The Issue of "Caps" in Salaries for NBA

James Naismith is credited for creating the game of basketball in 1891; the sport was not organized until 1946. World War II created havoc and destruction through out the world. Sports promoters were searching for a new form of entertainment where it would catch the spectator's imagination. The search was narrowed down to three sports that were played widespread during the time such as baseball, horseracing and boxing. Horseracing was strictly restricted where as Baseball was well established since 1903. Boxing provided the stage for sports growth. Due to the ever-growing interest in boxing owners in many major cities build venues for local bouts, attracted a very less majority of fans and this resulted in empty stands. During the 1930's the owner of the Madison square garden looked to college basketball to fill the dates (Ringold, 2000).

With the success of college basketball attracting many sports this led to the establishment of the professional league. The NBA was found in New York City on June 6, 1946 as Basketball Association of America (BAA). The league adopted the name National Basketball Association in the fall of 1949.

National Basketball Players Association:

With the formation of NBA, many promoters looked to build Professional Basketball League to compete with the National Basketball Association. The first major league to compete with the NBA was American Basketball League which began operating in 1961. Though the league survived only a year it had a significant impact. Competing with the NBA meant drafting good players which resulted in paying players more and providing additional benefits. The players trying to strengthen their position decided to unionize and in 1962 formed the National Basketball Players Association. The Association was relatively weak and ineffective, until attorney Lawrence Fleisher was hired to direct in 1962 (Staudohar, 19998). By 1967, the first collective bargaining in sports had been negotiated.

Overview:

For years, sports have been viewed not only as a part of the entertainment industry but also bringing glory to a Nation. It is a big question today whether sports player's play for the love of the game or just render their services for money? The History of Basketball Association can be readily broken in three periods that is 1946 through 1950, 1950 through early 1960's and from 1960's to the present. During the early years 1946- 1950, teams were allowed to represent more than one city, but many of the initial teams could not make it to the present time. 1970's was the first year which witnessed more teams surviving. In the game minor changes were made to increase the fan interest.

Since 1967 when the sports bargaining agreement was reached in basketball there was an ever-growing attempts conducted in many ways of sharing power and dividing revenues between owners and players (Staudohar, 1998). Players could become free agents which allowed them to sell their services to the highest bidder to counter this the owners instituted a salary cap restricting how much can be paid to a player on a team as a whole. Moreover because of free agencies there had been an adverse effect on small clubs which had observed a rapid decline in their finances and so the owners decided to introduce a salary cap that would bring respite to such clubs. The main reason in instituting the salary cap was preventing high paying teams from signing quality free agents from other clubs and teams giving an opportunity by instituting a cap, so that weak paying teams could sign for free agents and improve chances of winning. My research paper tries to bring forth the effectiveness of Salary cap. It also tries to examine whether the salary cap was able to bring respite to weaker teams and also the reasons behind its ineffectiveness.

Secondary sources:

The secondary data collected is primarily from books, journals and articles. The Academic Search Premier Database and Business Source Premier Database have been used in this research to find appropriate journals and articles. These databases have provided a lot of information and also provided various electronic journals and articles. In these databases I found Labor Law Journals, Harvard Business Review Articles, Journals on Applied Economics, Harvard Journal Laws and Public policy. They also provide in-depth information on various other topics.

Terminology:

Reserve Clause: The initial use of the reserve clause was to bind a player to a particular club for life unless the player was sold or traded or put on waivers (Staudohar, 1998).

Free Agency: Free agency can be defined as allowing players to sell their services to other clubs after a certain period of time has elapsed (Staudohar, 1998).

Salary Cap: A salary cap is a limit on the amount teams can spend on player contracts, which helps to maintain a competitive balance in the league.

College Draft: The college draft held after the conclusion of the NBA season is the annual selection process by which each team makes two selections from the fifty four perspective players in the college draft. The process tries to promote team parity by permitting teams with poor records to select good players through the draft before teams with good record could select (Holyden, 1995).

Larry Bird Exception:

There was a very big advantage to players who were free agents. Free agents were allowed to sell their services to the highest bidder and also their salary is not counted against the cap. This is called the Larry Bird Exception, named under the former Boston Celtic player who took advantage of the situation (Staudohar, 1999). This exception allowed protecting teams from losing a star player and at the same time it allowed players to reap high salaries from free agency process.

Right of First Refusal: whereby a team about to loose a free agent could match the offer made by the other club and thus retain the player and also teams could be awarded players, draft choices or cash upon losing a free agent (Staudohar, 1998).

