This will be the first in a periodic series of Q&A segments with our Salary Cap expert. If you have a question for Brian, submit it in the comments below, and he’ll either answer there or in a future Q&A column.
What is the “Rule of 51” that I keep hearing about and what is its effect on the Salary Cap?
During the offseason, teams are allowed to carry up to 90 players on their rosters. Obviously, it would be impossible for teams to fit all 90 players under the Salary Cap, so the CBA contains provisions that limit the Salary Cap calculation to the highest 51 Salary Cap numbers on the team and all signing (and option) bonus prorations and all roster bonuses. This rule – the Rule of 51 – is in effect from the beginning of the league year in March until the first game of the regular season.
This means that generally rookie free agents, former practice squad players and lower round draft picks often have very little impact on the Salary Cap.
The impact of the Rule of 51 is felt when a teams signs a new player and the former 51st player drops off the team’s Rule of 51 Cap number. For example, this means that if the new player has a Cap number of $1M, his signing doesn’t actually reduce the team’s Cap by $1M, but by the net of the $1M less the base salary of the former 51st player. Any bonus proration for that former 51st player remains.
EXAMPLE: The Ravens recently signed three players – TE Owen Daniels ($1M Cap number), RB Justin Forsett ($570K Cap number) and NT Terrence Cody ($570K Cap number). All three of those players count amongst the top 51. The three players who were formerly 49th, 50th and 51st all have Cap number of $495K. So, while the combined Cap number of the three new players is $2.14M, the impact of those signings is far less because that $2.14M is offset by the removal of the Cap numbers of the three players who used to be 49th-51st ($495K x 3 = $1.485M). Thus, the overall impact on the Cap from those three signings was only $655K (2.14M – $1.485M).
None of the former 49th-51st players have any bonus prorations that count against the Cap, but if they did, those would still count under the Rule of 51 and only the player’s base salary would be removed from the Rule of 51 Cap calculation.
How do incentives affect the Salary Cap?
Incentives are written into some contracts to pay a player for reaching certain performance criteria. Incentives come in two varieties – Likely To Be Earned (LTBE) and Not Likely To Be Earned (NLTBE) – each of which has different Salary Cap implications.
Likely To Be Earned Incentives (LTBE) are incentives based on performance levels that were reached in the prior season. LTBEs count against the Salary Cap in the year they are scheduled.
Not Likely To Be Earned (NLTBE) are basically the opposite; they are incentives based on performance levels that were NOT reached in the prior season and NLTBE incentives do not against the present year’s Salary Cap.
If the player does not earn a LTBE Incentive, then the amount of the incentive will be credited back to the team on the following year’s Salary Cap and the team would have that much in additional Cap space in the following year.
The opposite happens with NLTBE Incentives – if those are earned, they are charged to the team on following year’s Salary Cap.
So, despite what you may have heard from a certain ex-NFL General Manager who now haunts the Baltimore airwaves, teams do NOT have to carry Cap space into the season in order to cover any such incentives, if/when earn. Simply put, incentives have either already been counted (LTBE) or, if earned, will be charged against the Cap in the following year (NLTBE).
EXAMPLE: Media reports indicate that TE Owen Daniels received a one-year contract with a $1M base salary and $1M worth of incentives. Since his Cap number for 2014 is just $1M, that means that the incentives must be NLTBE because none of them are counting against this year’s Cap. This makes sense since he only played in five games last year due to injury and the threshold for most incentives would be quite low considering his lack of playing time and performance. If Daniels reaches any of those incentives, he will be paid immediately, but the team will not have to count that money until 2015.
What is the Minimum Salary Benefit Rule?
The Minimum Salary Benefit (MSB) Rule was put in place to allow veteran players to be signed to Cap-friendly deals instead of being replaced by cheaper, more Cap-friendly, younger players. The Minimum Salary Benefit allows veteran players to be signed to one-year contracts with the applicable minimum salary (based on the player’s service time) and a small signing bonus (for 2014, up to $65K), but teams only have to count that player at the salary level of a player with two years of service time – $570K (plus any bonus).
EXAMPLE: So far in 2014, the Ravens have signed three players to MSB deals. Safety Jeromy Miles received a one-year, $795M deal, with a $35K Signing Bonus and a $30K Roster Bonus (if he makes the 53-man roster). Under the MSB rule, he will receive a base salary of $730K (veteran minimum for a player with 4-6 years of experience), but that base salary will only count $570K against the Cap. As such, his Cap number will be $635K ($570K + $35K + $30K).
NT Terrance Cody and RB Justin Forsett also both received MSB deals with base salaries of $730K, but neither received any bonus money, so their Cap numbers are just $570K.