In sports, salary caps are financial regulations that have been set across multiple leagues limiting teams to a specific amount they can utilize for the salary of players. Much like companies, where an upper limit is set on the total amount an employee can be paid, salary caps in sports limit how much a team is allowed to spend on players. While they don’t directly influence merchandise and ticket prices, salary caps play a major role in influencing teams’ decision to acquire or retain players.
One of the most influential mechanisms in American professional sports, franchises are required to keep salary caps in mind when building a team and compensating players. Over the years, it has emerged as a prominent rule that maintains fairness in the game.
What is a salary cap?
In simple terms, salary cap sets the maximum – and sometimes minimum – amount which a team is allowed to spend on player salaries.
Why is it needed? Caps play a crucial role in ensuring competitive balance in sports. This means, it prevents wealthy or big fan-favorite franchises from stockpiling talent. Also, there are various forms: It can be “hard” (including strict limits on teams) or “soft” (allowing certain exceptions like for a few players or on luxury taxes).
Salary cap in major US sports
The United States is home to some of the major leagues in the world, such as National Football League (NFL), National Basketball Association (NBA), Major League Baseball (MLB) and Major League Soccer (MLS). Each of them have their own set of rules and regulations to limit teams/franchises from overspending.
Salary cap in NFL
In 2025, the NFL and NFLPA agreed to a salary cap of $279.2 million per franchise, as per nfl.com.
The latest number highlights a $23.8 million increase compared to the $255.4 million cap in 2024. Interestingly, this is more than $100 million to what it was in 2018 ($177 million) and about $200 million more than in 2005 ($85.5 million), highlighting the growing influence of the league.
In recent times, it witnessed a downtick only in 2021 ($182.5 million) – compared to $198.2 million in 2020, due to the COVID-19 pandemic.
The NFL follows a stringent salary cap system that does not permit any of the 32 teams to exceed the limit. This helps in maintaining competitive balance.
Salary cap in NBA
The National Basketball Association earlier set the salary cap for the 2025-26 season at $154.647 million, while the tax level is $187.895 million. Both came into effect on July 1. Earlier, the NBA salary cap was $140.588 million for the 2024-25 season.
Unlike the NFL, the NBA has a “soft cap,” wherein teams are allowed to overspend depending upon a variety of exceptions that have been mentioned in the collective bargaining agreement (CBA). Notably, 29 of the 30 teams spent more than the salary cap on player salaries in the 2023-24 season.
The report further highlights that owners of each of the 30 teams in the NBA are required to spend at least 90% of the salary cap in all seasons. This ensures that players get fair share of revenues. In cases where a team’s payroll exceeds the salary cap, then they are required to pay tax. In the ongoing season, the teams start by paying $1.5 for each dollar they go beyond the threshold. This rate increases when they go further.
Salary cap in MLB
Unlike other major US sports leagues, Major League Baseball has never had a salary cap. In MLB, owners are allowed to spend as much money as their pockets allow, but there is a luxury tax system – Competitive Balance Tax (CBT) – that requires teams to pay money to the league whenever they exceed a set payroll.
MLB’s official website states that whenever clubs exceed a predetermined payroll threshold, they are subjected to the “Competitive Balance Tax”. Franchises are required to pay taxes on each dollar above the threshold, with the tax rate increasing depending on the number of consecutive years a team exceeds the limit.
CBT is determined by the average annual value of each player’s contract on the roster along with additional player benefits. The threshold in 2025 stood at $241 million, while it is $244 million in 2026.
The current CBA is all set to expire on December 1, 2026. A lookout is likely in MLB after that as talks are going on with unions to bring in a salary cap. While MLB owners are allegedly pushing for a salary cap in the league, the players have opposed the idea for a long time.
Although salary caps are contentious in collective bargaining agreements, they ensure team expenses to remain aligned with the league revenues. Overall, the salary caps are more than just financial rules and serve as the backbone of competitive fairness in sports.