One 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:
- Ask the Commish.com – NFL Salary Cap FAQ
- OverTheCap.com – A Guide to the NFL Salary Cap
- Packers.com – “Pass the test and you’re a cap master”
- spotract.com – NFL Player Contracts, Salaries, and Transactions
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.
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