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Football 101: The Salary Cap

Contracts and bonuses

By Mark Lawrence

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Contracts and Bonuses

When you sign a player you will typically sign him for several years, and there will be lots of different types of payments made in the contract. The very first payment is a signing bonus. If the contract is for 5 years, and the signing bonus is $5M, then that $5M is paid to the player immediately, but it counts as $1M per year against the team salary cap for the five years of the contract. What if the player gets cut? He keeps the signing bonus, and the remaining bonus that has not been charged against the cap comes due to the team. If you cut him before June 1st, the remaining bonus counts on this year's cap. If you cut him after June 1st, then the remaining bonus counts against next year's cap. Every team does this every year. The cap money which counts towards players that are not on your team is called "dead cap space." Currently the Packers have about $10M in dead cap space due to cutting Darren Sharper, Joe Jackson, and Jamal Reynolds.

Thanks to Jerry Jones there's a rule, the "Deion Sanders Rule" which says that only a certain percentage of the total contract value can be in the signing bonus. This is an attempt to limit the amount of future cap you can move into the current year.

Another type of payment is a "workout bonus." This money is paid to the player if he shows up a certain number of days in the off-season and participates in the off-season training. Cleditus Hunt has $250,000 workout bonuses in his contract, but he refuses to come to Green Bay to work out. Hunt considers that the Packers are "robbing" him of $250,000 per year by refusing to pay him this money, even though he never kept his part of the bargain. So, to "get them back" he refuses to show up for the voluntary mini-camps. Maturity and the ability to play football don't necessarily go together in football players.

Another type of bonus is a "roster bonus." This money is typically due sometime in March or April, and the team must either pay it or cut the player. If the money is paid, it counts against the cap in that year. However, the team may "guarantee" the signing bonus just before paying it. If the bonus is garanteed, then it counts as if it were paid in equal installments for each of the remaining years in the contract. For example, if a player has three years left in his contract and is due a $300k guaranted roster bonus, then that money counts against the cap $100k per year for the remaining three years.

Incentive Bonuses

Contracts can have incentive bonuses. These come in two important types: "Likely to be earned," and "Not likely to be earned." If you give Payton Manning a $1M bonus for being selected to the Pro Bowl, then this money will be considered "likely to be earned," as Payton is always selected to go to the pro bowl. Such bonus money counts against this year's cap starting right at the start of the year, even though the pro bowl voting isn't until well into the season.

On the other hand, if you had a clause in Payton's contract that gave him a $1M bonus for personally rushing for 10 or more TDs, this would be considered "Not likely to be earned," as Payton simply doesn't take off with the ball much. He rushes for perhaps a couple TDs a year. This money does not count against this year's cap. If you wind up paying this money, it counts against next year's cap. Whether a bonus is likely to be earned or not is decided by league lawyers, not by your team. However, there are rules and guidelines so that it's pretty easy to structure a payment such that it is or is not likely, depending on your need. Appendix 4 shows individual goals which are not likely to be earned.

A contract may include incentives that are based on team performance, such as total number of games won, total number of points scored, total number of points allowed by the defense. Generally team incentives will be considered not likely to be earned. This is another way to grab cap room from the future. Recently Washington found themselves in a tight cap spot (a situation that's about as rare as the sun coming up), so they converted $1M of Mark Brunell's contract from salary to team based incentives. However, the contract named eight different team goals, and Mark gets his money if any single one of the goals is met. Thus Mark and his agent consider it nearly certain that he will be paid the $1M, while the NFL classifies the $1M as not likely to be earned and therefore not counting against this year's cap. Appendix 3 shows team goals which are not likely to be earned.

Finally, typically the smallest numbers in the contract are the salary. These count against the cap in the year they are paid. Salaries are put into contracts in two very different types. You will often sign an expensive player to a six year contract, with a large signing bonus. The signing bonus counts against the cap as if it were paid in six equal installments, one per year. The player would then often have salaries which were league minimum for each of the first four years, then in years five and six the salary will suddenly jump to several million dollars. Everyone knows that the team will never pay these salaries. They're put there for two reasons. First, it lets the player brag that he just signed a $$$$ contract. Second, it means that after four years the team will be forced to either renegotiate the contract with another large signing bonus, or cut the player making him a free agent. Mike Wahle had a contract just like this, and he got cut.

Just as you can guarantee a roster bonus and thereby spread the cap hit out over the remaining years of the contract, you can also guarantee a player's salary and thereby spread the cap hit out over the remaining years of the contract. This is most often done with a highly paid player like a QB of CB. It's done when you run out of cap room and have to sign someone else right now.

Working the cap backwards

So we see that bonuses are a way to take money from next year's cap and move it into this year. There are also ways to move money from this year's cap into next year, but these are almost never used. The NFL is most certainly a win-now-pay-later sort of place. The Vikings linebacker Brian Russell had a contract with a $7M bonus for special teams performance. The league considered that this bonus was likely to be earned. However, Brian did not play on special teams, and the bonus was never paid. So the Vikings got a $7M rebate applied to their '05 cap. They apparently did this to offset the $7M cap hit they took for trading Randy Moss, indicating that the decision to trade Randy was made some time ago. You must remember, however, that in '04 they played with $7M less cap room than anyone else. As Fred Brooks says, "You cain't get sumthin' fer nothin', less'uns you have previously gotten nothin' fer sumthin'."

In fact the Vikings owner didn't really feel like spending much money in 2004, so there were a lot of special teams bonuses written for several players. As a result the Vikings have $95M of cap in 2005, which is getting a lot of people upset. I find this a bit gratuitous, as no one was upset in 2004 when the Vikings effectively played with $21M less cap room than any other team. In fact, this technique is getting a fairly popular. In 2005, 17 teams, just more than half the league, had a positive cap carry over from 2004. Of course most of these teams had a lot of cap room moving the other direction due to signing bonuses and such. For most of these teams the forward moving cap room was just the last few hundred thousand of their cap. The thinking is use it, move it or lose it, so why not move it.

An alternative way to move cap room into the future would be to sign a player to a long term contract, but instead of giving him a large signing bonus you could give him a large salary in the first year. The salary counts on this year's cap, and future salaries would be much lower. You would have to write such a contract very carefully. If you pay a large signing bonus and the player seriously misbehaves, you can generally recover part of the signing bonus and cap room. With a large salary, you would have to add contract language that specified particular fines for particular behaviors. Unfortunately, it's difficult to foresee every possibility. When Kellen Winslow crashed his motorcycle and lost a year of play, the Browns were able to recover signing bonus and cap room as the contract specified no dangerous off-field activities including motorcycle riding.

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