What is a salary cap?

A salary cap is a maximum limit on salaries. The term is most often used in the professional sports context to convey a rule or agreement that puts a maximum limit on the amount of money a professional sports team can spend on players' salaries.

Sports teams will often institute salary caps with the goal of keeping overall team costs down. This is also helpful in ensuring a balanced professional sports league, so sports franchises with more money won't become overly dominant by being able to sign on many more top players than teams with less money.