What is the NFL Salary Cap?
A Salary Cap is the maximum amount of money that each team in the National Football League (NFL) can spend in on player contracts in a given year. The Salary Cap is the same amount for each team. This limit is designed to insure competitive balance amongst the teams and keep each team on an even playing field. A Salary Cap usually prevents teams with more money, because of their market location or owners personal willingness to spend, from out-spending other teams to sign better players.
What is the Collective Bargaining Agreement (“CBA”)?
The CBA is a written, legally enforceable contract between the management and the employees. The management, the National Football League Management Counsel (NFLMC), represents the NFL league and the teams. The employees are the professional football players, represented by the National Football League Players Association (NFLPA). This contract defines the conditions of employment and sets up the rules in which the league operates. The CBA defines the Salary Cap, procedures that determine how it is calculated, the salaries for players, and numerous other things that are necessary for the NFL to function efficiently.
How is the NFL Salary Cap Calculated?
The Salary Cap is calculated based upon the revenue earned by the teams during a League Year. This is defined in the CBA as “All Revenues” (AR) and includes practically all revenue streams for the teams and the league.
All revenues are aggregate revenues. This includes: regular season, preseason, & postseason ticket sales including ticket sales from luxury boxes, suites, premium seating, excluding taxes and surcharges paid to stadium or municipal authorities. AR includes revenue from copyright royalties, the rights to broadcast the NFL preseason, regular season, and postseason games on TV, radio, and internet, locally, nationally, and internationally via various outlets including network, local cable, pay TV, satellite, international, delayed broadcasts and other means. AR includes revenue from concessions, parking, local advertising, promotions, signage, magazine advertising, local sponsorship agreements, stadium leasing, and merchandise. AR includes revenue from NFL ventures LP, NFL properties, NFL films, etc, barter income, equity instruments derived from player performance, revenue pursuant to a stadium naming rights revenue and sponsorship unless specified
Revenues that are not included in AR are taxes, surcharges on tickets from luxury box suites, premium seats, wholesale merchandising opportunities done by the Dallas Cowboy merchandising, revenue from Personal Seat Licenses sold by the New York Jets and Giants, any PSL excluded in prior CBA agreements. Also excluded from AR is revenue not derived from related to performance of players in football games such as sale of player contracts, value from promotional spots on TV and radio, franchise fees, revenue sharing, interest income, insurance recoveries, revenue from stadiums unrelated to NFL football events, value of complementary tickets for preseason and regular season games, reimbursements to a team from a government entity, purchase of concession equipment, value of luxury boxes, revenue used to construct or renovate stadium, and naming rights to stadiums used for stadium construction or renovating.
AR is divided into three categories to determine the Salary Cap and the Player Cost Amount: (1) League Media (essentially revenue from regular season games broadcast on various platforms including TV, radio, satellite, internet, internationally, etc), (2) NFL Ventures/ Post Season (essentially revenue from postseason games and NFL affiliated entities such as NFL Ventures, NFL Network, NFL Properties, NFL Enterprises, NFL Productions. This includes, RedZone, NFL Digital), (3) Local (essentially revenue generated by the teams from preseason games).
The calculation of the distribution of revenues is as follows:
Projected AR * CBA Percentage= Players Share of the AR, termed as “Player Cost Amount” in the CBA. In 2011, the amount was $4,556,800,000 ($142.4 million per team).
To calculate the CBA percentage, the players receive 55% of projected League Media AR, 45% projected NFL Venture/Postseason AR, and 40% of projected Local AR.
However there are restrictions, as for years 2012-2014, the overall percentage is Capped at 48% and for years 2015-2020 the percentage is Capped at 48.5%. Also, the minimum the Player Cost Amount can be is 47%. Therefore the players will receive between 47% and 48.5% of the total revenue from the league each year during the term of the CBA. The CBA rounds percentages to nearest one-one hundredth of one percent 47.00.
The Amount Available for Player Salaries = Player Cost Amount – Projected League Wide Benefits. In 2011 the league estimated the Projected League Wide Benefits to be $704,800,000 ($22.025 million per Team). Therefore the numbers equate to be $4,556,800,000 – $704,800,000 =$3,852,000,000 (total amount of money available for player salaries).
