Fear not. The Commish is here to help. Our goal is to provide you with a quick course in Capanomics so that you can understand what is going on here. By the time we’re through with you, you will have the knowledge and power to second guess your favorite team’s General Manager!
For Unrestricted Free Agents (UFA), if a June 1 offer is made, the amount afforded will be included in team salary as of July 15.
For transition and franchise players, an offer will be included in team salary when it is made.
These offers for UFA, transition players, and franchise players will remain included in team salary until the player is signed, the offer is withdrawn, the team gives up their rights to the player, or until the Tuesday following the tenth week of the regular season if the player is unsigned. All offer sheets will be included in team salary when the offer is made until the player is signed to a contract with any NFL Team or the offer sheet is withdrawn.
Teams with heavy payloads learned quickly that the best way to combat the Salary Cap was to circumvent it. They did this by back loading contracts, pushing all of the big money to the end of the contract. For example, a 5-year, $20 million contract (not counting a signing bonus) signed in 2005 as described above could possibly allocate the money in the following manner:
Year 1 (2005): $450,000 (min. cap given to players with 4+ years experience)
Year 2 (2006): $1 million
Year 3 (2007): $1.5 million
Year 4 (2008): $5 million
Year 5 (2009): $12 million
Note: Thankfully the extension of the CBA prevented a contract, like the one above, from violating the league’s "30% Rule". The "30% Rule" governs veteran contracts that are entered into in a capped year and extend into the final year of the CBA. The rule states that these contracts cannot have an annual increase of more than 30% of the salary, excluding amounts treated as a signing bonus, provided for in the FINAL CAPPED YEAR. Had the CBA not been extended, then 2006 would have been the final capped year and this contract would not have been valid.
For example, if a player signs a four-year deal with a $1 million signing bonus, $250,000 of that bonus will count toward team salary for each contract year ($1 million divided evenly over the four-year contract is $250,000 per year). If a team releases a player, the unamoratized bonus money (the remaining prorated bonus money) counts immediately against the cap.
In our example above, if the player is released after Year 1, the remaining $750,000 (the prorated signing bonus money for years 2-4) counts against the cap in Year 2 — even though the player is no longer on the team’s roster.
The first renegotiation of a veteran contract can take place at any time. However, a veteran may not renegotiate to raise his salary for twelve months after the most recent renegotiation. Additionally, no player or team can agree to renegotiate a term of a previously signed contract for a prior year. No contract can be negotiated for a current season after the last regular season game. Furthermore, rookie contracts cannot be renegotiated for one year after the signing date or the following August 1, whichever is later.
No player can agree to a contract, renegotiation, or extension that expires before the last day of a season. If a player wants to terminate his contract, he must do so before the first day of any season. Moreover, renegotiated contracts are revalued for Salary Cap purposes at the time of the renegotiation. If at the time of the renegotiation an incentive bonus has already been reached, that bonus is considered Likely To Be Earned (LTBE). Also, any new or changed incentive bonuses renegotiated after the start of the regular season are automatically considered LTBE. Finally, if a player is paid any more than the minimum amount for off-season workout programs or classroom instruction, then the payment will be treated as a renegotiation.
For example, Player X is currently in the third year of a four-year deal (2005–2008) that paid him a $1 million signing bonus. In 2007, Player X renegotiates his deal extending his contract to the 2010 season while getting a $2 million signing bonus. The original $1 million signing bonus is allocated at $250,000 per year over 2007 and 2008 just as it would be if there were no renegotiation. However, the new $2 million signing bonus is allocated at $500,000 per year over the remaining two years of the original contract (2007–2008) and the extended two years (2009–2010). Thus the cap liability in 2007 and 2008 is actually $750,000 for the signing bonus proration — and $500,000 in 2009 and 2010, assuming no additional renegotiation takes place.
If the player is cut after the first year of the contract, the remaining $750,000 of the "un-amoratized" signing bonus hits the cap immediately (accelerates). However, if he is cut after June 1, the team can spread that money over Year 2 and 3 of the contract instead of taking the full brunt of the cap hit in Year 2.
Doing this will save $500,000 against the cap hit for Year 2.
Clearly, this practice is a nice way of freeing up cap space in a given year. Note, however, that the money still has to be accounted for against the cap — and the remaining $500,000 that was never accounted for will hit the cap in Year 3. In essence, many NFL teams have mortgaged their future by overusing this practice, whereby they continue to pay against the cap for players who have not been on the roster for over a year.
The likelihood of voiding years can be included when determining the term of years for the prorated signing bonus. However, if the player meets the goal that voids the year (or years) of the contract, any amount of the signing bonus that was allocated to the voided year (or years) will be accelerated and added immediately to team salary. If the accelerated signing bonus puts the team over the Salary Cap, the amount that the team is over the cap will be deducted from the team’s Salary Cap for the next year.
If a player can void a contract based on a “Likely To Be Earned" incentive, and the player is on the roster at a later time, there will be no acceleration.
If a contract is renegotiated to reduce the number of years of the contract, the portion of the signing bonus that has not been allocated is included in team salary at the time of the renegotiation.
For example, if a quarterback threw twenty touchdowns last year and his incentive clause for this year is set at fifteen touchdowns, then this incentive is “likely to be earned.†Also, incentives that are in the sole control of the player, like non-guaranteed reporting bonuses and off-season workout and weight bonuses, are considered LTBE.
