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business newsSports Teams Screw on Salary Caps
Former Wall Streeters use expertise to limit other people's pay.
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But while there are few jobs available managing money in the ultra-competitive sports world, the age of "moneyball" (in which statistical analysis trumps traditional scouting techniques) could potentially see the emergence of a new industry: capology, or the strategy and implementation of pro-sports salary caps.
Though some sports, such as baseball, remain salary-cap-free, the practice is growing - particularly given the fact that a number of franchises are finding it necessary to borrow money just to stay afloat. The NBA, for example, is borrowing $175 million -- for 15 teams, or approximately half the league -- in a private deal arranged by JPMorgan (JPM) and Bank of America (BAC).
“The cap was formed in the NFL in 1993, so we’re still in a nascent stage with management and the salary cap,” says Andrew Brandt, a leading salary-cap expert, who also works as a professor of sports law at Wharton and as a consultant to the Philadelphia Eagles.
A former players' agent, Brandt managed the Green Bay Packers’ salary cap for almost a decade before leaving the team last year. Offering his unique take on the business of football as president and founder of The National Football Post, Brandt has been bombarded with questions about teams’ salary cap and management needs:
“I get so many emails through my website from people that are interested in getting in the business. The number-1 thing I hear about is being an agent, but I am noticing a close second is negotiating contracts and managing salary caps. I get lots of contacts from people in the financial world who would like to transition; bankers, accountants, financial managers.”
Wall Street types are used to the sports world's snarling competitiveness, and many finance people are already in the field. One of the foremost cap managers, Chicago Bulls' senior financial executive Irwin Mandel, is a CPA who worked for 4 years in Arthur Anderson & Co.’s tax department before coming to the NBA.
The Tampa Bay Rays' general manager Andrew Friedman -- who was named Executive of the Year last year by the Sporting News -- previously worked as an analyst at Bear Stearns, and then as an associate at MidMark Capital. When the Orlando Magic fired CPA Scott Herring last year, his capologist duties were taken over by team CFO Jim Fritz, whose previous place of employment was PricewaterhouseCoopers.
“In terms of cap management, there is value in number crunching and statistical analysis. I think there are certain skill sets that would be helpful but sports tend to be unique to the rest of the world,” cautions Brandt. “Dealing with the whims of athletes, dealing with young people that have different insecurities and needs. I’ve had to tell people that everything you know in your industry you have to forget.”
New economic realities could potentially see the cap mentality transcend the insulated world of sports. In 2009, the Senate floor has already seen the introduction of the Cap Executive Officer Pay Act of 2009, suggests that the business world requires many of the same management skills as the LA Raiders.
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