In an article in the Wall Street Journal today, Reed Albergotti writes that eliminating the salary cap on free agents in the NFL hasn’t caused the season to “become the discombobulated cash volcano everyone was hoping for.” Now, I don’t know very much about football, but I do know enough about economics, and I find the author’s conclusion to be economically nonsensical (emphasis mine):
So with apologies to Messrs. Friedman and Hayek, here’s the likely game summary on the free-agent season that was: The free market ended up making the NFL’s players poorer and its owners richer than ever.
Removing a salary cap would not cause salaries to decrease — it would cause them to either increase or remain unchanged. If the salary cap were ineffective (i.e., above the equilibrium price), then removing it would result in no change in salaries. A football team owner is going to hire q* football players and pay them a salary of p* nevertheless. If the salary cap were effective (i.e., below the equilibrium price), then removing it would cause salaries to increase to the equilibrium level.
From what I can tell from the article, the author is incorrectly assuming that the salary cap for football players was effective (i.e., their past salary was below their market value). On the contrary, the salary cap was probably ineffective (i.e., their salary equals their market value), which would explain why nobody is “throw[ing] irresponsibly large sums of scratch at the sport’s top free agents” upon its repeal. This is evidenced by the fact that, while under the cap, many teams hadn’t used up all the funds they had allocated in salaries. According to a recent article in the Post-Dispatch, this group includes the Saint Louis Rams:
The Rams have only about $76 million committed to salaries so far in 2010, and with projections of $30 million or $35 million in cap space when all is said and done.
