Understanding The NFL Salary Cap
Sports
Jan 11, 2002, 19:12
By M. Wilson Staff
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First off, let me warn you that this will not be fun. But if you love football, shouldn't you try to understand better why it has become the way it is? People complain, "There aren't real teams like there used to be." Read the following and you'll begin to realize why there can't be. Owners, managers, and coaches have to keep an attorney at their elbow to help them figure out how they can possibly build a good team under the cap rules. If it seems sometimes like you're watching a game between two portfolios instead of 2 teams of guys, maybe we should appreciate the action on the football field -- when it all comes together just right -- all the more.
Understanding The Cap:
Terms and Explanations
First put into use in 1994, the now-infamous NFL salary cap emerged as part of the Collective Bargaining Agreement reached between NFL owners and the NFL Players Association (NFLPA). Players wanted a more equitable portion of revenues; owners wanted some control over the wildly escalating salaries of the players.
The game of football has been profoundly changed as a result of the cap, without doubt; but each time sports lovers bewail those changes – they bewail with plenty of reason, too – it’s good to stop and take a close look at the way the salary cap works, and understand why football teams are shaping up the way they are. Some of us have never accepted the new reality (new! It’s actually 7 years old) because we didn’t know what the managers, owners and players have had to work against.
Salary Cap: This is the amount the total players’ salaries plus their prorated bonuses cannot exceed. For 2001, the amount per club was $67.4 million. <>BWhat You Don’t Necessarily Need To Know: The Collective Bargaining Agreement was extended until 2004, so salary caps will exist until then; but 2004 itself, the final year of the agreement, is uncapped. The cap amount per year is determined by a percentage of the League’s gross revenues. Apparently, the negotiators looked at major league baseball, where salaries are frequently 75% of the budget, and decided they needed to clamp it off a lot lower, staying under 65%. This amount is called the players’ share. But then you must subtract benefits for everybody in the league, they cost a good bit too. What’s left is the amount available to pay salaries.
For 2001, the percentage they allocated was 63%; in 2002 it’ll be 63.5%. Then you divide that amount, that percentage of the gross revenues, by 31, the number of teams in the NFL. Soon it’ll have to stretch farther to take in the Houston Oilers.
What Counts As Salary For A Player? Well, obviously, the base salary that he’s contracted for, to start with. For instance, a player may sign a 4-year contract to earn $4 million. So the owner divides $4 million by 4 years and has to count $1 million for this first year. However -- And This Is The Big However: The owner may “backload” the contract, namely, decide to pay the player most of the $4 million in the last year or two of his contract. Suppose he pays him only $100,000 this year, the rest later. He’s given himself a lot more room under the cap for this year. This is permitted. The bad part is that the owner is signing away cap room in future years, when he doesn’t know if he’ll need it. The good part for the owner is that he may decide to cut the player before his contract is up. If so, the rest of the money he was going to pay the player is erased completely from the owner’s future obligations, leaving him all that cap room in the coming years.
Obviously, contracts have changed enormously. They are not guaranteed as in the past, and they are frequently tied to performance, giving the owner reason to decide to release a player. But there are some advantages to the player as well, as you’ll see.
What About Signing Bonuses And Cash Incentives, How Are They Counted Under The Cap? This is where both good things and bad things happen to both owner and player. Basically, a bonus also counts in the salary cap. But it’s prorated for the length of the contract, even though it’s usually paid to the player in the first year. So if our example player with the $4 million, backloaded salary is contracted also to get a signing bonus of another $4 million, he can receive $4,100,000 that first year, while the owner only has to report $1,100,000 salary toward the cap for him. Very advantageous for the owner, and the player doesn’t have to wait for his bucks.
The bonus may be of another sort: say, the player gets paid $500,000 for each game that he starts.
Bonuses, unlike base salaries, are guaranteed. If the player is cut before he receives the bonus he signed for, he still gets it. If his pay was more bonus than base salary, the player is way ahead and the owner unhappy because if a player is released, traded, or waived, all his bonus money is now not prorated – it’s all counted this year. On the other hand, owners were prone to abuse the system, granting enormous bonuses and tiny base salaries, in order to get around the salary cap. What You Don’t Really Need To Know: To prevent that abuse, the rule was established that the prorated, per-year amount of a signing bonus can’t be more than the player’s base salary for the first three years.
