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Escrow, guarantees and the salary cap: Rethinking competitive balance in the NFL
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School of Business |
Bachelor's thesis
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en
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25+9
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This thesis investigates whether the recent growth of large guaranteed quarterback contracts, together with the NFL’s escrow funding rule, threatens the league’s tradi-tionally strong competitive balance. The hard salary cap and revenue sharing have long been seen as the main drivers of parity, but rising guarantees now interact with a rule requiring teams to place the present value of guaranteed money into escrow at signing. Because this rule functions as a liquidity constraint, its impact depends on owner wealth and cash availability rather than salary cap space, potentially creating unequal access to elite talent.
The study combines a literature review on competitive balance, salary caps, and in-stitutional design with an empirical analysis of average NFL point spreads from 1999–2019 and 2021–2024. Following prior research, point spreads serve as an ex ante measure of expected game closeness. Results show a decline in average spreads and a modest increase in dispersion after 2021, coinciding with the rise of large guarantees. Although causality cannot be proven, the evidence suggests that liquidity constraints embedded in the escrow rule may increasingly influence com-petitive outcomes in ways the salary cap system was not intended to manage.