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The NFL Salary Cap Turns 25: How it Began and Where It Is Now

The NFL Salary Cap: What it is?

The NFL Salary Cap: What it is?

Twenty-five years ago, pro football changed forever when it instituted the salary cap. Gone were the days when franchises could stockpile talent for years. In their place was a new level of parity that would transform the league. For a team like the San Francisco 49ers, a franchise that had won four Super Bowls by spending big and accumulating talented depth, there were only two choices: change or perish.

"All of a sudden, I'm looking at a franchise that still has a veteran group of players and our goal was always the Super Bowl," says Carmen Policy, president and CEO of the 49ers from 1991-97. "Working under the cap literally became a matter of survival for us."

They didn't just survive. They went big and won, and Policy became known as the "Master of the Cap." In 1994, the first year of the cap, San Francisco restructured its team to assemble an unprecedented roster of veterans that included five future Hall of Famers to win a fifth Super Bowl. To do so, they had to operate in a manner that teams never had before as the league adjusted to the new cap.  

To understand how the salary cap came to fruition in the NFL, one must look at the evolution of free agency, because the two go hand in hand and came to the league at the same time. "Unrestricted free agency has been extremely beneficial to players," says Mark Levin, director of Salary Cap and Agent Administration for the NFL Players Association (NFLPA). "It's something that the union fought for over years and years, and we were finally able to achieve. It didn't come easy, though."

NFL players had been fighting for decades for unrestricted free agency, and in 1989, the NFLPA sued the league. The owners preemptively responded with the limited "Plan B" free agency system, which allowed teams to protect 37 players on their rosters. The rest became free agents.

New York Jets running back Freeman McNeil led a lawsuit filed by seven players against Plan B, and a federal jury ruled in 1992 that it violated antitrust laws. This prompted the team owners and NFLPA to resume negotiations, and in 1993, they agreed to free agency in exchange for a salary cap to maintain competitive balance. Free agency would begin in 1993 with the cap starting in 1994.

The effects of free agency became immediately clear the moment Philadelphia Eagles defensive end Reggie White signed a four-year contract with the Green Bay Packers worth $17 million in 1993. Policy realized he had a challenge on his hands when San Francisco's All-Pro defensive end Pierce Holt signed a three-year guaranteed contract with the Atlanta Falcons for $7.5 million.

"The game-changer was that we were going to have to acknowledge a far more aggressive form of free agency than we had ever experienced," says Policy. "I basically had to sit down and figure out how I'm going to keep this team together."

In 1992, the 49ers went 14–2 before losing to the eventual Super Bowl champion Dallas Cowboys 30–20 in the NFC Championship Game. The Cowboys were a team composed primarily of young players still in rookie contracts. They could (and did) win a few more Super Bowls before free agency and the salary cap forced them to make difficult choices about players.

After that 1992 season, the 49ers, a team full of veterans, would have to begin restructuring the team immediately if they were going to have a shot at another Super Bowl. Jerry Rice had two years remaining on his contract, but league MVP Steve Young's was at its end, and he was in a quarterback controversy with Joe Montana, who had just come off injured reserve after nearly two seasons.

In addition, many other key players would become free agents over the next three years. The team needed to act before those contracts ended, and its weapon of choice would be the signing bonus.

"I saw an opening that would allow us to extend the contracts of key players that we wanted to keep on our team," says Policy. "It required an infusion of cash that would allow us to do the signing bonuses spread out over future years with cooperation from players in terms of the way we structure contracts."

Signing bonuses give teams more leeway to compensate players under the salary cap because they are prorated. If a team signs a player to a five-year contract with a $10 million signing bonus, it is spread out over the length of the contract so the hit is only $2 million each of those five years.   

But that's with the cap in place. If Policy restructured the contracts of key players with lucrative signing bonuses in 1993, they would not count against the first cap in 1994.

He presented his plan to 49ers owner Eddie DeBartolo Jr., whose father owned one of the largest real estate businesses in the United States. Afterwards, the two men sat down with Eddie DeBartolo Sr., who loaned them the $10 million needed to keep the players.

"We got the cash. Put it into the team. And that's how we kept the team together," says Policy.

The work began immediately. After having traded Montana to the Kansas City Chiefs earlier that spring, Policy signed Young to a five-year, $26.75 million contract, the highest in NFL history at the time. Then in December 1993, Policy locked in several key players, signing No. 2 receiver John Taylor, tight end Brent Jones, offensive tackles Harris Barton and Steve Wallace, safety Merton Hanks and cornerback Eric Davis with restructured long-term contracts. Even with that foundation, San Francisco went 10–6 in 1993, lost to Dallas 38–21 in the NFC Championship Game and was still significantly above the inaugural salary cap.

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The formula for setting up the salary cap has evolved with each collective bargaining agreement (CBA), but its basic fundamental is that players are guaranteed a percentage of the revenue the league generates, including television contracts and stadium naming rights. From that percentage, the NFL and NFLPA determine the cost of benefits, which includes pension, 401k and preseason and postseason pay. Once that is removed, the remaining percentage is the salary cap. To give an example of how finite this is, the Fox Network's outbidding of CBS to begin broadcasting NFL games helped push the first cap from $32 million to $34.6 million in 1994.

By late March, the 49ers were just $456 under the cap. That was survival, but not enough to build a championship team, so they had to make some very tough choices.

To free up space, the 49ers traded proven veteran quarterback Steve Bono to the Chiefs and cut longtime kicker Mike Cofer, backup running back Amp Lee, linebacker Keith DeLong and guard Guy McIntyre, who had won three Super Bowl rings with the team.