What Is A Cap Hit? The situation I’ve described above, in which a team releases or trades a player who had a signing bonus coming to him, is a cap hit. The bonus is guaranteed, has to be paid even though the player is leaving. The owner can’t spread that bonus out through the remaining years of the contract anymore. If the team releases him in the offseason, before June 1, they take a bigger cap hit; all the rest of his bonus counts towards the cap this same year. If he’s released after June 1, they can prorate the bonus this year, but next year the remainder of the bonus counts. It’s a smaller hit then.
Since bonuses are the alluring part to players and a vital part of bargaining to teams, the risk they entail has frequently caused owners to shore up their investment by introducing “good behavior” clauses into contracts. For example, the team may take back part or all of a bonus if the player doesn’t stay in line with the team’s substance abuse policy, fails a drug test, fails to report to meetings or training camp when required, or more. Terry Glenn of the New England Patriots was recently suspended for the rest of post-season play, won’t be in the playoffs with them. The reason given by the team was “multiple unexcused absences” from practices. He’d had a prior suspension from the first 4 games of the season for violating drug use policies, and he’d also been charged with assault and battery by the mother of his son in May. Glenn had signed a 6-year, $50 million contract extension with an $11 million bonus. He hasn’t received that bonus yet. The delay may mean his contract contained such a behavior clause, and if so he probably won’t get it at all.
How Else Does The Cap Seem To Change? Well, it doesn’t work the same way in the offseason. Up until the day before the season begins, the team only has to count the base salaries and bonuses of the top 51 players on the roster, but they can actually have up to 80 men on it. Just so long as those 51 men’s pay doesn’t put them over the cap. But on that season-starting Sunday, all their players’ pay counts towards the cap. The training season allows the team to work a lot of players together and see what’s what. But then the tight purse must be taken out, and consulted. They’ve got a budget to stick to.
In a way, football teams resembles school districts in the way they spend now. The seasoned veterans are like tenured teachers; they cost more, especially those with 4 or more seasons who’ve earned the right to free agency when contracts expire. So a lot of cheaper rookies are chosen instead of veteran players.
Also, certain field positions are more vulnerable to cuts. The most noticeable is special teams. The men who affect the score the most visibly, and only at specific moments in the game, are being chopped long before deadwood – mediocre talent -- in other areas is pruned. The fact that a kicker is cut these days doesn’t necessarily say a thing about his ability. It may only mean that the money was needed to address a stronger need. Good players in this area are dropping like flies.
The cap has changed the character of entire teams, too, it could be charged. In 1994, the Cowboys had already a superb team. That year the cap came into effect. In later years, they’ve had to change players around, release ones they really needed, in order to stay under budget. They suffered in talent as a result, because they couldn’t continue to afford what they had.
What Is Free Agency? Possibly the most positive thing that came out of the Collective Bargaining Agreement (CBA). This concept rewards veteran players with the right to shop their skills around once they’ve accrued 4 seasons of play and their current contract has expired. It’s a little like a master’s license after apprenticeship. The player doesn’t have to wait around for the decision of his team, he may sign with whomever he likes. These 4-year vets with no contract are unrestricted free agents.
Players who’ve accrued 3 seasons and whose contracts have expired are restricted free agents and can sign with other teams as they choose, but with some stipulations. The team losing them gets first-refusal, namely, a week to match another team’s offer. This offer is also restricted. Restricted free agents are currently offered a 1-year term of $512,000. The player’s original team may, by going considerably higher (almost twice) than the restricted offer, keep him from leaving unless the team gets in exchange a first-round draft choice. By going even higher, the team earns a 3rd-round draft choice in exchange, as well.
What Are Transition And Franchise Players? These are restricted agency players who are being paid the average of the top 10(transition) or top 5(franchise) cap salaries at that player’s position in a 1-year offer. The team he’s been with, who gave him this contract, has a week to match any new offer the player gets. If his team doesn’t match it, the player may take the other offer. Another team wishing to sign a franchise-tagged player must also usually offer the old team a couple of first-round draft choices or something else in trade, while a transition player can go without draft compensation to his old team.
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