Determining the Salary Cap:

Revenue sharing is a process by which the percentage of the revenues generated by the league is transferred from the owners to the players in the form of salaries. By estimating the approximate level of leagues revenues for the year, the approximate salary cap can be set by taking the percentage level of the leagues income determined by the revenue sharing level and then dividing the number of teams in the league (Ringold, 2000). As the level of the revenue sharing of the player's negotiation goes up more amount is made available to them in the form of added money under the salary cap.

Is there Discrimination in National Basketball Association Player's Salaries (Dey, 1997)?

Professional sports like many other industries have provided blacks a greater opportunity to succeed. The African American Athletes in basketball gives insight of the past struggles faced by blacks (Dey, 1997). However black athletes have been the most successful in the sporting industry despite legal and social discrimination that would have dampened their spirits. Previous research have shown that there was a significant wage differential in the NBA during the mid 1980's. However the league has undergone several changes since then such as expansion of its league, increase in the level of free agency and allowing players mobility and also NBA instituting the salary cap. Before the mid 1970's owners applied the reserve clause which would bind a particular player for a club for life unless the player was sold to another club. The Research suggested through empirical analysis of data and salaries collected by players playing in different seasons that the National Basketball Association has a racially equal labor market which has experienced a tremendous growth over the past six years.

Commissioner David Stern:

In 1980, 18 of the National Basketball Associations of 23 teams were losing money; four of them were out of business. The Basketball player's salaries were climbing at a much higher rate than the team revenues, and there was a widespread drug use by players and also basketball fans barely filled half of the seats (Comte & Subrata N, 1993). All this was transformed by one man. The artist behind this turn around is David Stern. Stern was the NBA's general counsel from 1978 until 1980. In 1984 he was named as the commissioner. By his shrewd policies such as controlling players salaries, excellent marketing strategies, and programs such as drug control in basketball stern was able to increase the average attendance from about 10,000 per game to 17,000.

When Stern took office in 1984, player's salaries rose like mountain scrapers. To calm the fears of weaker club owners stern pushed through a salary cap. He convinced the NBA owners to give players 53% of the leagues revenues from tickets, network, local and cable television, radio and all international television that is broadcast live so that a salary cap could be initiated. He also convinced the National Basketball Players Association that a strong anti drug policy in sports is essential to rid the NBA of its bad image. Stern also promoted four superstar players to rebuild the league involving Kareem Abdul Jabbar, Michael Johnson, Larry Bird and Michael Jordon. These four players brought millions of fans to the game and help sell hundreds of millions worth of the leagues licensed merchandise. The NBA was the only professional sports league that was able to turn profits for its broadcaster NBC.

Michael Jordon:

He is one player that the whole world waits to see, his acrobatic skills and concentration is regarded to be one of the best in basketball. Ever teenager dreams to become like him, yes he is none other than Michael Jordon.

Michael Jordon arrived as the third pick in the college draft. The entire sports industry enjoyed exponential growth in his period (Harrington& Johnson, 1998). Jordon was selected college player for the 1983-84 season and in 1984 he lead the United States basketball team to gold medal at the Olympic Games in Los Angeles. Jordon then left college to play for the bulls. He finished his first round season as one of the top scorers in the league and also was named rookie of the year. He also led Chicago bulls for their first NBA championship in 1991.

Jordon has built on the achievements of some great players before him particularly were Julius Erving, Larry Bird, Magic Johnson who ignited the league's turnaround in the 1980's.

The revenues attributed to the Jordon "brand", was tremendous and in these the NBA enjoyed immeasurable profits. Jordon's sports videos have sold over 4 million copies and they generated revenues over $ 80 million. Jordon has inspired about 70 books out of these 70 books four books which were rated the best, brought nearly $ 17 million in sales. Michael Jordon Cologne had an estimated $ 155 million sale worldwide. The Commissioner David Stern Promoted and advertised their products through Michael Jordon and couple of players who were able to bring thousands of fans and revenues to the NBA.

General Discussion and Analysis:

The use of salary cap was first witnessed in basketball in 1984-85 season limiting how much teams can spend on player's contracts which helps to maintain a competitive balance in the league. In other sports such as baseball and football salary caps were contested in the 1994 baseball strike and the 1994-1995 lockout in hockey. Today every sport whether it is hockey, baseball, basketball or football has a free agency. Free agency can be defined as allowing players to sell their services to other clubs after a certain period of time has elapsed (Staudohar, 1998). While free agency allows a player to sell their services to the highest bidder salary cap restricts how much amount can be paid to players on a team as a whole.