To determine the unadjusted Salary Cap per team the equation is Amount Available for Player Salaries divided by the number of teams in the league. For 2011, $3,852,000,000/32= $120,375,000 Per team.
If games are cancelled for a week, good faith negotiation adjustment to AR and Salary Cap.
Accounting is done utilizing information reported by the teams and the league accounting firms. An independent accountant will be jointly appointed by NFL and NFLPA to review and create special purpose letters. The accounting is done on a year-end basis. Salary Cap and League Wide Cash Spending in a League Year is determined using special purpose letters
What is the NFL Salary Cap in 2012?
The Cap for each team is $120,600,000.
Who is included in a team’s Salary Cap?
Team salary includes the amount a team pays its current or former players under their player contracts. The Salary Cap does NOT include pay to coaches, assistants, trainers, or other team employees. Only the highest 51 player salaries for a team count against the Salary Cap in the offseason while ALL player salaries of a team count in calculating the team total Salary Cap during the season.
This includes a player that is on Injured Reserve (IR), Physically Unable to Perform (PUP), and the Practice Squad (PS). Practice Squad contracts are included in a team’s Salary Cap during the season except in certain situations where a practice squad player is signed to another team’s 53-man roster.
The top 51 rule states that from the beginning of the League Year (early March) until the day before the first regular season game, only the highest 51 highest P5 (“Paragraph 5” of a standard NFL contract, which is typically the player’s yearly base salary) player contracts amounts will be included and counted against a team’s Salary Cap. Each team must be under the Salary Cap by the first regular season game.
The top 51 rule means that for any player whose P5, again essentially meaning base salary, is not among the team’s highest 51 Cap numbers, his base salary would not count against the team’s total Salary Cap number during the offseason. However, all of the bonuses a player who does not fall under the top 51 would count against the team’s total Salary Cap.
For example, imagine a team’s 51st highest Cap number is $500,000. The team’s next highest Cap number is $475,000, which belongs to a second year player and the base salary is $465,000. That means there is $5,000 of a signing bonus proration and say a $5,000 workout bonus. This player falls outside the team’s top 51 highest salaries, therefore the players base salary of $465,000 does not count against the team Salary Cap, but the $10,000 would count against the team Salary Cap. The rest of the players on the team who are outside the top 51 would not have their minimum base salaries count against the Salary Cap, but would have their bonuses or other compensation count against the team Salary Cap.
There are two exceptions to a player who is not in the top 51 counting against the teams Salary Cap. In the case of if an amount exceeds the minimum active/inactive list salary for an undrafted rookie free agent (meaning if an undrafted rookie receives a salary greater than the league minimum) and if any amount exceeds twice the applicable minimum active/inactive list salary for all other players. These two exceptions have been extremely rare because teams traditionally give undrafted rookies minimum base salaries.
What is the definition of “Salary”?
Salary means compensation paid to a player. It can be in the form of money, property, investments, loans, or anything else given of value to an NFL player in accordance with a player contract. Salary includes all consideration paid by a team to a player for services other than football if the payment does not represent a reasonable approximation of the fair market value of the services performed by a player. However, Salary does not include benefits.
How is a players Salary Cap number calculated?
A players Salary Cap number has three main parts. First, is the players P5 salary, which is typically the player’s yearly base salary. Second, is the bonus that player receives, such as signing bonuses, option bonuses, and roster bonuses. Third, a component of a player’s Salary Cap number is made up of incentives a player can receive based on performance.
Other miscellaneous things about the players salary cap number include the following:
*If a team makes a loan to a player, it is included in a team’s Salary Cap.
*Fair Market Value of all non-cash provisions include cars, houses, and insurance is included in a team’s Salary Cap during year provision made.
*Any tangible item of value provided to players that is unsigned and recruited included in their salary. Travel cost, lodging entertainment in recruiting unsigned player is not included in team salary.
*The cost of travel, board, and lodging for a player in the offseason workout program is not included in the team Salary Cap, as long these benefits are customary offered to all the players on the team.
*The cost of team meals, apparel, or one team trip for celebrations is not included in the team Salary Cap.
