games

27
Q
  1. What is a buried contract and how is the cap hit calculated?
A

a. When players on a one-way contract are demoted to the AHL

28
Q
  1. In MLB, what are the tax rates for offenders?
A

a. 1st time – 20%
b. 2nd time – 30%
c. 3rd time and above – 50%

29
Q
  1. In MLB, what are ‘surcharges’ and why were they included in the new CBA?
A

a. A charge in addition to the tax if a team goes over the threshold
i. Two tiers
1. $20 million-$40 million over = 12%
a. $30 million over means you are $10 million into the threshold so you will be taxed 12% on that $10 million
2. $40 million + over = 1st time offender – 42.5% and 2nd time offender – 45%

30
Q
  1. In MLB, if a team exceeds the luxury tax by $40 million, what happens?
A

a. If you are $45 million over, 20 million is taxed 12% and the other 25 million is taxed at either 42.5% or 45% based on # of offenses

31
Q
  1. Be able to calculate the luxury tax for a team (typically an Excel contract)
A

a. 2017 dodgers payroll = $244 M
b. 2017 threshold = $195 M
c. 5X offender
d. What is the luxury tax
i. $49 M over so…
1. Dodger tax
a. 2.4 M @ 12% * 20M
b. 9 M @ 45% * 9 M
2. Yankee tax
a. 24.5 M @ 50% * 49M

32
Q
  1. How is the NBA salary cap calculated?
A

a. Cap is based on Basketball Related Income (BRI)
i. Long list of items.
ii. Also includes a business that the league, league entity or team has at least 50% ownership stake.
b. Cap is set between 44.7% of the projected BRI
i. League and players associate negotiate projected BRI during July Moratorium.
ii. Subtract benefits

33
Q
  1. How much of the cap must the teams spend?
A

a. The teams must spend 90% of the cap

i. Of that 90%, 50% of than number is guaranteed to be returned to the players

34
Q
  1. How are the minimum salaries determined in the NBA?
A

a. Based on the number of years in the NBA

i. The more years you play, the higher your minimum and the longer of a deal you can sign

35
Q
  1. How are the maximum salaries determined in the NBA?
A

a. 6 Years or fewer (pro) max = 25% of salary cap or $9 million (greater of)
b. 7-9 years (pro) = 30% of cap or $11 million (greater of)
c. 10+ years (pro) = 35% of cap or $14 million (greater of)

36
Q
  1. What is the Derrick Rose Rule?
A

a. A team can designate a certain player who has less than 6 years played to move up to the second tier as a maximum (7-9 years pro)
i. Requirements:
1. Play in two all-star games or
2. Named all-NBA twice or
3. Voted MVP

37
Q
  1. Explain the luxury tax and how it’s calculated.
A

a. The NBA has a luxury tax to prevent teams from abusing the exceptions
i. Set at approximately 53.51% of BRI (changes every year)
ii. Teams pay a tax that increases for every $5 million over the cap
iii. A team $15 million over the cap must pay a $45 million tax

38
Q

Larry Bird Exception (all three)

A

i. Bird exception
ii. Early Bird
iii. Non-Bird exception

39
Q

i. Bird exception

A
  1. Must be on the team for at least 3 years
  2. Maximum salary applies
  3. Contracts up to 5 years
40
Q

ii. Early Bird

A
  1. Must be on the team for at least 2 years
  2. Salary limited to 175% of previous season or the maximum salary (whichever is smaller
  3. 2-4-year contracts only
41
Q

iii. Non-Bird exception

A
  1. Must be on the team for at least 1 year
  2. Salary is limited to 120% of previous season salary
  3. Maximum contract is 4 years
42
Q

Mid-Level exception (all three)

A

i. Non-taxpayer
ii. Taxpayer (Mid-Level Exceptions)
iii. Room level

43
Q

i. Non-taxpayer

A
  1. Below the apron
    a. Not paying luxury tax or less than $4 million above the tax line)
    b. The exception cannot be used if it would put the team above the apron
  2. Teams can sign a player to a contract up to $8.406 million (17-18)
44
Q

ii. Taxpayer (Mid-Level Exceptions)

A
  1. MLE taxpayer (mini)
  2. Can use unlimited MLE
  3. When teams go over the apron
  4. Salary limit is $5.192 M or less
  5. If you use this, you cannot use the non-taxpayer as well
  6. MLE – Non-Taxpayers = < 5.192M
45
Q

iii. Room level

A

a. Available to teams far enough below the cap that they do not qualify for other exceptions.
b. Max salary is $4.328 (17-18)
c. Cannot be used if biannual or any other MLE is used.
d. Once used, biannual or any other MLE cannot be used.
2. All categories can be used on multiple players
3. Can be used every year

46
Q

a. Biannual exception

A

i. Cannot be used if team has used taxpayer MLE or Room MLE
ii. Max salary $3.209 million (18/19)
iii. Player does not qualify for MLE
iv. Team cannot exceed the apron if they use biannual (current season)
v. Cannot be used two years in a row.
vi. Can be used on multiple players

47
Q

b. Rookie exception

A

i. Sign rookie even if over the cap

48
Q

c. Minimum Salary exception

A

i. Sign to minimum even if over the cap
ii. 2 year contract maximum
iii. No signing bonuses

49
Q

d. Disabled Player exception

A

i. Sign a replacement player up to 50% of the injured players salary
ii. Team has to petition the league for this exception

50
Q

e. Reinstatement exception

A

i. Player resigned by existing team up to his previous salary level.

ECO 330 (6 decks)

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