What is a salary cap? Why have one?
A salary cap is a limit on the amount teams can spend on player contracts, which helps to maintain competitive balance in the league. Without a salary cap, teams with deeper pockets can simply outspend the remaining teams for the better free agents. The basic idea is that a team can only sign a free agent if the total payroll for the team will not exceed the salary cap. So a team with deep pockets is playing on a level playing field with every other team. The evidence bears this out: For the 2001-02 NBA season, the correlation between team payroll and regular season wins was about 0.13. In other words, there is nearly no correlation between salary and wins. By comparison, MLB (with no salary cap) had a much stronger correlation of 0.43 for its 2002 season.