*Team can give a gift to player during the players contract to commemorate an occasion such as a retirement, only if they are with team in 3 or more seasons. The fair market value of the gift can be only up to $15,000 in order to not be counted as team Salary. Any amount of money spent over $15,000 will be counted as team salary.
*If a team signs a player after the first game, the team will only count the player against the team Salary Cap for each week that player is on the team.
*If a player attends mini-camp, they receive a meal allowance, all travel expenses and per diem, and this cost does not count against a team’s Salary Cap.
*30% rules. No player contract going into a season beyond last the League Year may provide for annual increase in salary, excluding a signing bonus amount, of more that 30% of the salary provided in final League Year. This was done to limit he common practice of teams circumventing the Salary Cap by back loading contracts and pushing a big portion of money to the end of the contract.
*Any amount paid to buyout a right a player has to terminate a contract year is treated as signing bonus at the time of the buyout and prorated over remaining term of contract.
*Any amount paid for the exercise of an option is treated as signing bonus and prorated over reaming term of contract
What is a Team’s Minimum Salary?
There is a minimum salary each team must spend under the CBA. The Guaranteed League Wide Cash Spending in 2011 and 2012 is 99% of Salary Cap. In 2011, the Salary Cap was $120,375,000 per team. Therefore applying the Guaranteed League Wide Cash Spending, each team must have averaged $119.2 Million in spending. This is a league-wide average, NOT an individual team minimum. In 2012, the Salary Cap is $120.6 million per team, therefore each team must average $119.4 Million in spending. From 2013 until 2020, the League Wide Cash Spending must be 95% of Salary Cap.
Cash spending includes: total salary amounts paid to player, signing bonus earned or paid, non-benefit amount earned, such as roster bonuses, reporting, & workout bonuses.
If league cash spending is less than the guaranteed cash-spending amount, it shall be paid after the end of League Year to players who were on a team roster at anytime during season.
For each four-year period from 2013-16, and from 2017-2020, the minimum guaranteed team cash spending for each team is 89% of Salary Cap. Thus, for 2011 and 2012 there is no salary floor. Yet over the two four year periods, each team must spend a minimum of 89% of the aggregate total Cap over those years. For example if the Salary Caps for the 2013-16 periods are $100, $120, $130, $150 million respectively, each team must spend a minimum of 89% ($445 Million) of that total of $500 million.
Just so it is clear, the minimum spending is over a four-year period for each team, not each season.
What is the minimum salary a player can be paid?
The CBA contains a schedule of minimum salaries for players based on the amount of accrued seasons they have been in the league. For 2012, the salary schedule is as follows:
Players with 1 Accrued Seasons $465,000
Players with 2 Accrued Seasons $540,000
Players with 3 Accrued Seasons $615,000
Players with 4-6 Accrued Seasons $700,000
Players with 7-9 Accrued Seasons $825,000
Players with 10 or more Accrued Seasons $ 925,000
A player gets an accrued season if they play six or more regular season games on the teams active/inactive, reserved/injured or reserve/physically unable to perform list.
Are NFL player contracts guaranteed?
No, NFL contracts are not guaranteed. Teams can cut players at any time and the players will not receive any more money nor will their unearned salary count against the team’s Salary Cap. However, many player contracts have guaranteed money negotiated into the contract, therefore if a team cuts a player with guaranteed money, the guaranteed money would count against the team’s Salary Cap in addition to any bonus money that was paid to the player.
Can a team go over the Salary Cap?
No, No team can exceed the Salary Cap. The NFL Salary Cap is a “Hard Cap” meaning that each team must not go over the Cap. The Salary Cap is the same amount for each team. Every contract must be approved by the NFL League Office before it can be made official and the league determines if the contract will violate the CBA and the NFL Salary Cap. If it does, then the NFL will not approve it. A team cannot sign any players until they have room under their Salary Cap.
A team and player cannot ever enter into an undisclosed agreement of any kind involving payment of money before, during, or after the term of a player contract and no team can enter an agreement or contract that circumvents the intention of the parties in the CBA. The Commissioner can disapprove of a player contract if it is in violation of the CBA. The Commissioner must notify the team and player in writing. If a contract is disapproved, the NFLPA and player have the right within 30 days of notice to initiate a proceeding before an arbitrator to see if the contract violates the CBA agreement. If the contract is determined to be in violation and the Commissioner upholds it, the team and player have 10 days to renegotiate.