If we see the history of National Basketball Association, player salaries were restricted during the years where the owners applied the "Reserve Clause". The Reserve clause is used to bind a particular player for a club for life, unless the player was sold or waived by the club for which he is playing (Staudohar, 1998). This resulted to what many economists call a "monopsony", (Staudohar& McAttee, 1998) which meant players could only negotiate with one buyer of their services, so until the player retired or was traded or waived to another club he had to deal with the team that owned his contract.

It was not until the late 1970's that the players concern over the reserve clause was addressed by the courts partially lifting the restriction. In a significant hearing in 1975 (Staudohar & Mc Attee, 1989) the arbitrator ruled in favor of two pitchers, Andy Messersmith of the LA Dodgers and Dave McNally of the Baltimore Orioles that struck down the reserve clause. In this case the two pitchers played for their teams in previous season, but did not sign contracts. The arbitrator ruled that the clubs could not extend their contracts any further than a year and that the two players were therefore free agents and could now sell their services to the highest bidder.

The National Basketball Players Association viewed that restraining of labor movement was in violation of antitrust laws and sued the NBA. The courts in its decision did not apply antitrust laws, but rather by clarifying that restriction on player labor mobility and freedom of contact imposed by all North American Leagues of professional sports enjoy an exemption from antitrust scrutiny as long as their labor markets are subjected to collective bargaining (Harper, 1997).

It was not until late 1976 the owners negotiated with the National Basketball Players Association in a new collective bargaining agreement eliminating the reserve clause option for nonrookie contracts. Under the agreement there was the establishment of a right of first refusal system whereby a team about to loose a free agent could match the offer made by the other club and thus retain the player and also teams could be awarded players, draft choices or cash upon losing a free agent(Staudohar, 1998). In succeeding collective bargaining agreement free agency continued to become more liberal. But due to this free agency which favored players many clubs were financially struggling, they wanted a relief through a salary cap.

Gary Betman devised a salary cap in NBA. This led to be the most innovative collective bargaining in sports (Staudohar, 1999). Commissioner Lawrence O' Brien and Current Commissioner David Stern in July 1982 met with Lawrence Fleisher counsel for National Basketball Players Association and its president Bob Lanier, to work out for a proposal of moderate salaries. Although the 1982- 83 season opened without ant agreement, the players made it very clear that the deadline to reach an agreement was April 1, 1983. At this time the owners were at a very big risk because a large amount of revenues came from post season play and there was a very high possibility that unions would strike.

The owners in order to have a salary cap brought an alternative of sharing leagues revenues. The leagues revenue sharing proposal was initially set as 40% then it rose to 50% and finally the owners settled to 53% which resulted in an agreement between National Basketball Association and national Basketball Players Association on March 31, 1983 establishing the first salary cap in sports.

In the NBA, salaries were negotiated subjected to the collective bargaining agreement in effect at the time of the negotiations. The right to negotiate with no experience (rookies) is allocated through an annual draft process (Eschker, Perez, Siegler el al., 2003). Under the 1983 agreement teams were allowed to retain players at any price that the payers made as free agents and the player's salary would not count against the cap. Therefore a team can reassign its free agent players at any price regardless of the impact that it would otherwise have had on the cap. Basketball's cap remains as a soft cap. A distinction is to be made between soft salary cap and hard salary cap. A hard cap doesn't allow the cap to be exceeded for any reason. A soft cap, which the NBA has, contains an exception which allows teams to exceed the cap under certain conditions (Staudohar, 1999). Another important feature of the 1983 agreement was that the teams that were at or over the salary cap could sign rookies for one year contract for only $ 75,000 for first round draft choices and $65,000 for lower picks and also setting up a drug control program that has been introduced in other sports.

The salary cap began with the 1984-85 season which was initially set as $3.6 million. When this cap limit was introduces already five teams were already paying more than $ 3.6 million, their payrolls were frozen. What followed afterwards in the 1985-86 season was that the salary cap was schedule to rise to $3.8 million but it actually rose to a high of $4,233,000 (Staudohar, 1998). The actual figure was higher than the scheduled figure because it represented only a minimum cap while the actual figure represents the maximum cap of 53% of revenues. In the 1985 agreement owners and players agreed that they would not act to stifle the free agency market.

