Following news of the Melbourne Storm's extensive breaches of the National Rugby League (NRL) salary cap, the debate about the need for a salary cap returned. The question is whether the calculated manner of the Storm's breach of the salary cap is a product of desperate times in which clubs attempt to attract or retain marquee players to appease sponsors and fans, and remain competitive in the face of the player drain to Europe and to rival football codes. The NRL and club chief executives have expressed unanimous support for a cap. However, the debate remains as to whether the salary cap is an unlawful restraint of trade that could be successfully challenged if a club or player was prepared to take that step.
Would the NRL salary cap survive a legal challenge?
A salary cap imposes a maximum pool of money in which clubs can spend on players' salaries. If the NRL salary cap was challenged, the common law restraint of trade doctrine and the Nordenfelt test¹ would be applied to determine whether the salary cap is reasonable in the circumstances having regard to the interests of the parties concerned (ie the NRL, the clubs and the players) and the interests of the public.
For clubs that have successfully marketed themselves to increase revenue streams, a restraint on their ability to apply additional revenue towards player salaries is arguably unfair. There are several examples in which successful clubs have had to shed many players because of salary cap restraints, despite having the financial capacity to meet their players' salary expectations.
Given the commercialisation of sport, players would expect to be rewarded for their athleticism and paid their full market value. Any restraint placed on a player's maximum earning capacity is arguably unreasonable, particularly when there are no caps placed on the salaries for other professionals like accountants. Accordingly, it is questionable whether the NRL can establish that a cap is in the interest of players too. For high profile players, the cap denies their potential to earn a fair income. Additionally, for the majority of players, the limited pool of funds inevitably means that in order for clubs to retain their high profile players, less funds will be left available for distribution to the remaining players. However, the existence of a cap means that there is potentially more opportunities for players to join the rugby league playing rosters because there are 16 potential club employers.
Reasonableness of the restraint
In order to survive a legal challenge, the NRL must have a legitimate interest in imposing the salary cap restraint and the restraint must not go further than what is necessary to protect that interest. Without a cap, the NRL competition and indeed, some clubs, probably would not survive. Clubs have folded or have had to rely upon advanced grants from the NRL in order to continue to operate and pay players and staff. Accordingly, to ensure financial stability in an environment of high demands there is a need to control players' earning capacities. Further, it is arguable that any shortfall in players' incomes can be supplemented by certain third-party endorsements that are allowed by the NRL.
The survival of existing clubs and the production of quality games are essential to the continued existence of the NRL. This justification was recognised as a legitimate business interest by the High Court in Buckley v Tutty². The product of the NRL competition is different to a business product as the sport is dependent on the existence of financial clubs and evenly competitive games. Clubs with a skew of marquee players would keep getting bigger, leading to success on and off the field, in terms of marketing returns and attractiveness for players to join. However, this would be at the expense of the less successful clubs, although there is some debate as to whether the NRL should be carrying inefficient clubs just to have a certain number of teams to sustain the competition and meet broadcasting schedules.
Ultimately, the test of reasonableness depends on a number of factors, including whether the cap actually creates a more even competition. The last two NRL seasons have produced close and high quality games where clubs are relatively even. Apart from the recent Storm "dynasty", now revealed to have been the result to some degree of cap breaches, clubs can no longer dominate and sports fans have seen the topsy-turvy nature of the NRL competition ladder as a result. In turn, this has generated additional interest in the game from fans, broadcasters and sponsors. In the United States, courts have generally ruled in favour of caps that help maintain constant competition in a sports league.
Clubs with marquee players are able to produce quality teams and competition. Sports fans, clubs, sponsors, broadcasters and the NRL want to retain the best players too. However, if clubs fold as a result of being unable to meet the demands of player salary expectations in an open market, the competition is lessened, less games will be played and the ultimately the NRL and existing clubs suffer, impacting on revenue streams such as from broadcasting or sponsorships. There is no public interest in seeing an unsustainable sport. Accordingly, it is arguable that it is inevitable for clubs to lose a few players than to be financially unstable and cause a disproportionate level of competition.
Whilst the restraint is placed on a players' capacity to earn within the NRL itself, it can be argued that these days, players are no longer restrained. Players have now been able to transfer their skills and employment to other football codes such as rugby union (eg Lote Tuqiri) and even AFL (eg Karmichael Hunt), or play overseas. The salary cap restraints merely restrict the earning potential of players who wish to play rugby league under the NRL banner. That said, the broadened market for playing in other codes and possible encouragement from player agents have only exerted further pressure on players' expectations and market value.
At the same time however, there is more competition in the market and clubs are under pressure financially. Accordingly, this has counter-balanced any need for easing a cap "restraint" on players salaries. It is arguable that players have signed freely knowing that a salary exists in the NRL. They have a choice not to sign and to play in other football codes or even overseas in order to exploit their full earning potential.
It is arguable that the NRL's salary cap can be challenged as an unlawful restraint of trade, although the current sporting climate with competition between football codes and the pressures for clubs to remain financially viable means a cap may be considered reasonable and necessary. To date, there have been no legal challenges in Australia although there have been plenty of calls for changes to be made such as the offering of concessions to junior players or long-term players.
Collective bargaining by players' unions have seen forced improvements for players and reduced the full force of salary cap restraints. Many people, including the clubs, have accepted that the salary cap is here to stay. Whether a player feels so passionately about the issue and will legally challenge the cap rather than switch codes or play overseas is another story and remains the debate in the boardrooms, and pubs, at this point in time.
¹ Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co  AC 535 at 565
² (1971) 125 CLR 353
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