If an arbitrator finds a violation of the CBA agreement, the player or agent can be fined up to $500,000 for each violation and the player can be ordered to give back the undisclosed compensation paid. If the team is in violation, the Commissioner can order a team be fined up to $6,500,000, be ordered to forfeit up to two draft choices with no round limit, and any team executive can be fined up to $500,000 and suspended for up to one year.
In the past the Pittsburgh Steelers and San Francisco 49ers were penalized draft picks and fined for agreeing to undisclosed, non-contract payments to players.
When does the league determine if a team is in operating under the Salary Cap?
The NFL League Year typically begins in the beginning of March. In 2012, the League Year started on March 13, and each team must be in compliance, and under, the mandated Salary Cap for the start of each League Year.
Can a team carry over Salary Cap room from the previous season?
Yes. A team may “carry over” room from one League Year to the next League Year by having the owner submit notice to the NFL within 14 days prior to the beginning of the next League Year indicating the maximum amount of room the team wishes to carry over.
What is the NFL Rookie Compensation Pool and Rookie Salary Cap?
There is a league-wide limit on the total amount of rookie salary teams may contract with drafted and undrafted rookies over the entire term of the rookie contracts. If a draft pick signed a four-year deal worth $1 million in year 1, $1.1million in year 2, $1.2 million in year 3, and $1.3 million in year 4, $4.6 million counts against the total Rookie Compensation Pool.
There is also a Year-One Rookie Compensation Pool, which means the league wide limit on total amount of first year rookie salary all teams may contract with rookies for. However, the minimum base salary for undrafted rookies does not count toward the Rookie Compensation Pool.
The amount each team is allocated for the rookies is termed “Total Rookie Allocation” and is based on each team’s number, round, and position of draft choices, plus an allotment reserved for undrafted rookies signing bonuses.
All of the teams draft choices first year Salary Cap number must fit into a team’s Rookie Compensation Pool, along with any Salary Cap charges for undrafted rookies, excluding their minimum base salaries. A teams drafted players first year Salary Cap number does not have to be equal or close to the rookie pool value used to select him as long as the team’s combined rookie pool for all of its rookies does not exceed the team limit.
When calculating the rookie salary for a drafted rookie, teams must use the highest amount of earnable compensation for which the player and team contracted in each year of the deal, regardless of if any or all amounts are earned or incentives Likely to be Earned (LTBE). This excludes a fifth year option salary, proven performance escalators, minimum offseason workout pay, pr, and sponsor appearances.
The rookie salary for an undrafted rookie includes the highest amount of earnable compensation the player and team contracted in each year of the rookie contract that exceeds the minimum active/inactive salary for each year, regardless if any or all amounts are earned. This excludes offseason workout pay, pr, and sponsor appearance fees.
Are Drafted Rookies included in a Team’s Salary?
Yes, Drafted Rookies’ salaries are included in the team salary automatically as of the day of the Draft at the Minimum Active List salary until the player is signed, the teams rights are relinquished through waivers, or until the Tuesday following the tenth week of the regular season if the player remains unsigned. Additionally, there is a Rookie Salary Cap, which is an allotted amount of the overall Salary Cap and each team has a specific amount of money they can spend on signing their rookies based on the number of draft picks each team had and the position in each round each player was picked.
How do Signing Bonuses work?
A signing bonus is payment contingent on a player signing a contract.
Teams often give players large signing bonuses and small base salaries for the purpose of legally finagling and working within the Salary Cap. Signing bonuses are apart of a player’s salary and it counts against the team’s Salary Cap. However, when determining how much of a player’s signing bonus counts against the team’s Salary Cap in a given year, the team will prorate the signing bonus over the term (length) of the contract. The amount will be split equally for up to a maximum of five years.
For example, if a player signed a four-year deal with a $4 million dollar signing bonus, $1 million of that bonus will count against the team salary for each contract year. This is because of the straight-line (equal) basis of proration ($4 million divided by 4 years equals $1 million each year).
