Every year, during the weeks follow the NFL draft, the league announces each team’s “Year One Rookie Allocation” (formerly known as the “Rookie Pool” or “Rookie Salary Cap”).  This is an oft misunderstood number, because while it is part of the team’s Salary Cap, it does not have a dollar-for-dollar impact on the team’s overall Salary Cap.

The Rookie Salary Cap is often referred to as “a cap within a cap” because it limits the amount that teams can allocate to their rookies in the year they were drafted and over the life of the rookies’ contracts.  But, beyond that, there is a lot of confusion about the Rookie Salary Cap and exactly how it works.  Even some in the media do not fully understand the mechanics of it.  Some have been heard to say that it’s a totally separate pool of money that is not included in the team’s overall Cap.  Others think the entire amount of the Rookie Cap is included in the team’s overall Cap, meaning that teams will need that much overall Cap space to sign their rookies.

Both of those characterizations are incorrect.

The Rookie Cap is not a separate, distinct pool, but rather, a separate calculation and there is not a dollar-for-dollar correlation between the Rookie Cap and the overall Cap.  So, while all of the Salary Cap numbers of a team’s draft picks must fit under the team’s Rookie Salary Cap, very rarely will all of that amount actually impact the team’s overall Salary Cap.

The reason for these misconceptions revolves around the Rule of 51, which is contained in Article 13 of the NFL’s Collective Bargaining Agreement.  The Rule of 51 dictates that, from the beginning of the league year in early March until the beginning of the season, only the top 51 Salary Cap numbers and all of the pro-rata shares of bonus money for the players outside of the top 51 count toward the team’s overall Cap.  All “dead money”, i.e. amounts that count against the Salary Cap for players who are no longer on the roster, counts as well.

Said a simpler way, during this period of the offseason, a team’s Rule of 51 Salary Cap number can be calculated by removing the base salaries of all players who do not fall amongst the top 51 Cap numbers.

This rule is necessary because, during the offseason, team rosters can number up to 90 players.  As such, it would be impossible for teams to fit all of those players under the Cap.  So, to counter this problem, the NFL has instituted the Rule of 51.

By way of example, let’s say a team’s 51st highest Cap number is $500K (a 2nd year minimum base salary of $465K + $35K in bonus proration) and the next highest Cap number is $475K (base salary of $465 base salary + $10K in bonus proration).  Because the “52nd” highest Cap number doesn’t count against the Cap, that player’s base salary of $465K will not count against the team’s Cap, but his $10K in bonus proration will.  This would also apply to all other players who are outside the team’s top 51 – the player’s base salary will not count, but any bonus prorations will.

OK, so what does this have to do with how the Rookie Cap works?

First, as way of further explanation, under the CBA of 2011, all rookies receive 4-year contracts, generally with a signing bonus and often with minimum base salaries set for each year of the deal.  While 1st and 2nd round picks may have base salaries of more than the minimum in years 2 through 4 of their deals, even those players will almost always receive the rookie minimum base salary during their first year.  For 2012, the minimum base salary for a rookie is $390K.  For Salary Cap purposes, the bonus received by the player is prorated over the 4 years of the deal and that prorated amount is added to the base salary to create the player’s Cap number.

So, because of the low base salary and the small signing bonuses that many of the lower round draft picks receive, those draft picks will most likely not be amongst the top 51 Cap number on the team (assuming the team has at least 51 players signed or tendered).  As such, under the Rule of 51, those players’ base salaries of $390K will not count against the teams overall Salary Cap and only the player’s bonus proration will count toward the team’s overall Cap.

So, let’s put this into numbers:

Let’s say, for example, the team has 7 draft picks and a rookie Cap of $4.303M.

Let’s also use the above example of the team’s 51st highest Cap number being $500K ($465K base salary + $35K in bonus proration).  For our example, let’s say that the next 2 highest Cap numbers are $510K and $505K (both with base salaries of $465K).

Again, the team will need to fit all 7 of the draft picks into its $4.303M Rookie Cap, but will not need $4.303M in overall Cap space to accommodate the signing of its draft picks.

The team’s 7th round pick signs a contract that contains a first year base salary of $390K (the minimum base salary for a rookie) and receives a Signing Bonus of $48K.  That Signing Bonus is prorated over the 4 years of the contract and counts $12K against the Cap in each year (assuming the player remains with the team for all 4 years).  The player’s first year Cap number would be $402K ($390K + 12K).  That Cap number would be below the team’s top 51, so, while the entire $402K would count against the team’s Rookie Cap, only the player’s bonus proration of $12K would actually count against the team’s overall Salary Cap.

Let’s also say the team’s other draft picks have the following Cap numbers:

6^th Round Pick – $415K ($390K + $25K bonus proration)

5^th Round Pick – $426K ($390K + $36K)

4^th Round Pick – $490K ($390K + $100K)

3^rd Round Pick – $540K ($390K + $150K)

2^nd Round Pick – $640K ($390K + $250K)

1^st Round Pick – $1.390M ($390K + $1M)

So, of the team’s 7 draft picks, only the 1st, 2nd and 3rd round picks have a Cap number of greater than $510K, which was the team’s 49th highest Cap number.  As such, those three will replace the Cap numbers of the team’s 49th, 50th and 51st Cap numbers under the Rule of 51.

The remaining draft picks would not count amongst the top 51 Cap numbers, so the base salaries of those players, while counting against the Rookie Cap, will not count against the team’s overall Salary Cap.

So, to calculate the exact impact of the Rookie Cap on the team’s overall Cap, the amount of $390K for each of the lower 4 draft picks ($1.56M) can be deducted from the overall number of $4.303M.  Then, for the top 3 draft picks, while their Cap numbers do count against the overall Cap (by virtue of being part of the top 51 Cap numbers), they replace 3 players with base salaries of $465K, so those 3 base salaries ($1.395M) will be removed from the team’s overall Cap.

When those two numbers ($1.56M and $1.395M) are deducted from the team’s Rookie Cap ($4.303M), the actual impact of the signing of the team’s rookies – $1.348M – is revealed.

So, that is how the Year One Rookie Allocation, a.k.a Rookie Salary Cap – the “cap within a cap” – actually works and demonstrates the actual impact of the Rookie Cap on the team’s overall Salary Cap and how it is fair less than most realize.

OK, that’s a lot of numbers, is there a simpler way to estimate the how much Cap space a team needs to sign its draft picks (even before the contract numbers start to come in)?

Yes, as a general rule of thumb, once the NFL has announced the Rookie Cap numbers, subtract the rookie minimum salary ($390K in 2012, $405K in 2013) of each of the team’s draft picks in the 5th-7th rounds and the minimum salary for 2nd year players ($465K in 2012, $480K in 2013) for each of the team’s draft picks in the 1st-3rd rounds from the team’s announced Rookie Cap number.  For 4th round picks, the amount to deduct could be either of those numbers – depending on how early or late in the round the player was drafted – so deduct whichever one fits best.  By doing so, you can determine a pretty accurate estimate of the impact of the team’s draft picks on the team’s overall Salary Cap.

And, despite what some in the media may lead you to believe, that number won’t be anywhere near what the team’s Rookie Cap is reported to be.