NFL Salary Cap Primer
It’s that time of year again when contracts will be restructured, players cut, and rosters begin to be reshaped for the new season. As such, there is generally a lot of misconception and questions regarding the salary cap, which of course is the basis of what a team can and cannot do. So I’ve put together this Q&A primer for you that will hopefully answer some common questions. If something isn’t addressed, feel free to shoot me a letter or post a comment below.
Q: What is the amount of 2012 NFL Salary Cap?
A: The number hasn’t been determined yet; however, it’s been projected by some to be around $122M. Last year the figure was $120.375M. This is significant because back in 2009, the last capped year of the old Collective Bargaining Agreement (CBA), the cap was up around $128M, meaning that once the cap came back, teams that were close to that $128M mark had to scramble to get under the new $120M limit set for 2011. As teams continue to transition under the new CBA, more of the same scrambling is expected to take place again in the coming days.
Q: Why is it that some teams have so much space at the end of a year while others are constantly pressed against the cap?
A: There are numerous reasons for this, including player incentives not coming to fruition and this being “Credited” back to the team’s following year cap and expiring contracts. Another reason might be contract restructurings designed to reduce a player’s cap hit, players being cut, split bonuses, etc.
Q: How is a player’s cap value calculated?
A: A contract’s value takes into consideration base salary, prorated signing bonus, and any other bonuses. For example, John Doe signs a five-year, $10M contract that includes a $5M signing bonus. John’s base salary for each of the five years of the contract is $1M. His cap number, though, is bumped up to $3M because his signing bonus must be spread over the life of the contract ($2M per year). John won’t get an additional $2M per year – the singing bonus is paid up front by a team. But for bookkeeping purposes, he will count for $3M against the cap for each year of his contract.
Other lesser-publicized monies paid to players that count against the cap include per diem pay (such as for mini camps, training, camp, etc.) Any money paid by a club to a player inflates his value against the cap. This is why trying to calculate the EXACT cap figure for each team can be tricky.
What DOESN’T count against the cap are benefits (health, dental, etc.) paid to a player.
Q: How does one arrive at a figure reflecting how much a team has spent against the salary cap?
A: In the off-season, only the top 51 PLAYER salaries count against the salary cap. These include any outstanding tenders made to exclusive rights and restricted free agents. During the season, ALL player salaries, including those on reserve lists (with the exception of retired players) count against the cap.
Q: What happens if a player is cut before his contract expires?
Let’s use John Doe as an example. Let’s say his team decides to cut him with two years remaining on his contract. Take the remaining prorated bonus ($2M per year times two, or $4M), and take his base salary, $1M. Subtract the remaining signing bonus from the base. The result is minus $3M, which means that John would cost his team $3M in dead money (money that essentially goes to waste and can’t be used on another contract.)
This is why many teams wait to cut a player in the final year on their contract, as usually the base salary is significantly higher than the remaining prorated portion of the signing bonus.
Q: What else do I need to know about the cap and player contracts?
A: Under the current CBA, a veteran player is free to negotiate his contract at any time. However, once he signs his extension, he cannot request a new negotiation for at least 12 months, unless his present contract expires. Players cannot go back and renegotiate for a year completed, meaning Victor Cruz can’t go back and ask for more money despite the year he had in 2011. Also, rookie contracts cannot be renegotiated for one year after the rookie has signed on the dotted line, or the following August 1, whichever is later.
Q: If a player receives a contract extension before his present deal expires, how does that affect his cap value?
A: The new signing bonus is prorated over the remaining years of the contract PLUS the extension. So for example, if John Doe has two years left on his contract and a cap value of $3M, and he signs a two-year contract extension that carries a $2M signing bonus. That $2M is split into fourths, with $500K additional being tacked on to the remaining two years of his first contract, and the other two $500K installments added to each year of the extension.
Q: Does the June 1 rule still exist?
A: If a team cuts a veteran player after June 1, the remaining signing bonus will be spread over two years rather than accelerate into the current year’s cap. For example, John Doe is cut in year 2 of his contract with $2M left on his signing bonus and a base salary of $1M before June 1. His team is hit with dead money ($1M base salary less $2M signing bonus equals $1M in dead cap space).
If John is cut AFTER June 1, only $1M of his remaining $2M signing bonus hits the current cap year with the remaining million being dumped into the next year’s cap. Thus, if you subtract the $1M signing bonus from the $1M scheduled base, John Doe ends up costing his team ZERO against the current year’s cap; however, in the next year’s cap, he’ll end up costing his team $1M against the cap.
Q: What happens if a player has a voidable year in his contract?
A: If a player reaches all the incentives in a contract that trigger a void (shortening) of a contract year, the signing bonus will count against the team’s salary cap for the following year.
Q: What happens if a player is traded or waived?
A: If a player is traded or waived, any remaining prorated signing bonus money automatically accelerates against the current year’s cap. However, the old team is no longer responsible for any base salaries that will be paid to the player; that responsibility is absorbed by the new team. In essence, a trade can create dead money against a team’s cap.