If the team releases the player, the remaining money of the bonus that has not been counted against the team Salary Cap will immediately count against the Cap for that League Year in which the player was released. For example if the player in our example is released after year 2, then the remaining $2 million from the signing bonus, the prorated money for years 3 and 4, counts against the Salary Cap in year 3. This amount is in addition to a player’s negotiated base salary, which is paid by the team and counts against the Cap in a given year.
If a player contract states that there will be an increase in salary for the player if the player contract is traded to another team, the increase shall be included the player’s salary and attributable to the team paying the bonus, which will likely be the team the player was traded to.
If a player signs a contract extension before the end of the player’s existing contract, and the player receives a singing bonus for the new contract, the signing bonus will be prorated over the remaining years of the unexpired contract years and the years of the extension.
For example, imagine a player is currently in the third year (2012) of a four-year deal (2010-2013) that paid him a $4 million signing bonus and he renegotiates his existing deal extending his contract four more years (2014-2017) while getting an $8 million dollar signing bonus. The original signing bonus of $4 million, prorated at $1 million dollars over the first two years (2010 & 2011) and will also be prorated at that $1 million dollar rate for the third and fourth years (2012 & 2013). Because the new $8 million dollar signing bonus is allocated over the four year extension in addition to the two years currently left on the players contract, the player would count for $1,333,333 over each of the next six years ($8 million dollar signing bonus divided by 6 years = $1,333,333 each year against the team Cap). Therefore the Cap liability for the player in 2012 would be the original $1 million under the prior contract plus the $1,333,333 to equal a Cap liability for $2,333,333 in 2012 for his signing bonus. This would be the same team Salary Cap liability in 2013. In years 2014-2017 of the contract extension, the team Salary Cap liability would be $1,333,333 each year, assuming there in not another contract renegotiation or extension.
Typically players receive a signing bonus immediately, within two weeks of signing a contract, unless the player expressly agrees in the contract to defer the payment of the bonus or collect it in increment payments.
Signing bonus are qualified in many ways: designated singing bonus, guaranteed reporting bonus, consideration for option years, contract modifications, contract extensions, option for a buyout, difference between salary in the second year of a contract the and first year when salary in the second year is less than half of the salary in first year, roster bonus if signed after the first preseason game, advance salary paid, workout guarantee bonus, offseason workout bonus, final League Year of a player contract, any salary player not obligated to repay, bonus paid for obligation to play without renegotiation or hold out, and relocation bonus after a trade.
Lastly, contracts that are signed or renegotiated in the final Capped year of the CBA have special rules if the singing bonus is going to be paid in the final Capped season. In this case, a salary advance that the player is not obligated to repay is considered a signing bonus. Thus, any off-season workout bonus where a player participates in less than thirty-two days of the team’s program is considered a signing bonus. All off-season reporting and roster bonuses are considered signing bonuses. Lastly, the proration of a signing bonus cannot extend beyond two years after the conclusion of the existing CBA.
What is the difference between a signing bonus, option bonus, and a roster bonus?
A signing bonus is received when a player signs a contract. An option bonus is received when a team or player picks up an option in a contract to stay or remain with a team. A roster bonus is received if a player is still on a team on a specific date, without being released.
A signing bonus and an option bonus are prorated over the length of the players contract. While a roster bonus counts fully in the year it is received.
How are incentives in player contracts treated?
Any and all incentives shall be included in Team Salary if they are “likely to be earned” (LTBE) based on the player’s and/or team’s performance during prior year. If performance earned results in excess of the Salary Cap because of the amount paid, the bonus will be subtracted from team Salary Cap for the next year.
For example if a running back ran for fifteen touchdowns last year and his incentive clause for this year is set at ten touchdowns, then this incentive is LTBE.
If there is a dispute between the owners and the players as to if a performance is LTBE because a veteran did not play in the previous year, an Impartial Arbitrator shall decide the situation.
All incentives in year one of a rookie Contract will be deemed LTBE.
Any incentive in the sole control of the player such as reporting bonus or a workout or weight bonus is deemed LTBE for Salary Cap counting purposes.