In Negotiating for the 1988 agreements, the National Basketball Players Association sought to eliminate the salary cap as well as the college draft and it contested that there was violation of antitrust law by restricting player's movement in the labor market. Failure to get any relief from the courts the National Basketball Players Association made a very interesting move threatening decertification. The main reason for decertification was that now there would be no bargaining relationship between the union and the league thus the leagues antitrust immunity would now be eliminated. Under section 8 (a) (5) of the National labor Relations Act any move done by the league unilaterally would result in an unfair labor practice, but an agreement was reached between the owners and the union addressing a key issue concerning the college draft from seven rounds to three in 1988 and then just to two rounds thereafter. With fewer rounds in the draft, this would result more free agent rookies. The new six year collective bargaining agreement reached in 1988 retains the revenue guarantee and salary cap which allowed players to be more liberal free agency system in professional sports (Staudohar & McAttee, 1989).

At the 1993-194 agreement, the 1988 collective bargaining agreement expired. The league and the union this time were unable to come to terms on a new agreement but both sides did agree to a "no strike, no lockout" for one year during which they would continue negotiations. During the period of no collective Bargaining the NBA filed a suit against the player's association in National Basketball Association Vs Charles L. Williams to preserve the draft, salary cap and the right of first refusal during the period (Ringold, 2000). The courts ruled that labor exemption extended as long as a collective bargaining relationship existed.

The college draft held after the conclusion of the NBA season is the annual selection process by which each team makes two selections from the fifty four perspective players in the college draft. The process tries to promote team parity by permitting teams with poor records to select good players through the draft before teams with good record could select (Holyden, 1995).

Negotiations for 1995 agreement brought some interesting developments. The union was now determined to eliminate the salary cap, college draft and the right of first refusal (Staudohar, 1998). Although the National Basketball Players Association agreed to play the 1993- 1994 season without a new agreement they tried to deploy their old plot by decertification so as to make way for favorable antitrust decision. The decertification election was set for September 1995. Many great players like Michael Jordon, Patrick Ewing sought to decertify the union. What this would have possibly done was it would turn the basketball salary cap from soft to hard which many players were not willing to accept it. A hard cap doesn't allow the cap to exceed for any reason. Facing this situation The National Basketball Association reacted in two ways, it declared a lockout on June 30, 1995 and also raised the possibility of delaying the 1995-1996 season. By a vote of 226 to 134, the players voted to keep the union.

The six year basketball agreement reached in 1995 contained a provision that allowed the owners to reopen negotiations after three years if the percentage of basketball related income to players exceeded 51.8%. The players did not ratify the agreement this resulted in a lockout on July 11, 1996. The dispute involved concerning the distribution of $50 million in television income. Another reason for players not ratifying the agreement was Jerry Reinsdorf's Chicago bulls was caught understating the revenues to the players association, which casts suspicion on the truthfulness of the teams financial reporting under the revenue sharing agreement (Comte& Subrata N, 1993). After that incident all the teams compensated the player's $ 60 million group settlement. The lockout lasted less than a day before the agreement was finalized. Neither side were pleased with the outcome of the 1995 agreement the reason being some owners signed huge contracts to players which meant less money was available for other players.

Until 1998, the National Basketball Association and its players were unique compared to baseball, football and hockey. While other sports were plagued with work stoppages, basketball had none. It was often cities as an example of good labor management relations what made the game even more remarkable (Staudohar, 1999).

On march 23, 1998 owners voted 27-2 to reopen negotiations on the 1995 agreement this was because the players acquired 57% of the $ 1.7 billion of league revenue well over the 51.8% required at the same time to reopen negotiations. There was also an agreement between the league and the NBA and Turner television network for a total of $ 2.64 billion, raising each team's annual income from $ 9 million to $ 22 million.

Still the owners went to the bargaining table to obtain a hard salary cap while the players claimed that the league was falsely testifying that it was undergoing economic hardships (Staudohar, 1999). The players did not accept the hard salary cap and in a few days later the league announced a lockout beginning on July 1, 1980. The lockout which began was the first labor action in NBA History but third in professional sports less than a year (Chass et al.; 1995).

Factors Leading To the Lockout:

There were various factors that lead to the lockout. Attendance was down 15% to 20% in some cities during the 1997-1998 season. The sales of NBA apparel were slumping and more teams were losing money. Although the 1997-1998 season was success as Chicago Bulls won their sixth league championship and also astounding performance of Michael Jordon in the playoffs the game witnessed some violent behaviors from players and fans. This brought a lot of spur to the games.

