You're a veteran member of your company, and you have just completed a highly successful year. You've been summoned to your boss's office where you're told that you're a talented and skilled member of the team, but you're being let go.

This is a situation confronting an increasing number of professional athletes in the National Football League. The catalyst for this scenario is the salary cap, which represents the maximum aggregate amount a team may spend for all its players' salaries.

The salary cap was created in 1993 during negotiations between the NFL Management Council and the NFL Players Association. The driving force for these negotiations was the desire for both sides to reach a collective bargaining agreement that would secure labor peace between the owners and players. The salary cap was essential in realizing this goal because the cap allowed teams to better predict and control players' salaries. Forcing teams into budgetary fiscal restraint helped to establish a more even competitive landscape among NFL teams.

Salaries paid to professional football players differ significantly in structure to salaries paid to other professional team sport athletes. The guaranteed contract is a rarity in the NFL, where players' skills are evaluated on an annual basis. An NFL player may sign a multiyear contract worth millions of dollars, only to be released from his team long before the end of his contract. The player will be compensated only for the seasons he actually played during the contract period.

This has given rise to the popularity of large signing bonuses paid to NFL players when they execute their contracts. The signing bonuses might be prorated over the entire length of the contract for purposes of computing the salary cap. This allows teams to
compensate and retain their most valuable players without exceeding the cap.

The salary cap is expressed as a percentage of Defined Gross Revenues (DGR) for the National Football League—the DGR includes aggregate revenues from all sources arising from the performance of players in NFL games. These revenues include gate receipts and television and radio broadcasting rights for all NFL games.

Based on the computations, salary-cap amounts are established for all teams. The salary-cap number is the same for every team regardless of the size of the market in which the team is located. The calculation of the league-wide salary cap is so detailed and intricate that all the NFL teams and the National Football League Players' Association have salary-cap experts on their staffs. It is the sole responsibility of the experts to calculate the potentially infinite permutations of the salary-cap figures as they relate to roster decisions.

Such decisions have changed the face of professional football in profound ways. NFL teams' management must now evaluate a player's skill and potential in
relation to how his salary will impact the teams' salary-cap numbers. The economic realities have led to valuable veteran football players being released from a team while their playing skills are still sharp. This reality has given rise to the situation where a star veteran player is not able to finish his playing career with his original team. The salary cap has provided increased opportunities for younger NFL players, however. Roster positions vacated by veteran players due to salary-cap considerations have made room for new talent to be added to teams.

The salary cap and the current Collective Bargaining Agreement, in force until 2005, have provided the National Football League with a period of sustained growth absent the specter of labor unrest. The stability this provides to the NFL and its players will encourage continued growth in the popularity of professional football.