NFL SALARY CAP FAQ

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NFL SALARY CAP FAQ

How is the Salary Cap calculated?

The Salary Cap is based on a complicated calculation that measures the league’s revenue (or certain revenues) and then apportions around 48% of that revenue to player costs.  That player cost number is comprised of two components – (1) player benefits and (2) player salaries.  The player salaries portion is what we are talking about when we refer to the Salary Cap.  For instance, in 2011, the overall Player Cost number was $142M, while the Salary Cap was $120.375M.  The difference between those numbers was the player benefits amount.

What is the Salary Cap amount per team?

For 2014, the Salary Cap has tenatively been set at $126.3M.  This number is an estimate and could perhaps increase.  There is also the chances that the NFLPA will elect to increase that amount by $2M by shift that amount for the benefits portion of the Player Cost to the Salary Cap side.

What is a team’s “adjusted” Salary Cap?

While each team’s Salary Cap is initially set by the terms of the CBA (as calculated as explained above), there are several adjustments that can increase (or decrease) a team’s Salary Cap.  This adjusted number is known as the team’s “Adjusted” Salary Cap and what a team’s available Cap space is based on.

Can a team carryover excess, unused Salary Cap space from one season to the next?

One way that teams can increase their Salary Cap space is by carrying over any unused Cap space from the prior year.  Teams must notify the league of the amount they wish to carry over from one year to the next by 14 days before the new league year.

This is a new rule that was added to the CBA of 2011.  Prior to that teams used “phony” incentives to carry over Cap space from one year to the next.  The new CBA did away with the shame process and instituted a more rational, straight-forward process.

Do all player count against their team’s Salary Cap?

Yes, once the season has started, all players – whether on the 53-man roster, Injured Reserve (IR), Physically Unable to Perform (PUP) or the Practice Squad (PS) – count against the team’s Salary Cap.  The only players that do not count against the Salary Cap are players who are on the Non-Football Injury (NFI) List because, pursuant to the NFI rules, those players are not paid their base salary or any bonuses they may be due.

So, how is the Salary Cap calculated during the offseason, when team rosters can total up to a maximum of 90 players?

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 pro-rations and all rosters 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.

Do unsigned Free Agents count against the Salary Cap?

There are several types of Free Agents and whether they count or not depends on what category they fall into.

Unrestricted Free Agents (UFAs) – players whose contracts have expired – and players who become Free Agents by virtue of being released by the team do not count against the team’s Salary Cap.

Restricted Free Agents (RFAs) – players who have less than 4 years of accrued service time, who have received a RFA contract tender from their team – do count against the Salary Cap, at the amount of the RFA tender.

Exclusive Rights Free Agents (ERFAs) – players with less than 4 years of accrued service time, who have received a ERFA contract tender from their team – also count against the Salary Cap, again, at the amount of their ERFA tender.

Franchise or Transition Tag – any player who receives the Franchise or Transition Tag (other than the Exclusive Franchise Tag) is still technically a Free Agent, but is restricted by the Tag.  A player under the Tag does count against the Salary Cap, at the amount of the Franchise or Transition Tag tender amount.

Do unsigned Draft picks count against the Salary Cap?

Yes, once drafted, draft picks are assigned a tender equal to the rookie minimum salary for that year.  For 2014 that amount is $420K.  That tender amount is replaced by the player’s actual Salary Cap number once the draft pick signs his rookie contract.

How is a player’s Cap number calculated?

A player’s Cap number is usually comprised of several parts.  First the player has what is known as his P5 Salary (as in Paragraph 5 of the standard NFL contract).  This is what is otherwise referred to as a player’s yearly base salary.  Players also often receive bonuses – of different varieties – that will also count as part of his Salary Cap number.  The most common types of bonuses are Signing Bonuses, Option Bonuses and Roster Bonuses.  The 3rd common component of a player’s Cap number is Incentives (see explanation below).

So, what is the difference between a Signing Bonus, Option Bonus and a Roster Bonus?

In each case, the bonus is a payment to the player that is contingent on the player signing a new contract (Signing Bonus) or remaining with the team (Option Bonus or Roster Bonus).  For the player, it really isn’t that important from his perspective what type of bonus it is, because he’s getting paid the amount, regardless of what it’s called.  From the perspective of the Salary Cap, the type of bonus is important because of the way that is counts against the Salary Cap.