If the bonus that was LTBE and was previously included in team salary for the previous season but not actually earned, the amount of the bonus that was not earned will be added to the team Salary Cap for the next year
Any team performance bonus is LTBE automatically if the team met or exceeded specified performance during prior League Year. The team performance will be Not Likely To Be Earned (NLTBE) if the team did not meet the specified performance during the prior League Year, and therefore will not included in the team Salary Cap.
Other notes on bonuses include if a player is traded or waived, their incentive bonus is revalued based on the new team. No bonus can be based on another player and no bonus can be based on playing other positions that that player normally plays on offense or defense.
A Team bonus is LTBE if the minimum level is equal or lower than that achieved by the team that finished fifth from bottom in the league in that category in the previous year. Incentives based on the team’s ranking in their division are automatically LTBE. If more than eight team performance categories are included in a player contract signed by a veteran, all eight incentives with the lowest dollar value are automatically deemed LTBE.
What is the impact on the team Salary Cap of the various types of Free Agents?
For Restricted Free Agents (RFA), a Qualifying Offer is included in team salary. This amount remains in the team salary calculation until the player is signed, the Qualifying Offer is withdrawn, or a “June 1st tender” is made. If the player is unsigned and the Team makes a June 1 or June 15 Tender offer, this offer is included in the team salary for Salary Cap accounting purposes until the player is signed, the team gives up their rights to a player, or the Tuesday after the tenth week of the regular season if the player is unsigned.
For Exclusive Rights Players, the Minimum Active list salary will be included in team salary when tendered until the player is signed or until the team gives up their rights to a player.
For Unrestricted Free Agents (URA), if a June 1 tender is made, the amount will be included in a teams Salary Cap as of July 15 until the player is signed, the tender is withdrawn, the team gives up their rights to a player or their rights are extinguished, or the Tuesday following the tenth week of the regular season if the player is unsigned.
For Transition or Franchise players, a tender offer is included in team salary until the player is signed, the tender is withdrawn, until the teams rights are relinquished, or the Tuesday following the tenth week of the regular season if the player is unsigned.
All offer sheets to players will be included in a team’s Salary Cap when tendered until the player is signed to a player contract by any team or the offer sheet is withdrawn.
When are Free Agents Allowed to sign?
There are different time periods each type of free agent is allowed to sign.
In 2012, Restricted Free Agents (RFA) were able to sign from March 13 to April 20. Unrestricted free agents who received a June 1 tender from the previous year from their prior team can sign from March 13 to July 22 (or the first scheduled day of NFL training camp, whichever is later). Franchise players who do not sign by November 13 must sit out the season.
What are the differences between a restricted and unrestricted free agent?
Players with three accrued seasons become restricted free agents when their contract expires and can sign with any team, however their old team can match the new team’s contract offer and keep the player for the terms of the contract offer the player signed. If a new team signs the player and gets the player because the old team did not match the contract offer, the new team must pay draft choice compensation to the old team. Unrestricted free agents have four or more accrued seasons when their contract expires and they are able to sign with any team without draft choice compensation owed to the players previous team.
As a reminder, a player gets an accrued season if they play six or more regular season games on the teams active/inactive, reserved/injured or reserve/physically unable to perform list.
How does a player become a restricted free agent?
A restricted free agent is offered a “qualifying offer” from his current team. A “qualifying offer” is a salary predetermined by the CBA each year based upon certain calculations. The player can negotiate with any team in the league through a certain date, usually a bit longer than a month. If the restricted free agent signs an offer sheet with a new team, his old team can match the offer and keep the player on its team because they have the “right of first refusal.” If the old team does not match the offer, it may receive compensation in the form of a draft choice from the new team, depending on the amount of the “qualifying offer” the old team initially made to the player. If the player does not sign an offer sheet on or before April 20, the player can only negotiate with his old team and cannot sign an offer sheet with a new team.
How does a player become an unrestricted free agent?
A player who has four or more accrued seasons who has a contract that has expired is free to sign with any team in the league when the League Year starts in March. If the player’s old team tenders the player a contract by June 1 for one year and 110 % of his prior years salary, the player can only sign with a new team until July 22 or the first scheduled day of the first NFL training camp, whichever is later. If the player has not signed with a new team by this date, the old team has until the Tuesday following the 10th week of the regular season to sign him. If he does not sign with the team by that date, the player must sit out he entire season. If the player is not offered a tender by June 1 from his old team, the player can sign with any team at any time during the regular season.