An impartial arbitrator will hear disputes between the owners and the players concerning what should be considered LTBE (especially for rookies or veterans who did not play in the prior year). Conversely, if a player did not reach the performance incentive in the previous year, the incentive is deemed "not likely to be earned" (NLTBE) and is not included in team salary.
To determine whether a clause is LTBE or NLTBE for Salary Cap purposes (i.e., not whether the player actually earned the incentive), it is necessary to look at the performance of the team in the prior season, not the current season.
For example, assume Player X receives an incentive bonus if he participates in 50% of the team’s offensive plays this season. Assume further that last season the team had 1,000 offensive plays. Therefore, as soon as Player X plays in 500 plays in the current season (or 50% of last year’s 1,000 plays), the incentive will be considered earned for Salary Cap purposes.
The same incentive is considered "not earned" if the same player in the current year only participated in one of the team’s first 502 offensive plays. In this situation, it would be impossible for the player to achieve the 50% incentive based on last year’s performance of 1,000 plays. It is important to remember that looking to last year’s performance level is only for Salary Cap purposes and will not affect the player’s right to receive a bonus for his performance in the current year.
While we’re on the topic, let’s talk a bit more about signing bonuses…
Also included in the “bonus†are guaranteed reporting bonuses and guaranteed workout bonuses. Roster or reporting bonuses earned or paid before preseason training camp are also considered bonuses. Guaranteed salary advances or advances that do not have to be repaid are treated as signing bonuses. Money guaranteed or paid for option years, contract extensions, contract modifications, individually negotiated rights of first refusal, and option buyouts are considered signing bonuses. Reporting bonuses are treated as signing bonuses if the contract is signed after the start of training camp. Roster bonuses are also considered signing bonuses if the contract was signed after the last preseason game. Finally, individually negotiated relocation bonuses are treated as a signing bonus.
The non-guaranteed amount of any salary advance, off-season workout bonus, off-season roster bonus, or off-season reporting bonus is included in the team’s salary in the year it was earned. These bonuses cannot be prorated. “Guaranteed†refers to those bonuses that are fully guaranteed–regardless of skill, injury or termination of the contract.
Contracts signed, renegotiated, or extended in the final capped year are governed by a somewhat special set of rules if the signing bonus is to be paid to the player in the final capped season. In this situation, a salary advance that the player is not obligated to repay is considered a signing bonus. Any off-season workout bonus that calls for a player to participate in less than thirty-two days of the team’s program is also considered a signing bonus. Finally, all off-season reporting and roster bonuses are considered signing bonuses.
Whew!
Due to the Salary Cap, owners are now investing a greater amount of money up front for players in the form of guaranteed signing bonuses. Thus, the owners must try to protect their investments by including language in the contract that calls for a player to return a portion of the signing bonus to the team if the player “fails or refuses†to practice or play with the team.
In certain situations, a team will be repaid some of the signing bonus it paid to a player (i.e., a refund), or a team will fail to pay part of a signing bonus that was already allocated toward team salary. If this happens, the amount previously included in team salary will be added to the team’s Salary Cap in the next year.
In most cases, if a player retires, the remaining signing bonus that has not been included in salary “accelerates†and is included in that year’s team salary. Thus, the team will take an immediate salary cap hit of the remaining signing bonus.
There have been instances in which a team has managed to sneak a cap evading contract by the league. Upon further review, the violations were caught by the league and the respective teams were penalized. Penalties include fines and/or forfeiture of draft picks. In recent history both the Pittsburgh Steelers and San Francisco 49ers have been penalized draft picks, while the 49ers’ front office personnel (Carmen Policy and Dwight Clark) were also fined.
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Extension through 2011 rather than 2007.
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The Salary Cap % will be based on an newly defined and expanded revenue stream, which includes additional sources not covered under the original DGR. That Salary Cap % varies from 57% to 58% during the life of the CBA. (See Question 1.2)
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Minimum salaries have changed as follows:
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Years
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2007
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0
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$285,000
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1
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$360,000
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2
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$435,000
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3
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$510,000
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4-6
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$595,000
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7-9
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$720,000
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10+
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$820,000
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All minimum salaries for veterans (plus up to $40,000 signing bonus) with at least four years of experience will only count $435,000 against the team salary cap for qualifying contracts.
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Teams can sign rookies selected in the first half of the first round of the NFL Draft to a contract that is at most 6 (six) years. Players taken in the second half of the first round can only be signed to deal with a maximum 5 (five) year duration. Players taken after round one cannot be signed to a deal longer than four (4) years. Meanwhile, rookie contracts can not be renegociated in the first two (2) years.
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Prior to the start of the league year, teams may designate up to two (2) veteran players that they will cut after June 1 to spread out the signing bonus escalation (See 1.9b). In so designating them, the team allows these players to become free agents at the start of the free agency period — although their cap liability remains with the original team just as it would have if the player had stayed on the roster until after June 1.
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Just as is the case with the Franchise Tag, if the designated player signs the the one-year Transition tender, then that salary is guaranteed. Also, for both Transition and Franchise tags, the old March 17 date goes out the window. Under the old CBA, teams had until March 17 to reach an agreement with the Transition/Franchise Player — or risk losing the tag for the duration of the eventual long-term deal. Under the new agreement teams have until July 15.
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If either the NFLPA or the owners are unhappy with the updated CBA, they may elect to make it null and void after four (4) years.