Indiana Pacers forward Ron Artest was seen chasing a fan who hit him with a full beverage cup after Artest got into an on- court scuffle with the Detroit piston's Ben Wallace. Several team members joined Artest resulting punching anyone they could reach. The game was ended with the referees calling of the game still 45.9 seconds left and the pacers were forced to exit with Detroit fans showering popcorn and beer on them. Nine players were hurt in the accident (Thigpen, Szczesny, Bailey& Saporito, 2004).

The NBA commissioner David Stern was outraged with the players on the court behavior. He suspended Artest for the rest of the season costing him some $5.5 million in lost wage and Indiana's Stephen Jackson who accompanied him into the stands was docked for 30 games.

Another possible reason for the lockout was the involvement of sports agents. Sports agents were never involved in collective bargaining agreements. Beginning with the 1994-1995 season however agents were in the game. Agents serve as representatives for the individual players and negotiate their contract with individual team owners (Carrel & Heavrin, 2004).

Some agents also manage the assets of their players and negotiate their contracts, many fans believe that the agents have become a destructive force in the sports industry and have caused huge rises in some player salaries. Other possible reason behind the lockout included instability within the union.

Major Concerns:

The major issues were salary cap, free agency, the rookie pay scale, minimum salaries and aberrant behavior. In the issue of salary caps the leagues idea was to turn the soft salary cap into hard salary cap. In a hard cap it doesn't allow the cap to be exceeded for any reason. Another major concern was that the League wanted to eliminate the Larry Bird Exception. Larry Bird Exception: There was a huge advantage for players who were free agents. Free agents were allowed to see their services to the highest bidder and also the salary is not counted against the cap. This is called the Larry Bird Exception named after the former Boston Celtic Player (Staudohar, 1999). The exception was allowed to protect teams from losing star players at the same time the players had an opportunity to reap high salaries from the free agency process. If the Larry Bird exception was eliminated the salaries would be dampened and the union clearly opposed the elimination of Larry Bird Exception.

The Rookie pay scale had its own problem under previous agreement all first round draft choices were required to sign a three year contract but the contract can be extended after two years. At the end of the three tear period the players became free agents but the real concern for the league was that those players who were drafted by the teams showed an unusual commitment and interest which meant that the owners extended their contracts thus tying a player for several years at a very high price. The league proposed a five year rookie pay scale with the right of first refusal for at least one additional year. The next issue was minimum salaries. Due to the nature of the soft salary cap star players were able to make more and a little was left for the last three or four players in the 12 man team. The union proposed a scale that would increase the minimum salaries with the Players number of years of service in the league.

Another major concern was addressing the aberrant behavior. Since 1984 NBA had a drug control program and the leagues desire was to add marijuana, opiates, performance enhancing drugs and alcohol in the list. Many players were apprehended by the cops in connection of possession of marijuana. Another issue that the league wanted to address under the aberrant behavior is many players were involved attacking fans and team officials and the league wanted to seek punishment for those players who either showed dissent or misconduct.

The 1998-1999 season witnessed among negotiators was Intraorganizational Bargaining (Staudohar, 1999). It refers to bargaining within its own constituency. In this kind of bargaining the union's chief negotiator had to deal with other union leaders and members where as management's chief negotiator need to bargain with other members of the management group. The key issue negotiators address in Intraorganizational bargaining is unifying the group behind an issue. Intraorganizational bargaining has been observed frequently in sports.

Legal Issues:

Under this the major legal issue was whether during the lockout whether owners were obligated to pay players under guaranteed contracts (Ringold, 2000). According to the labor law policy the reason for a lockout is for employer to exert pressure on employees by preventing them from earning their paychecks. However in the NBA majority of the players have guaranteed contracts under these terms the contracts generally provide that the player be paid for the duration of the contract whether he is playing or not, but there are situations where this policy doesn't apply, for instance a players own misconduct causes him to miss a game due to suspension orders, there is no obligation on the part of the team to pay the player for that game.

When the league announced lockout on July 1, 1998 the Players Association sent a notice to the arbitrator John D. Feerick contesting the legality of the owner's intention to withhold paychecks from the players during the period of suspended play. The unions contended that under this agreement the players have to receive the paychecks in response the NBA challenged both the authority and the jurisdiction of the arbitrator John D. Feerick.

On July 10, (Ringold, 2000) the NBA filed the suit seeking arbitration alleging that the union did not request for arbitration until the collective bargaining agreement had expired and therefore the provision for arbitration in the agreement no longer applied. They also claimed that since the collective bargaining agreement was no longer in force, Dean Feerick no longer had jurisdiction. The district court then denied the stay of arbitration.

