Definition of Hard Cap

What does the term "hard cap" mean in the world of sports? What is the definition of the term "hard cap"?

Most major sports leagues throughout the world employ some sort of a salary cap. A salary cap is a limit on the amount of money that teams can spend on player salaries every year.

Definition of Hard Cap - Financial Dictionary - Sports - IllustrationNow, there are two kinds of salary caps - hard caps and soft caps.

A "soft cap" is when a team is allowed to spend over the salary cap as long as they are willing to pay a fee, which is usually known as a "luxury tax". The NBA and MLB both employ "soft caps". The New York Yankees, for instance, spend tens of millions of dollars per year on "luxury taxes", and this money is redistributed to teams in smaller markets.

A "hard cap" is when teams are not allowed to spend over a certain amount regardless of the circumstances. Let's say that a league has a "hard cap" of $57 million per year - this would mean that if a team spent more than $57 million, they would be subject to any number of different fines and penalties, including monetary fees, the loss of draft picks and even the forfeiture of games.

The NFL and NHL both use "hard caps". In addition, both leagues utilize "salary floors" as well, which sets a bare minimum amount of money that teams must spend on player salaries each and every year.

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