Exam 2 Flashcards
- Distinguish between general skills and specific skills (in terms of human capital). Understanding how the skills are obtained and how they impact pay.
General Skills – A skill that is very basic. Fundamentals of the sport, rules of the sport, etc.
i. The minor leagues
ii. You pay for this
Specific Skills – Learning a specific system within the sport
i. Your employer pays for this
- Understand marginal revenue product and the profit maximizing point between MRP and wage rates.
a. MRP = MR * MP
b. MRP is the foundation of what everyone is paid
c. An employer will hire you when the wage rate (MC) = MR
- What are the three main problems with determining ones MRP?
a. What is the output of the player?
b. Statistics –> output
c. Value of the output
- Refresh your understanding of monopsonies.
a. Single buyer in a market structure
b. The player is the single seller of their talent (Monopsony)
c. The league is the single buyer of the players talent
d. This is why there are unions, help make sure the single buyers (the league) pay players fairly
e. Monopoly + monopsony = bilateral monopoly
i. Optimal level is based on negotiations
What gives the leagues monopsony powers?
Leagues have a monopsony because i. There are no competing leagues ii. Free agency Started because of the reserve clause iii. Reserve clause Deemed illegal The reserve clause states that you may not pay for any other team unless you get traded If you decide to not sign the contract, the league would blacklist you
- Why are sports unions considered hybrid unions?
a. Craft union – Focuses on a craft such as plumber, electrician, etc. (Skill based)
b. Industry union – Focuses on a specific industry such as UAW
c. Hybrid union – Sport labor unions. Takes from both craft and industrial unions
- Wins produced formula
a. Per 48 minutes = (Points + Offensive rebounds + (.5 * defensive rebounds) + (.5 * blocks) + (.5 * assists) + steals) – (turnovers + fg attempts + (.5 * free throw attempts) + (.5 * personal fouls)) = WINS * 1.65 MILLION = MRP
- Be able to describe what a salary cap is and how it promotes competitive balance.
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
- How does the salary cap promote competitive balance?
a. It keeps spending within certain limits leading to no team with the absolute best players
- In the NFL, what is the player’s share of ‘average revenue’?
a. 42% of all revenue
i. Of that 42%, 55% of broadcasting revenue, 45% of licensing, 40% of local revenue (parking, concession, etc)
- In the NFL, what is the minimum the league must spend? What is the minimum each team must spend?
a. Of the 42%, each team must spend 89% of the total cap and the league must spend 95%
- What is a credited season in the NFL
a. Must be on the 52-man roster and play in at least 3 games
- Under what conditions could a player not earn a credited season?
i. Exempt Commissioners Permission List
ii. Reserve/Physically Unable Perform List
iii. Practice squad
iv. Injured Reserve
- How are player minimum salaries in the NFL determined?
a. The number of credited seasons
- What impact does injured reserve have on the player and the team?
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
- What are split contracts and how do they impact the cap?
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)
- How does deferred compensation impact the salary cap (what is it and how do players and teams benefit)
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
- What cap relief can a team get for signing a qualified veteran player?
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
- In the NFL, what is the Top 51 Rule?
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
- In the NFL, what is the rookie salary cap?
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
- How does the Top 51 rule impact the draft?
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
- In the NFL, what is meant by ‘black-loading’ contracts?
a. The big money is paid near the end of the contract
- In the NFL, what is the 30% rule?
a. The contract/year cannot increase by more than 30% each year
- In the NFL, distinguish between likely to be earned incentives and not likely to be earned incentives. Understand how each impacts the cap.
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