Salary Cap StructureSalary caps are different for each team based on their market, historic payrolls, and club performance. GMs must ensure that their team stays under the year's salary cap. As of a ruling on June 16th, 2011, GMs must also ensure that their team stays under future salary caps with a margin that gives them room equal to the minimum of 30% of the cap and $20m. The rule has been dubbed the 2010 Angels rule as is prevents GMs from financially ruining future years with cash exchanges.
Example: The year is 2011 and the Pirates’ cap in 2013 is expected to be $62m. The 30% buffer allows the team to have a projected salary based on current contracts of $80.6m in 2013.
In 2011, the league's variable salary cup structure switched from a tier-based to a formula that is based on averages of team financial numbers from 2007-2009. It is designed to take into account current market position, winning, and real life economic fluctuations. This new system fixed two problems that exist in the previous structure: huge swings in cap year-to-year for mid-large market teams AND the lack of a tie to real life salaries over time.
Explanation of the formula can be found below. As a GM, all you need to know is that you can spend freely without that affecting your cap position for future years. The more you win over time, the higher your cap will eventually go. The three-year average with a one-year delay prevents it from immediately happening, so the effects will be seen over several years rather than over one off-season.
StandReal life payrolls + $20m are used. The standings are based on the real life franchises before 2009 and the fantasy franchises for years after 2008. A final standing of 8th place in a season would correlate with the real life payroll (+$20m) to determine the Stand value for that year.
ReturnThe return is the ultimate formula in determining the cap for a year. The new salary cap is 25% of the stand value plus 75% of the prior year's salary cap. A three-year average of returns is then used two years down the line. Therefore, the average returns between 2007 and 2009 would be used in calculating the 2011 cap.
Limitation of ReturnThe return is bounded to be no more and no less than $20m or 20% of the prior year's salary cap. This prevents huge fluctuation in salary caps year to year.
ExampleNew York Mets Franchise GM Standing 2007-2009: 10th, 10th, 30th
10th highest salary in 2007: $93.5m
10th highest salary in 2008: $98.9m
30th highest salary in 2009: $21.8m
Mets Caps 2007-2009: $135.2m, $169.4m, $200m
+0.25(93.5) = 125)
+0.25(98.9) = 152)
+0.25(21.8) = 155.5)
 = 144.2)
The 2010 cap cannot be more than $20m or 20% away from the 2009 cap which would restrict it within a range of $180m - $220m. The 2010 cap will therefore drop to $180m for the Mets.
