Chris Whalen’s Random Life

The season has started, you have your roster, now you have to manage it. In the NFL there is a HARD salary cap. Each week you have to name a maximum of 53 players on your roster, 45 are active for that week’s game. Unbeknownst to most people, the salary cap is a WEEKLY cap! You have to be under it each week. So, what is it and how does it work?

The overall salary cap is $109 million. Break that up into 16 weeks. After all, NFL players are payed on a per game check level. This is made up of each team’s revenues, shared revenues from teams and shared television revenue. This is a hard cap and you CANNOT go over it! This is why 6 years ago, San Francisco actually played a season with three open roster spots, and they did not have the cap room to keep a full team. In this way the NFL assures that each team can spend the same amount of money and therefore level the playing field. Larger market teams such as New York may bring in much more revenue than a Cleveland say, but because of the revenue sharing and the salary cap, they can only spend $109 period. You actually have to have good football people in place to evaluate players, not just buy a good team (Are you listening Commish?). That’s why any team can beat any other team on a given day in the NFL – the talent gap is based on how well you evaluate players, not how much you can pay!

Ok, so what counts? No, the $150 per Diem the players get for food on the road does not count, just salaries and signing bonuses (and incentives reached!). Let’s take an example and keep it simple. Player X signs a three-year deal. $6 million in salary plus a $3 million signing bonus. Each year HE IS ON THE ROSTER the team counts $2 million of his salary against the cap, the signing bonus is pro-rated over the life of the deal, so another $1 million per year. So Player X costs the team $3 million per year against the cap. Now here comes the tricky part. If Player X does not make the team or is traded, here is the effect. The entire remaining portion of the signing bonus accelerates to that year’s cap. E.g., Player X is cut or traded after year one, while the remaining $2 million in salary WILL NOT count against the cap, his remaining $2 million in signing bonus will. Now that means the team now has $2 million of dead money in the cap. Money that counts against the cap cannot be spent, and that player is no longer on the roster. The reason for this is signing bonus money is guaranteed money, the salary is not. Unlike in baseball where ALL is guaranteed. Now then the caveat is players signed before the old collective bargaining agreement, (1997, I believe), their signing bonus would remain pro-rated. So Player X would still count against his team’s cap for the three years at $1 million per year. ALSO, you cannot restructure your contract to defer more than 25 percent. So, Drew Bledsoe can restructure all he wants, but will always have a high number because he is not allowed, by rule, to take that big of a salary cut. Reached incentives count as well – those are tallied at the end of the season. Bottom line, you have to MAKE THE TEAM to get your salary, the rest is up to your agent.

Now all of this has to be kept in mind during the season. As soon as a player is cut, his signing bonus would accelerate, do you have to cut another player to stay under the cap? It gets very complicated!!! The worst case scenario is not having the money to keep a full roster; money that is tied up in players that are no longer with the team.

Now for obvious reasons, players usually want as large a signing bonus as possible. THAT is guaranteed money and even though it is pro-rated over the life of the contract, the player gets all that money upon signing (hence the term signing bonus). This is where teams get creative. One of the newer and more creative solutions is a stepped or tiered bonus. Let’s take Player X. If the team can afford it, they might give him a stepped plan where he gets a $2 million bonus for the first two years, and if he is on the team for year three, another $2 million and extend the contract for another year. The advantage: the first $2 million is spread out over the three-year contract, and if the team sets up an option for another year, he gets another 2 at the end of the third year and most likely a one-year extension. Now Player X has a lower cap number for three years and the potential for a four-year contract coupled with another $2 million. Yes, teams have very good accountants for this! Oh, and by the way, in a league where coaching can be argued to have the LARGEST effect on a team than any other of the major sports, COACHES SALARIES DO NOT COUNT AGAINST THE CAP! Hmmm, I know where I would invest alot of my money as an owner…

Now then for all you business people, this has NOTHING to do with cash flow!!! This is just how the league recognizes the salary and bonus. While salary is paid on a per game check level, there can be any type of arrangement desired for actual payout of bonus. Players with HUGE bonuses, like Peyton Manning, probably have deferred payment plan over years to help the team on a cash flow basis and guarantee money for them for a period of years into the future, even if they are not on the team. Confused yet? Don’t worry – so am I, and half the team in the NFL! Since the salary cap is based on a division of gross revenues, it changes every year. THIS is why the television contract always makes the news when a new one is signed. It is the main revenue driver for the salary cap. Split $1 billion (yes, with a b) 32 ways and you have a start for the cap. The numbers are numbing. Try doing payroll in the NFL, with revenues coming from 32 teams, tracking them and checking for accuracy. Essentially all thirty teams pay the salaries of NFL employees. So then is it a business, a sport, or entertainment? Once again the answer is YES. The next time you read about your favorite player getting a new contract, run the numbers and see what it really means. What is he really going to get paid? Is it an 8-year deal for a 36-year old player? Sounds to me like a way to spread bonus money out since he probably won’t play that long, so there will not be 8 years of salary. Yes, if he retires the bonus remains pro-rated.

Now you also know why when the Falcons talk of going after Vick’s signing bonus, it really doesn’t mean anything in terms of the cap, but does in terms of cash flow. By cutting Vick, if they cut Vick, his entire $22 MM signing bonus, minus three years, will ALL count towards this years cap. That’s why they deactivated him, they will cut him eventually, but will wait until there is an NFL ruling or until after the season so they ca prorate it for one more year….