The NFL salary cap can make following pro football simultaneously fun and frustrating. Under the current Collective Bargaining Agreement (CBA), the lack of fully guaranteed contracts and the physical nature of football creates an environment which allows considerable room for creativity in the accounting and structure of player contracts. This post attempts to explain some of the common, complicated concepts that are often discussed (or should be) regarding NFL contracts.
Prorating means to divide the total amount of a bonus by the length of the contract, and pay it out in installments over a period of time. Current league rules allow for teams to prorate over a maximum of five years; shorter deals will prorate for the duration, while six- and seven-year deals max out at five. Although the signing player will receive a check for the bonus amount right away (or at set intervals), the NFL allows teams to defer the full bonus amount from immediately hitting their books. This can be done for any bonus type which is fully guaranteed without restrictions.
Example: A five-year contract with a prorated $10 million signing bonus will count against the cap for $2 million each year.
In recent years, teams have begun to add automatically-voiding years to contracts, paying a player more at present while prorating bonuses over future voidable, "dummy" years. These voided years will typically have a provision stating something to the extent of, "If this player is on the roster the day after the Super Bowl, the contract voids." This technique is used by teams lacking gobs of cap room to sign players to significant-dollar deals. The Buffalo Bills did it this offseason with Percy Harvin.
Example: A five-year contract with a $10 million signing bonus that voids after two years would have $2 million cap hits in the first two years of the deal, and $6 million in the third year.
Acceleration and "dead money"
Acceleration is the word used to describe the accounting step that occurs when a player with a prorated signing bonus has his contract terminated early. Dead money refers to funds that have been committed to a player who is no longer on the roster.
A team benefited from the deferral of salary cap hits originally, but if the contract is not completed, then the deferred money still needs to be accounted for. To do this, NFL teams are required to take all prorated cap hits for future years and accelerate them onto either the current or subsequent year's cap. (Cuts designated as post-June 1 play into this, as they are accounted for on next year's cap.)
Generally, NFL teams view accelerated money negatively. Teams paying out large prorated bonuses have less flexibility and more risk regarding injury and declining player skill.
Under new ownership, the Bills are now building rosters that approach the salary cap - and this will most likely yield fans seeing some new cap techniques employed by their favorite team. Many franchises run up against the cap on an annual basis. For a front office that believes it has a roster in place to win, oftentimes its salary cap management strategy can boil down to a year-to-year, "kick the can down the road" mindset. Teams restructure contracts to inflate future salary cap hits, and decrease the current year's.
The most common restructure technique NFL teams utilize is the conversion of salary (or a large non-signing bonus) into a prorated signing bonus. The ability for teams to utilize this technique is often written into the original language of a contract. Although routinely announced as a "restructure," the money of the deal does not change - just the accounting.
For this example, assume a player originally signed a five-year, $60 million contract, containing an original signing bonus of $10 million and salaries of $10 million per year, and that the deal is restructured after two years. The $9 million missing from the 2015 salary cap column in the restructured scenario is the money converted into a signing bonus. You can see the effects of that below.
|Original||salary||cap hit||proration||acceleration||dead money|
|Restructured||salary||cap hit||proration||acceleration||dead money|
The obvious risk involved in this strategy is that the team has now gained potential acceleration and dead money in the $6 million that was pushed from the 2015 cap into future years. If the player continues to perform over the course of the deal, the "restructure" has no effect. The player receives the same amount of money as set forth in the original contract, just at different times. If the player declines, becomes injured, or is otherwise cut from the team, however, then the $6 million that could have been written off the team's salary cap in 2015 needs to be accounted for in 2016-17 in the form of dead money.
Again: NFL player contracts are not fully guaranteed. The breakdown of the guaranteed money between the different classifications of guaranteed money, then, is critical to understanding most contracts. It is always better for a player to have more guaranteed money than less, even guaranteed money in the NFL is rarely actually fully guaranteed.
Per the CBA, there are three different classifications of guarantees:
- Skill: money is guaranteed even if the player's skill (subjectively or objectively) diminishes;
- Salary cap: money is guaranteed even if a team is forced to cut a player for cap reasons;
- Injury: money is guaranteed if a player is injured and unable to pass a NFL physical.
Practically, the first and second categories are always merged together, while injury guarantees form a second category.
It is also very rare for skill and cap guarantees to ever exist without an injury guarantee. This leads to a two-tiered system for guaranteed money that often goes underreported. Injury guarantees are a nice protection for a player, but in today's NFL, it is rare that a player suffers an injury so severe that he is unable to eventually pass a physical. Once that happens - even if he is not back to pre-injury form - he can still be released without an injury designation, negating the injury guarantee.
Another concept that often goes unmentioned: many contracts contain "rolling guarantees," which is money that can become fully guaranteed at a future date. This money is often reported as guaranteed when the contract is originally signed, but if the player underperforms and is cut prior to a guarantee date, then the money is no longer guaranteed.
Example: Mike Williams had a large rolling guarantee the contract he signed with Tampa Bay. Williams' 2015 salary of $5.2 million became fully guaranteed on the third day of the 2015 league year, while it was solely guaranteed for injury prior to that. When the Bills cut Williams during the 2014 season without an injury designation, his 2015 salary "guarantee" vanished.
This is rarely reported or listed on publicly available contract records, but oftentimes, player contracts will include language which prevents a player from double-dipping. If a player who has a fully guaranteed $5 million 2016 salary is cut by his team, he will receive that $5 million - but if he ends up signing with another team, and his contract contains offset language, then the salary he receives from his new 2016 team (say, $1 million) is deducted from the original team's obligation. His old team now pays him $4 million, while the new team pays the rest. If the player's contract did not contain offset language, then his total pay in 2016 would be $6 million.
Up until the first week of the regular season, NFL teams are only forced to account for their Top 51 contracts under the salary cap. Under the current CBA, offseason rosters are allowed to expand to 90 players. Despite this, the NFL salary cap number is calculated and based on 53-man rosters; if teams were forced to account for all 90 players and still stay under the cap during the offseason, many teams would find themselves over the cap during the offseason, and well under it once the actual season began.
For practical purposes, looking at a team's Top 51 salaries is generally a good barometer of where they will actually be to start the season. Additionally, the last two cap figures that need to be added to form the 53-man roster will generally be minimum-salary players without any significant signing bonus proration, limiting those funds to under $1 million in most cases.