It held a decision that the Federal Law prevailed over the individual terms of guaranteed contracts, and that the owners were no obligation to pay players during the duration of the contract.

Negotiations:

During the negotiations the owners dropped the hard salary cap in late October. The reason behind being while a hard cap would help weaker teams these teams were already experiencing low payrolls. A hard cap would further lower the payrolls and raise the profits of strong teams in big markets with a little effect on the competitive balance of the league.

The heart of the dispute was sharing the leagues revenues with players eliminating the salary cap. The owners were willing to share the leagues revenues from 50% to 53% while the players came down from 60% to 57%. The owners also put forth an escrow plan (Staudohar, 1999) which was tied into these percentages to the fourth through sixth years of a proposed seven year agreement. This escrow plan meant that at the beginning of the season 10% of the player's salary would be withheld and placed in an escrow account. If the percentage of the revenues exceeded payments would be made to the owners out of the escrow account.

During the negotiations the commissioner David Stern played a very clever tactic by taking the case directly to the players. He mailed a 9 page letter outlining the owner's latest proposal (Staudohar, 1999). The union reacted by sending players a 19 page response but Stern clever tactics worked by announcing a "Final offer", to the union and urging players be allowed to vote on this offer. This tentative agreement was quickly ratified by the players with a vote of 179-5 and the owners 29-0. The season began on Feb 5 1999, with 50 games to be played rather than the traditional 82. With the end of the six month lockout on June 6, everybody connected to the NBA signed a victory especially Commissioner David J. Stern held his superior position in the league (Bernstein, 1999). The result of the lockout was owners losing $ 1 billion where as the players lost $ 500 million in foregone salaries as a direct result of lockout (Staudohar, 1999).

Settlement:

The beauty of the NBA deal that it takes away power guaranteed security for both sides (Jay, 2004). Players get guaranteed contracts when they are drafted out of school, but the length and value of the contracts are set by a formula. In a surprise agreement the National Basketball Players Association agreed to cap the salaries of future star players and raise the leagues minimum pay (Belsie, 1999).

Although the hard salary cap was eliminated the owners won a significant deal on the individual salaries, the first ever witnessed in sports. Certain restrictions on the salary cap remained (Staudohar, 1999) such as any team could sign two additional players each season one at the leagues average salary and the other at the leagues median salary and there is no limit on the total salary spending by the 29 teams in the first three years of the agreement.

One significant settlement was a limit on maximum annual raises of 12% for Larry Bird type free agents who re-sign their old team old team and 10% for other players. This arrangement is especially advantageous for smaller market teams because free agents will make somewhat more if they re-sign with their old team. The leagues revenue sharing to the players were guaranteed to a total of 55% in year 4 through year 9of the agreement and 57% in year 7. The league can extend the agreement from six to one additional year depending upon the leagues option. An escrow tax of 10% is withheld from players check if income devoted to salary exceeded 55% in year 4 through year 6.

Summary and Conclusions:

Since 1967 when the sports bargaining agreement was reached in Basketball there has been ever-growing experiments conducted in many ways of sharing revenues between the owners and the players. Earlier in the 1970's the reserve clause was applied by the owners to restrict player's mobility; it was not until the 1976 that the owners negotiated with the National Basketball Players Association to eliminate the reserve clause option from non rookie contracts. The paper also examines the different approaches made by the owners and the players to apply antitrust laws. The courts in their ruling clarified that restriction on player mobility and freedom of contact imposed by all North American leagues of professional sports enjoy an exemption from antitrust scrutiny as long as their labor markets are subjected to collective bargaining.

The paper also brings forth the implementation of the salary cap with the 1984-85 season. It also explains how a salary cap is determined. It also brings forth the collective bargaining agreements between the leagues and the players and also the 1998-1999 lockout. It also tries to find the cause of the lockout, the legal issues involved in the lockout, the negotiations and finally the reaching of a settlement.

Free agency gives the player a sole right to sell his services to the highest bidder this resulted in major clubs playing huge salaries to quality players. Due to these high salaries possible due to free agency many clubs were struggling financially. The Salary cap was introduced to prevent high paying teams from signing quality free agents from other teams, this would result low paying teams which are under the cap to sign free agents and improve their chance of winning.

Though the salary cap was able to set a limit in the salaries of the players and the team as a whole but due to the cap being soft salary cap it was highly ineffective because in a soft cap it made possible for teams to exceed the cap.

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