Sean
Luxury tax – A luxury tax is a mechanism to maintain the competitive balance across all the teams in a league. Both the NBA and MLB have a form of a luxury tax. With a luxury tax, a payroll threshold is set before a season. Teams that exceed this threshold have to pay a tax on the amount over the threshold.
Salary caps – A salary cap is a ceiling on the total amount of money a team can spend on its roster. In American sports, most major leagues have some form of salary cap. The MLB is the only major professional sports league without a formal salary cap, instead, they have a luxury tax. Without a salary cap, it is common that the teams in the biggest markets, that have the highest revenues, will buy up all the talent based on the fact that they are able to pay the best players the highest salaries.
Revenue sharing – Revenue sharing is when all the teams in a professional sports league equally split the revenue made from every team’s ticket sales and merchandising. For example, NFL teams jointly pool together large portions of their revenues and distribute them among all the teams in the league.