Two of the toughest moves came with fullback Tom Rathman and linebacker Bill Romanowski. Rathman had been an offensive weapon and surefire blocker for Montana and running back Roger Craig on two Super Bowl teams, but he had been plagued by injuries and was set to make $985,000. The 49ers cut him in late June, and he signed a two-year, $1.2 million contract with the Raiders in July. 

Romanowski had recorded nearly 450 tackles in six seasons and was set to make $1.2 million. San Francisco traded him to the Philadelphia Eagles for a third- and sixth-round pick the day before the 1994 NFL Draft. In his autobiography, Romanowski recounts telling his wife, "They don't want me here. I'll make a name for myself there." He lived up to that statement, going on to win two more Super Bowls with the Denver Broncos, but his trade is a reminder of the reality of the cap.

"If we don't trade Bill Romanowski, we really would not have been able to sign all of our draft picks because of the cap," says Policy. "By trading him to Philadelphia, that enabled us to utilize all of our draft picks and get those guys signed."

With cap space coming piecemeal, San Francisco went to work signing players. Almost all of them came from NFC competitors.

"If you want to win, and you see New England do this today, you always take from your competitors," says Toi Cook, a defensive back who signed with the 49ers after seven seasons with the New Orleans Saints.

San Francisco also signed Cook's teammate, linebacker Rickey Jackson, as well as defensive end Richard Dent from the Chicago Bears. From the NFC East, San Francisco signed Dallas middle linebacker Ken Norton Jr., New York Giants three-time Pro Bowl center Bart Oates and wide receiver Ed McCaffrey.

"The only player signed from the AFC was San Diego linebacker Gary Plummer, and we met them in the Super Bowl," says Cook.

Of course the biggest acquisition was Deion Sanders. "Neon Deion" had established himself as the premier cornerback in the NFL and electrified Atlanta fans playing for the Falcons and the Braves. However, after a 6–10 season with the Falcons, he began looking to offer his services to a winning team while devoting himself to football. After meeting DeBartolo Jr., he decided that the team in 1994 would be San Francisco.

The 49ers structured Sanders' contract so he could join the team after he finished playing baseball and be an unrestricted free agent after the 1994 season. This enabled him to sign a seven-year, $35 million contract with the Cowboys in 1995.

Sanders made $1.1 million in base salary for the 49ers in 1994, but he had a shot at an additional $750,000 in incentives. Others, like Cook, who turned down $1 million to play for the Cincinnati Bengals, signed for the league minimum of $162,000 but also had significant incentives on the back end.

"I felt like I was going to make a million dollars with the 49ers and I was going to get a Super Bowl ring," says Cook. "That was more valuable to me than playing in Cincinnati."

This was a complete departure from the approach of previous head coach Bill Walsh, who built his team through the draft and then cut players before their performance declined — or at least that was the goal. Policy was signing veterans to get one to three more years out of them.

It did not come without sacrifice from the players, either. Norton, Plummer and Pro Bowl safety Tim McDonald restructured their contracts to make room for Sanders. Then, in late August, Rice, McDonald and running back Ricky Watters gave up incentives so the team could field a practice squad.

"We were like guys out on the street with a tin cup going around to some of our players saying, ‘It's not that we don't want to pay you, we just need something from you to get the cap space to allow us to do it.' And they did it. They gave us a practice squad," says Policy.

Five months later, San Francisco capped off the season with a 49–26 win over the Chargers in Super Bowl XXIX.

Sanders would win another Super Bowl with the Cowboys the next season, but he has said that the 1994 49ers were the best team he ever played for. While other champions have had better records, this team may be the best to ever be assembled and disassembled so quickly, as many of the players would leave after the 1994 and 1995 seasons.

"When you go down the roster and look at each player, it's probably the greatest of all time, in my opinion," says Cook. 

Policy was criticized by many owners, including Dallas' Jerry Jones, for mortgaging the 49ers' future for success in the present. In some ways he was right. The 49ers made the playoffs the next four seasons and the NFC Championship Game in 1997. However, by the end of the 1998 season, the 49ers were millions over the salary cap and began having to purge their roster of veterans.

Then everything crashed with a career-ending concussion to Young in 1999, as the 49ers went 4–12, ending their streak of 16 seasons with 10 or more wins. By that point, DeBartolo was in the midst of ceding control of the franchise because of legal troubles, Policy was president and CEO of the Cleveland Browns, and Walsh had returned as vice president and general manager.

Like the 49ers, every franchise has had to rebuild since the salary cap was implemented, and instead of adjusting on the fly, they are now able to do so with a mix of building through the draft and signing veterans through free agency at market value. The New England Patriots are the poster franchise for doing this, but it is something every successful team in the league now does.

The salary cap has also mushroomed along with the NFL's popularity. By the end of the 1990s, the cap was just under $60 million. This year's cap is $188.2 million and has evolved with each collective bargaining agreement.

In 2011, the league added a minimum spend requirement after smaller market teams like the Cincinnati Bengals and Tampa Bay Buccaneers were coming in far below it.

"Prior to 2011, you had teams that were spending in cash to players as a percentage of the cap in the high 60s and lows 70s," says Levin. "We had to come up with a system that requires teams to spend without creating a ceiling, and we accomplished that with the 89 percent of cap spending requirements for each club over two separate four-year periods."

Players also now receive 47 percent of all revenue, and salaries have increased significantly. In 1995, the median player salary was $301,000. Today, it is $860,000.

Despite all of this growth, do good teams ever need to be as creative as the 1994 49ers were to survive under the salary cap?

"It's not necessary," says Policy. "We've been dealing with the system for 25 years."

— Written by Aaron Tallent, who is part of the Athlon Contributor Network. Tallent is a writer whose articles have appeared in The Sweet Science, FOX Sports’ Outkick the Coverage, Liberty Island and The Washington Post. Follow him on Twitter at @AaronTallent.

(Top photo by David Durochik/AP)