Scouts Note:
First off, there is a multitude of reasons why having some understanding of the salary cap and contracts is important. If you have aspirations to one day run a team or you just like to write about football in your spare time, this can help you. Knowing the cap and contract basics help you identify moves that seem unfathomable but are frequently obvious. A great tool for understanding the cap is Crunching Numbers: An Inside Look At The Salary Cap And Negotiating Player Contracts. While the length is similar to the collective bargaining agreement, Authors Jason Fitzgerald and Vijay Natarajan put it in layman’s terms for all to understand. In this blog, we will identify the basics and work through a few current player’s contracts and the implications those contracts have on their current (or former) team.
Contract
The Basics:
- Base Salary (p5)– The main building block of a contract. It’s how much the player earns that year by being on the roster.
- Signing Bonus– Upfront payment at signing. This bonus can be prorated over 5 years, meaning that the cap hit can be spread out evenly over up to 5 years so clubs aren’t incurring the total salary cap hit in the first year.
- Roster Bonus– The payment they receive for being on the roster at a specified future date.
- Guaranteed Salary– Money that the player is guaranteed to receive. Compensation can be guaranteed for the following:
- Skill Guarantee- Contract is guaranteed if the player is released due to a diminishing level of play.
- Cap Guarantee- Contract is guaranteed if the player is released so the team can get under the cap.
- Injury Guarantee- Contract is guaranteed if the player is injured during team activities and can’t perform.
- Cap Number- Price that is charged against the cap.
- Dead Money- Money that is already paid or committed to the player. If the player is released, traded, or retires, the dead money all accelerates and is charged on the current cap year.
Commentary:
Every team has its own set of guiding principles when it comes to contract structure and cap flexibility. Some prefer the flexibility of being able to give large signing bonuses and spread the hit across multiple years. Some prefer to minimize the salary bonus because it requires a significant amount of cash liquidity. It may be shocking to some but not all teams have hoards of cash available for signing bonuses. One thing that I learned though, is that the cap can be manipulated. So many contending teams kick the cost down the road in order to compete now. Pittsburgh is a great example of that. Year after year they would restructure contracts and convert p5 guarantees into signing bonus with the intention of clearing space. The problem is that eventually, that charge comes due, See 2021. They are currently 30+ million over the cap and will have to eat a significant amount of dead cap space (while releasing a few quality veterans) to get under the cap. Let’s breakdown Ben Roethlisberger’s contract below:
Notice how the base salary is only $2.5M-$4M. Pittsburgh converted a vast majority of his contract into signing bonus. This lowered the cap hit significantly in 2020 but creates a BIG hit in 2021. If Roethlisberger were to retire, be released, or be traded, PIT would still have a cap charge of $22.25M. They would save $19M on the cap but since they have failed to find a quality replacement for Roethlisberger, that seems highly unlikely.
Free Agency
The Basics:
- Accrued Season– 6 or more games on the team’s roster. This is used to determine a player’s status as a free agent.
- Less than 3 accrued seasons makes you an exclusive rights FA. An exclusive rights free agent means that you can only negotiate with the original team unless the original team decides not to offer a contract.
- 3 but not 4 accrued seasons makes you a restricted FA. A restricted free agent means that the original team can offer a tender, those tenders are below.
- Right to first refusal only. Meaning that a player can sign a contract anywhere but the original team can match.
- Right of first refusal + draft selection at the player’s original draft round (3 thru 7). Meaning that a player can sign anywhere but the original team can match or decline and receive a draft pick from the new team in the original round the player was selected.
- Right of first refusal + a second-rounder. Meaning that a player can sign a contract anywhere but the original team can match or decline and receive a second-round selection.
- Right of first refusal + a first-rounder. Meaning that a player can sign a contract anywhere but the original team can match or decline and receive a first-round selection.
- 4 or more makes you a UFA. An Unrestricted Free Agent can sign anywhere and the original club receives no compensation.
Commentary:
Without getting too deep into the woods, the reasons for tendering a player are fairly obvious, to keep the player on the roster or receive compensation if they leave. Why decisions are made regarding tender may be less clear. It mostly comes down to money. The decisions can certainly get tricky when trying to minimize how much you pay the player and maximize your return if they decide to sign elsewhere. The first and second-round tenders are obvious deterrents for other teams. The new club must give up significant draft capital AND sign the player to a major deal. It’s why players tagged with those tenders rarely switch teams. Right to first refusal only and right to first refusal + original draft round usually means that the team would like to sign the player but are ok if the player walks with a huge deal. As for UFA’s, if you let a player get to free agency as an unrestricted free agent, the odds are good that that player will be on a new team in the coming season. Teams just hope that the market is not strong and the player signs a discounted deal with their original club.
Franchise Tag & Transition Tag
The Basics:
Franchise Tag
- Positions tag for prior five years/ sum of the unadjusted cap amounts for those 5 years.
- Then that # is multiplied by the current unadjusted salary cap.
- Player must earn at least a 20% raise from the previous year’s salary.
- Exclusive rights Franchise Tag: Average of the 5 largest salaries at the position that year.
Transition Tag
- Lower cost than Franchise tag but no compensation if the player signs elsewhere.
- However, they still have the right of first refusal.
- Calculated like a non-exclusive franchise tag but averages the top 10 contracts rather than top 5.
Commentary:
The franchise tag is typically a result of a major disagreement in contract terms between club and player. They are reserved for top players in the league as the pay for these players is HIGH. One major downside for the club is that with each tag they lose leverage. See Kirk Cousins with WAS. He was tagged first in 2016 at $19.9M and then again in 2017 at $23.9M (20% raise over the previous year). The following year Cousins signed a massive, fully guaranteed, 3 yr $84m contract with MIN. The transition tag is used much less frequently but clubs are hopeful that the cost will be a deterrent for other teams and the player will return at a “discounted” rate as compared to the franchise tag.
Trades
The Basics:
- If you trade a player, all the prorated signing bonus is accelerated into that year.
- Compensation is typically tied to individual performance, team performance, &/or FA status.
- Some teams prefer guarantees over signing bonus because it gives the flexibility to trade. They can convert some guarantees before trading rather than being hit with the proration at the trade agreement.
Commentary:
Contracts are the main reason fewer trades occur in the NFL than in other leagues. Guarantees and signing bonuses are intricate tools to manipulate the cap but also great barriers when you realize the contract was a mistake. Let’s breakdown Jared Goff’s contract and the cost of the Los Angeles Rams admitting that mistake:
The trade of Jared Goff will have lasting implications on the Rams cap. While the $66.2M in dead money won’t become a reality, they are still on the hook for $22.2M in 2021. For a team that is significantly over the cap, some tough decisions may have to be made. The trade (rather than release) means guaranteed salary owed in 2021 and 2022 won’t be paid by LA. This luxury (along with getting a quality QB in return) was a major reason why LA gave up such significant draft capital.
Conclusion
This is the salary cap and contracts in their most basic form. With this knowledge, you should be able to identify potential cap casualties. Having an understanding of dead money and cap savings will give you a much better feel for what free agents could be available than if you were to only look at a current FA list. There is quite a bit more depth to contracts and opinions I’d like to share in future blogs. Some that come to mind are the spending floor, rolling over cap, compensatory selections, short-term vs long-term cap health, the fool’s gold that is massive cap space (spoiler alert: when everyone has a ton of cap space, the value of cap space diminishes), and more so check the Scouts Blog periodically for new content.
And again, I can’t recommend Crunching Numbers enough. It is my go-to source for cap information.