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Numbers crunch salary cap's logic

By Andrew Leigh and Justin Wolfers - posted Thursday, 15 August 2002

With the news that the Canterbury Bulldogs' fortunes have dived quicker than Enron stocks, anger is understandably mounting at the team's management.

But in discussions among football fans, another target is fast emerging - the salary cap itself. The question looms large: has the cap rule served its purpose, or should it be abolished?

First, a little background. For most of its 107-year history, no salary cap has applied in rugby league. In 1988, four years after the AFL put its own cap in place, a league salary cap was introduced. The move towards salary caps occurred not only in Australia, but also in the United States, with the National Basketball Association implementing a cap in 1984 and the National Football League in 1993. A baseball strike is looming as the team owners are discussing schemes similar to a cap.


In league, the salary cap was progressively implemented from 1988-90. By 1995, all teams faced an equal cap, set at $1.5 million. Over the next seven years, the cap has more than doubled to $3.25 million, presumably reflecting competitive pressures from both the failed Super League experiment and the increasing crossover appeal of rugby union.

Yet while any cap is in place, a fundamental question remains: why should those who employ football players - unlike all other employers - be allowed to collectively restrict payments to workers?

Advocates of a cap state their case simply. The reason for a salary cap is to ensure the financial and on-field viability of all rugby league clubs. As Steve Mascord put it in the Herald last Saturday, "if there was no salary cap, Andrew Johns would be playing for a rich Sydney club and the Knights would be broke".

Sports economists have noted that salary caps can have other effects - such as reducing the proportion of revenues spent on player salaries, ensuring a more equitable distribution of pay among players and perhaps even encouraging veteran players to retire early.

Yet surely the argument that appeals most to rugby league fans is that the salary cap makes for a closer competition.

But has the salary cap really made league more competitive? To test the theory, we compared the league results for the 13 seasons since the introduction of the salary cap with those for the same period beforehand.


Superficially, the evidence seems to favour the cap: from 1976-88, only four teams held the premiership shield aloft. By contrast, from 1990-2001 (Super League operated in 1997, so that year contained two "seasons"), seven teams have been champions, including relative newcomers such as the Melbourne Storm. However, the fact that the number of teams in the competition rose from 12 teams in the 1970s to a peak of 20 in the mid-1990s explains much of this difference.

Rather than focus simply on the grand final, we turned instead to examining regular season games. If the salary cap worked, we reasoned, then we should expect to see more close games. The answer? In the 13 seasons before the salary cap, 3.3 per cent of all games ended in a draw. Since the implementation of the cap, this has actually fallen slightly, to 3 per cent.

We also looked at the distribution of offensive and defensive talent,
comparing how well the top teams performed relative to those at the bottom. Before the salary cap, teams finishing in the top half of the competition scored 56 per cent of the points. After the cap, this concentration of point-scoring actually rose slightly, to 57 per cent.

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This article was first published in The Sydney Morning Herald on August 26 2002.

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About the Authors

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

Dr Justin Wolfers is an Assistant Professor of Economics at Business and Public Policy Department of the Wharton School, University of Pennsylvania.

Other articles by these Authors

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