Roster Bonuses count fully in the year in which they are paid.

Signing Bonuses and Option Bonuses are prorated over the length of the player’s contract (or the remaining years of the players contract, in the case of an Option Bonus), up to a CBA-mandated maximum of 5 years.

OK, so how then is a player’s contract evaluated for Salary Cap purposes?

By way of example, let’s say Player X signs a 5-year, $40M contract that contains a Signing bonus of $10M, an Option Bonus of $4M, payable in year 2 and a Roster Bonus of $1M also payable in year 2.  The contract includes base salaries (P5) of $1M, $3M, $6M, $7M and $8M over the course of the 5 years.

The Signing Bonus of $10M will be prorated over the 5 years of the contract and will count $2M against the Salary Cap in each year of the Contract.

The 2nd year Option Bonus will be prorated over the 4 remaining years of the contract and will count $1M in each of those years.

The 3rd year Roster Bonus will count 100% in the 2nd year, assuming the player is still on the team’s roster in year 2 (Roster Bonuses are most often payable if the player is on the team’s roster on the 5th day of the league year).

So, the player’s Cap numbers would be as follows:

Year Signing Bonus Proration Option Bonus Proration Roster Bonus Base Salary Cap Number
1 $2M $1M $3M
2 $2M $1M $1M $3M $7M
3 $2M $1M $5M $8M
4 $2M $1M $7M $10M
5 $2M $1M $9M $12M
Total $10M $4M $1M $25M $40M

This example does not include any Incentives.  The Salary Cap implications of Incentives are explained below.

Are NFL contracts guaranteed?

Most NFL contracts do have some “guaranteed” money included, but unlike Major League Baseball and the NBA, the entire amount of the contract has rarely been guaranteed.  This has recently changed (to an extent) in that the new rookie salary scale (as instituted by the 2011 CBA) has spawned 4-year rookie contract for the higher draft picks that have a significant portion of the contract guaranteed.

Otherwise, some of the more sizeable Contracts will have guaranteed Signing Bonuses, Option Bonuses and/or Roster Bonuses and sometimes guaranteed base salaries (P5).

However, what is often called “guaranteed” is often not as wonderful as it sounds.  Often, the guaranteed money is guaranteed for injury only, meaning that if the player is hurt, he cannot be released, but can be released for any other reason.

So, what happens if an Option Bonus is not paid?

When an Option Bonus is not paid, it usually has the effect of “voiding” a year or two of the player’s contract.  In reality, most Option Bonuses are either guaranteed or have guaranteed base salaries (P5) that essentially act as a guarantee for the Option Bonus.  In the above example, this would mean that if the $4M Option Bonus in year 2 was not fully guaranteed, it would likely be backed up by a fully guaranteed base salary ($3M) and a fully guaranteed Roster Bonus ($1M) in year 2.  This basically protects the Option Bonus, so that the team is forced to pick up the option.  Once the option is exercised, the guaranties to the base salary and the Roster Bonus would void.

How does the release or retirement of a player affect the Salary Cap?

When a player is released (or retires), the team is relieved of having the pay the player’s base salary (P5) and any Roster Bonus that may become due after that, but still will need to account for any Signing or Option Bonus prorations that haven’t yet counted against the Salary Cap.

Using the contract example above, if the player was released in year 4 of the deal, the team would not have to pay that Roster Bonus or the player’s base salary (P5) of $7M (or any base salaries thereafter).  However, the year 4 Bonus pro-rations ($2M + $1M) would still count and the year 5 Bonus prorations ($2M + $1M) would accelerate and immediately count against the Cap in year 4.  So, the team would still have to account for $6M of the player’s remaining Bonus prorations.  Since he was expected to count $10M against the Cap had he been on the team (his Cap number), the team would realize a Cap savings of $4M due to his release and have to carry $6M in “dead money” against the Salary Cap in year 4.

Since the prorations from year 5 accelerated against the Cap, there will be no future Cap implications from the release.

The retirement of a player is treated the same as the release of a player.

How does the trade of a player affect the team’s Salary Cap?

For the team trading the player, a trade is pretty much treated the same as the release of a player – the team is relieved of paying all future base salaries, but still must account for the bonus money that has already been paid to the player.  Just like with the release of a player, the remaining unaccounted-for bonus pro-rations will accelerate and count against the team’s Salary Cap.

