I'm not a fan of salary caps. Salary caps work much the same as any price ceiling - they give an incentive for buyers to acquire more talent and they give players an incentive to offer less talent. By "offer less" I do not mean that players won't give their all, although that is a very remote possibility. Competitive pressures between players will help to ensure that each player will perform at his top level.
What is more likely to happen is that potential athletes who are thinking about going into a sport will be given a reason to look at another sport at which to put their talent if the sport in question has a salary cap. So, in other words, with a salary cap, there will be less talent available over time and the quality of play will suffer - at least somewhat.
This, of course, assumes that there aren't creative ways around the salary cap (a strong assumption!). Suppose a team values a player at $5,000,000 but can't pay him more than $4,000,000 in cash. Further suppose the player is willing to play for the team at $5,000,000 but not at $4,000,000. If the team offers the player a contract paying him $4,000,000 and giving him a house that he values at $1,000,000 then the team will get the player and the team will not be in violation of the salary cap.
Kevin McClatchy, the owner of the Pittsburgh Pirates, gives the standard argument for a salary cap.
McClatchy advocates a salary cap. The current system includes a luxury tax, and three teams paid last year: the Yankees ($25 million), Red Sox ($3.2 million) and Angels ($900,000).
"I think the playing field economically is better," commissioner Bud Selig said. "Certainly we have work to do, but it's better than it was 10 years ago. I look at places like Detroit, Pittsburgh and Cincinnati, and there's excitement everywhere."
Part of that has to do with how baseball teams are alligned within divisions. Relative to how the NL and AL were divided into two divisions, today's divisions present more balance in terms of overall fan willingness to pay - at least generally speaking.
In Division 1 collegiate athletics, athletes cannot be paid a market
salary. So instead of paying the players, they give them other things
that they value (such as palatial athletic and academic support facilities). This hasn't done a lot to give competitive balance in football and basketball over the years.