Packers Contracts, the Salary Cap, and More – Part 1: An Introduction to the Basics

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packers_piggy_bankOne of the hardest things for the average fan to comprehend is how NFL contracts work and how they apply to a team’s salary cap. There are many complicated elements, rules, and exceptions that can be hard to sort out. In this series, my goal is to help you better understand how this whole system works, plus what it means to the Green Bay Packers’ current salary cap and contract concerns.

Before I begin, I’m going to offer you a short list of resources that I used in my own personal education of this topic. These have really helped me piece everything together, and I highly suggest checking them out. It takes some time to digest, but it will be worth it in the end:

So where do we begin?

The idea of a Salary Cap is essentially a two-fold mechanism: (1) even the playing field of NFL teams to create parity (competition) within the league, and (2) prevent the escalation of player salaries in the era of free agency. In 2013, each team has a salary cap of $123 million, which was determined using a complicated calculation based on the “All Revenue” stream for the league. The salary “floor” for 2013 is 89% of the cap, meaning each team must at least use up roughly $109.5 million of the allotted $123 million.

That part is fairly simple to understand. The hard part is figuring out what applies towards any given year’s salary cap.

Broadly speaking, the salary of each player on the regular season roster (and the top 51 salaries of the offseason roster) counts against the cap. According to AsktheCommish.com, “salary” refers to “all compensation paid to a player, including money, property, investments, loans or anything else of value,” with the exception of benefits (e.g., health insurance). One interesting thing to note is that, unless a player has a “split” contract, his salary will still count against the cap even if placed on injured reserve.

The one major wrinkle to all of this is the “signing bonus.” Teams like to “back-load” player contracts, since they have the option of cutting players or renegotiating in the future. However, players and agents know this, so they’ve countered by demanding signing bonuses to get some guaranteed money that they know they can’t lose. This comes in the form of a signing bonus, which gets prorated across the length of the contract, up to five years.

For example, if a player signs a two-year contract with a $5 million signing bonus, that signing bonus will count $2.5 million against the cap in the first year and then another $2.5 million in the second year. (That’s in addition to the player’s normal salary and any other incentives.) If that same player signed a five-year deal instead of a two-year one, that signing bonus would only count $1 million against the cap each year.

By the way, a signing bonus doesn’t have to just come in one lump sum. It can be paid out in increments, though it will still be prorated the same against the salary cap. Tom Brady’s new $30 million signing bonus will count $6 million against the cap in each of the next five years; however, Brady is actually getting $10 million in 2013, $15 million total in 2014, and the remaining $5 million in 2015. Remember, this is all guaranteed, so even in the miniscule chance he gets released, Brady will still get that money.

Tom Brady NFL Contract, 2013-2017

 

Okay, so the player has his contract and his signing bonus. There are basically three things that can happen from here: (1) the player plays out the contract and hits free agency, (2) the player gets cut before finishing his contract, or (3) the player extends or renegotiates his contract.

In the first case, nothing special happens. The questions start piling up when you wonder what happens to that prorated signing bonus if a player gets cut before the end of his contract. Obviously, that money is going to count against the cap, or teams would severely abuse such a loophole.

When a player gets cut, any of the remaining “un-amortized” signing money will “accelerate” and hit the salary cap immediately. Thus, if that player with a five-year contract and a $5 million signing bonus gets cut after year two, the remaining $3 million of un-amortized money will hit the salary cap. (That’s what is called “dead money” – the player is gone, but the financial burden remains.)

Teams do have one option to make the blow less severe, and that is to cut the player after June 1st. By doing this, a team can stretch their salary cap liability over two years. In the previous example, the $3 million would split into $1.5 million across the next two years. Teams still have to eat the dead money in regards to the salary cap, but it becomes a little more bearable . . . as long as teams don’t continually carry around and build up dead money, that is.

In the case of a contract extension, the original signing bonus remains prorated through the end of the original contract length, while a new signing bonus would be prorated across the remaining years of the total contract (original plus extended years). In Tom Brady’s newest contract, there remains two years of amortized money ($3.2 million per year) from his previous signing bonus that will count against the salary cap, in addition to the amortization of his new signing bonus ($6 million per year).

By the way, if you want an excellent and really detailed look at how the New England Patriots have reworked Tom Brady’s contracts over the years to gain cap space, check out this Dallas Cowboys fan blog post over at SB Nation, entitled “What Tom Brady’s Contract Means For Tony Romo.”

There you have it. Those are the basics of NFL contracts and their affects on the salary cap. There are obviously things I haven’t mentioned, but we’re going to examine some specific points in more detail and how they relate to some current Green Bay Packers players. Here’s a little taste of what’s planned:

  • A.J. Hawk and Contract Restructuring
  • Jermichael Finley and the Two-Year Deal
  • Clay Matthews and Incentives
  • B.J. Raji and the Escalator
  • Aaron Rodgers and the Big Contract
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Chad Toporski, a Wisconsin native and current Pittsburgh resident, is a writer for AllGreenBayPackers.com. You can follow Chad on twitter at @ChadToporski

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  • Savage57

    I know that Rodgers is due for his monster payday, but I wonder where the intersection of value and ego occurs in a situation like this.