For the team acquiring the player, a trade means that the new team acquires the player’s remaining contract, but does not have any liability for any bonus money previously paid to the player.

What is the June 1 release deadline and how does it affect the Salary Cap?

If a player is released after the CBA mandated deadline of June 1st, the team gets the benefit of being able to spread the Salary Cap hit – or dead money – over two years.  When a player is released after June 1, the team is again relieved of paying that player’s base salary for the year in which he is released (and all future years) and the only amount that counts against the team’s Cap in that year is the player’s bonus proration for that year.  The remaining unaccounted-for bonus pro-rations accelerate against the Cap in the following year.

So, using the above example, instead of having to eat $6M in dead money in the 4th year of the contract, the team would only have to carry $3M in dead money against the Cap for that year (which is that year’s bonus proration), but would have to account for the other $3M in dead money against the Salary Cap in the following year.

In the simplest terms, when a player is released after June 1, the team’s Cap savings for that year is the player’s Base Salary (P5), while the player’s bonus proration for that year is all that remains to count against the Salary Cap.  The balance of the player’s bonus pro-rations will count in the following year.

Post-June 1 retirements and trades are treated the same way as a Post-June 1 release.

Can teams release players prior to June 1 and still get June 1 Cap treatment?

Yes, the new CBA signed in August of 2011 left in place a provision that allows teams to designate two (2) pre-June 1 releases for post-June 1 Salary Cap treatment.  However, for the team there really is no great advantage to using this designation because the player still fully counts against the team’s Salary Cap until after June 1, at which point the player’s Cap number is treated as a post-June 1 release.

This provision is really in place to allow players to be released earlier than June 1 and hit the free agent market before teams have spent all of their free agent money and while teams are still looking to sign veterans to fill out their rosters.

When a player restructures or renegotiates his contract, he’s agreeing to take less for the good of the team, right?

No, in the vast majority of cases, a restructure does not mean that the player is agreeing to take less.  Only in the case of a declining, overpaid veteran is a pay cut part of a restructure.

So, in the vast majority of restructures, the money doesn’t change, it is only “restructured” from a bookkeeping perspective, so that Salary Cap space is created.

So, how exactly does a renegotiation work and how does it affect the Salary Cap?

The classic restructure is what is known as a “simple restructure”, in which the player’s Base Salary (P5) is reduced down to the applicable league minimum and the difference is immediately paid to the player as a Signing Bonus, which is then prorated over the remaining years of the contract.  So, again, the player is receiving nothing less than he was original supposed to.  In fact, he’s receiving the bulk of the money sooner as a Bonus, instead of spread out over the 17 weeks of the season.

Using the above contract example, if the team restructured the player’s contract in the 3rd year of the deal, the player’s 3rd year base salary of $5M would be reduced to the veteran minimum for a player of his service time (for example, $800K) and would give the player the difference of $4.2M as a Signing Bonus.

The new Bonus would then be prorated over the remaining 3 years of the contract and would count $1.4M in each of the 3 remaining years of the contract.   So, the remaining years of the contract would then look like this:

Year Signing Bonus Proration Option Bonus Proration Renegotiation Bonus Pro-rations Base Salary Cap Number
3 $2M $1M $1.4M $800K $5.2M
4 $2M $1M $1.4M $7M $11.4M
5 $2M $1M $1.4M $9M $13.4M

So, the restructure reduced the 3rd year Cap Number for the player from $8M to $5.2M, thereby creating $2.8M in immediate Cap space for the team.  However, it comes at the cost of an additional $1.4M against the Cap in each of the final two (2) years of the contract.

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.

For example, if a RB ran for 1,200 yards last year and he has an incentive that will pay him $100,000 if he runs for 1,000 yards this year, the incentive would be a LTBE Incentive and would count against the Salary Cap this year.

On the other hand, if the RB ran for 1,000 yards last year and he has an incentive that will pay him $100,000 if he runs for 1,200 yards this year, then incentive would be Not Likely To Be Earned (NLTBE) and would not count against this year’s Salary Cap.

If the player does not earn a LTBE Incentive, then the amount of the incentive ($100K in our example) will be credited against the following year’s Salary Cap and the team would have $100K in additional Cap space in the following year.