What determines what a franchise player is?
A player becomes a certain type of franchise player based on the kind of salary offer by the player’s team. The player must be a potential free agent.
An “Exclusive” franchise player is not free to sign with another team. The player is offered the greater amount of 1) the average of the top five salaries at the player’s position for the current year as of the end of the Restricted Free Agent Signing period at the date of April 20, or 2) the amount of the Required Tender for a Non Exclusive franchise player.
The way to calculate the Required Tender for a Non Exclusive franchise player is found under Article 10, Section 2 (a)(i) of the CBA, which sets the “Cap Percentage Average” for calculating the Required Tender for a player.
The Nonexclusive Franchise Tender offer is a one year NFL player contract offer for 1) the average of the five largest prior year salaries for players at the position… at which the franchise player participated in the most plays during the previous League Year, which will be calculated by a) summing the amount of franchise tags for players at the position for the five previous League Years, b) dividing the amount by the sum of the Salary Cap for the five previous League Years, and c) multiplying the percentage by the Salary Cap for the upcoming League Year, or 2) 120% of his prior year salary. The offer is whichever number is greater.
If a team gives a Required Tender to a Non Exclusive franchise player, the player will be permitted to negotiate a player contract with any team, and the draft choice compensation will be two first round draft picks in the event the player signs with the new team.
A team can only designate one franchise player among its potential free agents. A team can withdraw its franchise designation and the player would become an unrestricted free agent when the contract expires.
What is a Transition tag?
A team can designate one franchise or transition player in any given year. A Transition tag is used by NFL teams to retain their own unrestricted free agents. It guarantees the team the “right of first refusal” in signing a player. Once a team has signed a player by placing the transition tag on them, the team cannot use the Transition tag on another player until that players contract expired. If another team signs a transitioned player to an offer sheet, then the old team has seven days to decide to match or not. If the player signs with the new team, the old team receives no compensation such as draft picks, as the player would have received under the franchise tag. A transition player receives an offer of 1) the average of the top 10 salaries of the last season at that players position or 2) a 120% of the players previous salary, whichever is greater.
Since 2006, the transition tag has been placed only on one player, the Steelers Max Starks in 2008.
What is the Minimum Salary Benefit rule?
The Minimum Salary Benefit Rule was created to allow veteran players to be signed to deals that were very favorable to a team’s Salary Cap. This allows veterans to sign deals instead of being replaced by cheaper, younger players. The Minimum Salary Benefit allows veterans to be signed to one year contracts with the applicable minimum player salary based on the players service time and a small signing bonus ($65,000) but the teams only have to count that player at the salary level of a player with 2 years of services time (including the bonus).
For example, under this Minimum Salary Benefit Rule, a team can sign a 10 year veteran with a minimum salary of $925,000 and a bonus of $65,000 and instead of counting for $990,000 against the team’s Salary Cap, the player would only count $605,000 ($540,000 year base salary plus the $65,000).
What are “voidable years” in a contract and the effect on a team’s Salary Cap?
A voidable year is a common clause in a player’s contract that are beneficial for both the team and the player in different ways. Usually the clause involves incentives that a player must reach to void a year (or years) off the contract. For example, incentives may be playing a certain number of plays or making a certain amount of tackles. It can make a contract that was signed for five years become a four-year contract if a player reaches their incentives during the contract.
A team likes to include voidable years in a contract so that it can increase the length of a contract and prorate the players signing bonus over a longer period of years, thus allowing teams to spread the money that counts against the teams total Salary Cap over more years and thereby keeping the amount lower for a given season. This is a maneuver to save money for the team and legally finagle the teams accounting. A contract with voidable years is beneficial to the player because it often decreases the length of the player contract and therefore allows the player to reach free agency earlier and negotiate a new contract.
If a player reaches the incentive goal and the contract voids a year, the effect of the players signing bonuses that was originally supposed to be allocated to the voided year will be accelerated and immediately included in the teams salary for that year. If the accelerated signing bonus money puts a team over the Salary Cap, that amount that a team is over the Salary Cap will be deducted from the team’s Salary Cap the following year.