    There are a couple of scenarios that if nothing else, give rise to conjecture and debate…(and I’m sure in some minds pillory for advancing what might be considered heresy on this site)

    CMIII is turning into a bit of a media whore. Not that it’s a bad thing, he’s got all the reason, right and tools to do it. But it does raise the question that no matter what the money is the Packers might offer, will he choose to ply his trade in something other than one of the worst markets for media opportunities for an NFL player? There might not be any need to worry about saving cap space for CMIII’s next contract.

    As for AR, what happens if GB rolls the dice on him and decides not to commit 20 to 25% of the cap to one player? Suppose the Packers stand pat on his contract for 2013 and 2014, then franchise him for 2015. Total hit is around $40MM for three years. Let him test FA after three more years. They’d save about $20MM over a restructure and get the better of AR’s remaining years. I know, he says he wants to be a Packer for life, but if I had a dime for everytime I heard that one….

    If he winds up with an axe to grind with the Packers, like his predecessor did, after getting paid around $100MM for his services, let him walk. Just grounding that number in reality, it works out to over $15K before taxes every day for the rest of his remaining life – I think he’ll be OK.

    After his performances in the last two postseasons, he’s at least opened the door to question whether he can get the Packers all the way there.

    • PatMc

      It might be better to run his contract as I believe the new $ in 2015 might substantially increase. On the last line: “he’s at least opened the door..get the packers all the way there (AGAIN)!

    • Dobber

      Unlike other teams in small markets (the Chiefs/Royals, Pirates, etc.), the Packers have such a national following and are such a national draw that I don’t think there’s any issue with CMIII and where he currently plays ball…marketing-wise.

      As for ARod…I don’t know if that’s a chance you take unless you already have a successor on the roster (or about to join it). QB is just too important to the fate of a team to potentially throw a player like ARod away…

      • Savage57

        Thanks for the civil reply.

        I was referencing having or guesting on TV shows and such, as he might be able to do in a place like NY, CHI (insert vomiting sound), ATL, NE or such.

  • PatMc

    Chad, Let me be the first to say “wow”. Great information for the fans. I look forward to reading more.

    Just a thought. Along with $alary Cap a mention on how only 53 players will make the active roster on Opening Day and how the salary decision impacts which players make it?

  • Ron LC

    Thanks Chad, this is taking the spot light at a time when the “Cap” is becoming as impotant as the play on the field. NFL teams have dictated the QB is king and will get the “lion’s share” of the $123 mil available. In GB’s case that means AR will be gobbling up roughly $25 mil of the available “Cap.”

    There will be anmother $ 50 mil. or so dedicated to the 5 or 6 players that are classified as “Star Level” players. The remaining amount to the remaining roster spots. The key to success, long term, will be how the remainder managed.

    As much as we want TT to jump into the FA market, the impact a year or two out could be devistating to the team’s chances long-term. Every move contemplated will have to be analyzed and re-anlayzed before a final decision.

    I’m not sure I like the “Cap” taking such a dominant role in the game. But, it is becoming a necessary evil when evaluating each and every transaction. As a result, I’m glad we have TT and not some shoot from the hip GM that worries only about today.

    However, that doesn’t preclude adjustments being made to the top tier pllayers in order to bring in a player that fills a key need. I wish the Packers were a little better at that.

    Again thanks for the hard work Chad and I’m looking forward to seeing the future edditions. Once again Al and his guys are the reason that GB fans are the best informed in the NFL.

  • Dobber

    I wish to invoke my right as an American to remain uninformed and spout accusations and assertions that have absolutely no basis in fact or the state of current affairs.

    You’re trying to make us responsible…and I for one won’t stand for it.

    • http://allgbp.com Jersey Al

      Well done. Thanks for the chuckle!

  • Lucas

    I like thinking of GB’s spending in terms of position. It eases my mind when I consider GB doesn’t use the cap for 3 QBs and doesn’t pay $4 million for a backup. Roughly $25 million for the top QB squad in the NFL…not bad. That’s not an endorsement of Graham or possibly B.J.

    • Dobber

      I have to admit that just about every time I saw ARod get hit hard or fall awkwardly last year, I was muttering under my breath, “please get up…please get up”, because I know how far the drop-off is from him to Harrell. Or maybe, more accurately, we DON’T know how far that drop could be.

      I’ve always said that you need a QB on your bench who can step in and play, at least adequately if not efficiently or effectively, for 2-4 weeks if necessary. The Packers don’t have that right now (IMO), and they’re rolling the dice because of it.

  • Chad Toporski

    Thanks for all the kind words. My hope was to make this as informative as possible. I’m also going to take some of the suggestions into consideration for future articles, so if you have any other requests, let me know.

    The next few articles should be coming out each day.

    • Stroh

      Curious but I think any real football fan would pick this up and understand it all by now. We’ve been under these rules for 15 yrs or more now. This shouldn’t even need an explanation.

      • Chad Toporski

        “Real” football fans?

        Come on, man… That’s an extremely condescending attitude to have. You should know that people enjoy football on multiple levels.

        • Stroh

          Sorry but anyone that follows the NFL should know this stuff. It pretty basic info thats been talked about for years and if someone calls themselves a fan of a team or the NFL this is must know info.

  • GBPDAN

    Wow, what a great team player Brady is. He counts 15M or less against the cap every year for the next 5 years. Brady has won multiple SBs and is still one of the top 3 QBs in the league.

    Hey Arod, do you think you could get by with 30M guaranteed? and with this signing bonus, plus your salary ,count just 15M against the cap, per year, for the next 5 years?

    I know Brady is older, but still ,this was a team player move. Tom wants more rings!