The opposite happens with NLTBE Incentives.  If those are earned, they are charged to the following year’s Salary Cap.  In our example, that would mean that the team would have $100K less in Cap space the following year.

What prevents a player from signing a contract with a huge signing bonus and then retiring the following year?

If a player unexpectedly retires in his prime, while playing under a long term contract in which the team gave the player a signing bonus, the CBA allows the team to attempt to recoup some of that Signing Bonus.  This has become known as the “Barry Sanders Rule”.

If the team – usually after an arbitration hearing – is entitled to receive the return of a portion of the player’s Bonus, that amount is credited to the following year’s Salary Cap.

To be clear, though, not every retirement causes the return of bonus money.  In fact, teams often sign veteran players to contracts with a number of years that they know will be fully reached.  In such cases, the teams never seek the return of bonus money – and likely wouldn’t win in arbitration, anyway.  The return of bonus money is only likely to occur when the player essentially retires unexpectedly and without legitimate reason (i.e. injury).

What prevents teams from going over the Salary Cap?

The short answer is that teams can’t because the league approves all contracts and would not approve a contract that would result in a team going over the Cap.  If a team were to go over the Cap because of the acceleration of unaccounted-for bonus pro-rations due to the trade or release of a player, the CBA mandates that the team has 7 days to come into Cap compliance.  That would mean that the team would have to find a way – likely via the restructure or release of another player – to come into Cap compliance.

There have been a couple of instances where teams were discovered to have agreed to payments to players that circumvented the Salary Cap.  The Pittsburgh Steelers and San Francisco 49ers were penalized draft picks and fined for agreeing to undisclosed, non-contract payments to players.

Is there a minimum amount (salary) that a player can be paid?

Yes.  The CBA contains a schedule – based on service time – that dictates the minimum salaries for players.  The minimum salaries are based on the number of accrued season that the player has earned (6 or more games in one season on a team’s 53-man roster, IR or PUP).  For 2014, those salaries are $420K (rookies), $495K (players with 1 accrued season), $570K (2 years), $645K (3 years), $730K (4-6 years), $855K (7-9 years) and $955K (10+ years).

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 player to be signed to 1-year contracts with the applicable minimum salary (based on the player’s service time) and a small signing bonus (for 2014, $65K), but only have to count that player at the salary level of a player with only 2 years of service time (plus the bonus).

So, under the MSB rules, in 2014, a team can sign a 7-year veteran to the applicable minimum salary of $855K, with a bonus of $65K, and instead of counting $920K against the Cap, the player would only count $635K ($570K + 65K).

How is the rookie cap calculated and why does it vary by team?

One of the biggest changes put in place by the 2011 CBA was the “Total Rookie Compensation Pool” which pretty much totally revamped how draft picks are paid and replaced the old “Rookie Salary Cap”.  The new system limits not only the first year pay for rookies, but also the total compensation that can be paid to the player over the life of the player’s contract.

Under this new system, the rookie salaries are basically slotted, which, as evidenced by the much earlier signings of many draft picks, means that draft picks are much easier to sign.

This slotting system is also how the league determines a team’s Rookie pool.  Each team’s pool is determined by the number of draft picks and where those picks were chosen.  From year to year, it is likely that those numbers will increase proportionately to the increase in the overall Salary Cap.

While still commonly referred to as the Rookie Cap, the new “Year One Rookie Allocation” has commonly been referred to as a “Cap within a Cap” because while it operates as a cap on what teams can spend on their rookies, it does not have a dollar for dollar impact on the team’s overall Salary Cap.  Because of this, when you hear that a team has a $4.5M “Rookie Cap”, that doesn’t mean that the team needs $4.5M in overall Salary Cap space.  As THIS ARTICLE explains in more detail, the actual impact on a team’s pverall Salary Cap is far less than the amount of the team’s Rookie Cap.

 

This entry was posted in Salary Cap Analysis by Brian McFarland. Bookmark the permalink.

About Brian McFarland

Brian McFarland
Known on Ravens Message Boards as "B-more Ravor", Brian is a life-long Baltimorean and an avid fan of the Ravens and all Baltimore sports.  A PSL holder since 1998, Brian has garnered a reputation as a cap-guru because of his strange (actually warped) desire to wade through the intricacies of the...more

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