Why do players often renegotiate contacts and what are the effects on the team Salary Cap?
There are many reasons players may renegotiate their contract. Some players will renegotiate because they feel they have out performed their contract, some may renegotiate because a team will offer more money, a signing bonus, other bonuses, or more contract security. Teams like to renegotiate a player contract to get their team salary under the Salary Cap in a given year.
A team cannot renegotiate a rookie contract for one year after the signing date of the following August 1st, whichever is later. A veteran can renegotiate a contract at any time. However, no team can renegotiate a term of a contract that was signed within a one-year period. Also, teams cannot renegotiate a contract for a player after the conclusion of the regular season to change a players contract for that season that was just played. Furthermore, a player contract cannot negotiate or renegotiate a contract that expires before the last day of a season.
If a player contract is renegotiated in season and an incentive bonus has already been reached, the bonus is considered likely to Be Earned (LTBE). Any new or altered incentive bonuses that are negotiated after the start of a regular season are automatically considered LTBE for the purpose of calculating the Salary Cap. Under the CBA, it is considered a renegotiation of a contract if a player receives more than the minimum amount of money for off-season workout programs or classroom instructions.
So what happens when a player restructures their contract?
In many cases, a restructuring of a players contract does not mean the player is taking less money. Many restructures occur for a bookkeeping purpose on the part of the team, so that the team can create Salary Cap space.
In certain situations, such as a declining, overpaid veteran, the team may tell the player if they don’t restructure and take a pay cut, they will be released.
How do teams protect themselves from a player singing a huge contract with guaranteed money and then the player never plays under that contract?
The new CBA has seen more teams paying players guaranteed money, usually in the form of signing bonuses. To protect themselves, teams include language in the contract that state a player must return a portion of the guaranteed money paid to the player if the player does not play. The amount that was included in the team salary for Cap purposes will then be added to the team’s Salary Cap for the next year.
What is the result to the Salary Cap if a player is traded?
If a player contract is assigned to another NFL team during the NFL season, the new team will count the portion of the player’s salary that remains unpaid. The old team will also be responsible for the original signing bonus and it will “accelerate” and include in that teams salary immediately. If a team trades a player and the signing bonus acceleration puts a team over the Salary Cap, the team has seven days to get back under the Salary Cap and cannot sign any other players until they do so.
If a player is traded after June 1, the team gets to spread the Salary Cap hit against the team over two years. The only amount that counts against the team’s Salary Cap in the first year is the player’s bonus proration, with the remaining bonus pro-rations to accelerate against the Salary Cap and all are counted in the second year. For example, if a team trades a player after June 1 and the player had $8 million left in bonus proration money left ($4 million each year), the team would only have to count $4 million each year against the team Salary Cap for the next two years.
What is the result to the Salary Cap if a player is waived?
If a player is waived on or before June 1, the team is relieved of paying the players P5 salary ( base salary), while the remaining amount of the signing bonus that has not been included in the Salary Cap “accelerates” and included in the team’s Salary Cap immediately. If a team releases a player after June 1, the team is relieved of paying the players P5 salary. If a team releases a player and the signing bonus acceleration puts a team over the Salary Cap, the team has seven days to get back under the Salary Cap and cannot sign any other players until they do so.
There is a provision that allows teams to designate two pre-June 1 releases for a post-June 1 Salary Cap treatment. This allows players to be released earlier and have an opportunity to sign with another team before they have spent all of their free agent money.
What is the result to the Salary Cap if a player retires?
If a player retires, the remaining signing bonus that has not been included in the teams Salary Cap will “accelerate” and be included in that year’s team Salary Cap.
The CBA allows the team to recover some of that signing bonus form the player. This is often referred to as the “Barry Sanders Rule”. Usually after an arbitration hearing, if a team is entitled to recover a portion of the players signing bonus, that amount is credited to the team’s following year Salary Cap.
What are some special exceptions to the Salary Cap from the 2011 CBA?
As was allowed in 2011, in 2012 each team can designate up to three of their highest paid players who have at least five accrued seasons and make over $500,000 more than the league minimum salary, and the team will receive a $500,000 Salary Cap credit. The teams must repay this credit during the 2014-2017 League Years.