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 reading, make sure to check out the previous article(s) in the series:
- Part 1: An Introduction to the Basics
- Part 2: A.J. Hawk and Contract Restructuring
- Part 3: Jermichael Finley and the Two-Year Deal
Our fourth article focuses on incentives, and although we’re going to use Clay Matthews’ contract as an example, the discussion will be oriented in a more general sense. This is something most people should have a simple understanding of, but there are some details on how these incentives are paid out and applied to the salary cap that might be new knowledge.
When Clay Matthews was drafted by the Packers in 2009, the new CBA and its “rookie salary scale” were not in existence. This allowed agents to negotiate larger contracts, especially for the top draft picks. In order to find some middle ground, teams would work in “incentive” pay to ensure they were getting their money’s worth. Even the top picks are a risk, so teams want to avoid being financially handcuffed to “busts.”
The rookie compensation rules in the new CBA have actually driven away these incentive-laden contracts, but that’s a conversation for later. Teams still use incentives in many of their contracts as a way to motivate player performance. Before we continue, though, let’s take a quick look at Clay Matthews’ contract details:
Notice how the incentives – worth a total of $3.275 million – aren’t figured into the charted cap numbers. It’s one of those contract details that don’t get pushed into the basic cap numbers for two reasons: (1) they have to be earned based on performance, and (2) most incentive benchmarks aren’t released to the media. Some players’ incentive details have been published, but usually they’re in general terms. Only noteworthy benchmarks tend to get released in any detail.
For example, when Adrian Peterson’s seven-year, $100 million contract was announced in 2011, it was noted that he could receive $1 million each time he ran for more than 1,250 yards in a season, up to three times. An addition $1 million in incentives were available “based on the Vikings’ regular-season and playoff results over the life of the contract.”
The big question, though, is how do these incentives affect the team’s salary cap?
It’s actually a little complicated. Incentives for a given year are considered either “likely to be earned” (LTBE) or “not likely to be earned” (NLTBE). LTBE incentives are automatically counted against the salary cap at the beginning of the year, while NLTBE incentives are not. Any NLTBE incentives reached during the year are immediately applied to the salary cap.
(Interesting to note is the clause which states that if any earned NLTBE incentives pushed a team over the salary cap limit at the end of the year, then the excess amount is applied to the next year’s salary cap.)
Ok, so what makes an incentive “likely to be earned” (LTBE)? This part is fairly simple. If that benchmark was reached in the previous year, then for salary cap reasons only, it will be expected to be reached in the current year. For example, if Clay Matthews earns a $500,000 bonus incentive by recording 10 sacks, then it is considered LTBE if he had 10 or more sacks the previous year. If he had less than 10 sacks in the previous year, then the incentive is considered NLTBE. (Remember that this is only for salary cap purposes and does not change the nature of the player being able to earn that incentive.)
If the incentive is tied to team performance, such as total wins, then it’s based on how the team did in the previous season.
Veterans who did not play the year prior will have the incentive labeled at LTBE or NLTBE through NFL and NFLPA negotiation. Unresolved disputes in this manner are referred to an impartial arbitrator. Any incentives in the first year of rookie contracts are automatically considered LTBE.
For more information and details, you can reference the current NFL/NFLPA CBA. Incentives are covered in Section 6(c), starting on page 96.
I will leave you with one last nugget of information. In the CBA, it clearly specifies what types of statistical categories may be used in determining incentive pay. This comes into play when discussing why “bounty pay” is punishable by the NFL Commissioner. The CBA expressly defines how players are allowed to be reimbursed for performance benchmarks:Follow @ChadToporski