Explaining how the “Rookie Salary Cap” actually works

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In the days following this week’s NFL draft, the league will announce 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.

So, by way of example, let’s say a team’s 51st highest Cap number is $515K (a 2nd year minimum base salary of $480K + $35K in bonus proration) and the next highest Cap number is $490K (base salary of $480 base salary + $10K in bonus proration).  Because the “52nd” highest Cap number doesn’t count against the Cap, that player’s base salary of $480K 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 two through four of their deals, even those players will almost always receive the rookie minimum base salary during their first year.  For 2013, the minimum base salary for a rookie is $405K.  For Salary Cap purposes, the bonus received by the player is prorated over the four 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 numbers 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 $405K 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, how will this affect the Ravens in 2013?

As we know, the Ravens are set to have twelve (12) draft picks in next week’s draft.  As we also know, it’s highly unlikely that the Ravens will end up using those exact 12 picks.  Whether they trade up or down, the Ravens are likely to move all over the draft board and it’s anyone guess which picks they will actually use.

However, for the purposes of this illustration, we’ll base our example on the present 12 picks.

With the new CBA’s rookie wage scale, the compensation for draft picks is now basically slotted, so based on the current 12 draft picks, the Ravens would likely have a Rookie Cap number of around $6.36M.

Those (estimated) Cap numbers would breakdown as follows:

1st round:              $1.23M

2nd round:                 $614K

3rd round:                  $534K

4th round:              $501K

4th round:              $481K

5th round:              $445K

5th round:              $441K

6th round:              $428K

6th round:              $427K

6th round:              $425K

7th round:              $417K

7th round:              $417K

Presently, the bottom 5 Cap numbers for the Ravens are:

47:            $504K

48:            $491K

49:            $480K

50:             $480K

51:             $480K

Again, the team will need to fit all 12 of the draft picks into its $6.36M Rookie Cap, but will not need $6.36M in overall Cap space to accommodate the signing of its draft picks.

So, based on the above numbers, only the first four (4) picks will have Cap number of greater than $491K, which is the team’s 48th highest Cap number.  As such, only those four will be part of the top 51 and, under the Rule of 51, will replace the Cap numbers of the players who are currently 48th, 49th, 50th and 51st on the team’s Cap.   Only the bonus prorations for the players who are removed will remain to count against the Salary Cap.

The remaining eight (8) 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.  Only the bonus prorations for those players will count.

So, to calculate the exact impact of the Rookie Cap on the team’s overall Cap, the amount of the base salaries – $405K – for each of the lower 8 draft picks ($3.24M) can be deducted from the overall number of $6.36M.  Then, for the top four 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 the four players who were formerly part of the top 51, so the base salaries ($480K) of the four being removed ($1.92M) will be deducted from the team’s overall Cap.

When those two numbers ($3.24M and $1.92M) are deducted from the team’s Rookie Cap ($6.36M), the true impact of the signing of the team’s rookies – $1.2M – 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 team’s Rookie Cap numbers, subtract the rookie minimum salary ($405K in 2013, $420K in 2014) of each of the team’s draft picks in the 5th-7th rounds and the minimum salary for 2nd year players ($480K in 2013, $495K in 2014) for each of the team’s draft picks in the 1st-3rd rounds from the team’s announced Rookie Cap number.  For any 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.

2 Raves on “Explaining how the “Rookie Salary Cap” actually works

  1. Fran the Fan on said:

    My head hurts after reading this. But I’m printing it off so I can read it again. And again. I might understand it some day.

    Brilliant job as usual, Brian.

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