NFL Salary Cap Guide

 

The NFL salary cap is a hotly debated and confusing topic. While most fans of the NFL know the basics Ė my team is over the salary cap, so we canít sign that great free agent we desperately need Ė beyond that it can get a bit cloudy. The NFL salary cap is convoluted and contains a handful of tricks and loopholes that teams can take advantage of, and potentially pay for later. Letís start with the basics.

 

How is the NFL salary cap determined?

 

The NFL salary cap, which has now been around for well over a decade, was based on a percentage of Defined Gross Revenue, or DGR. The biggest pieces of DGR are the multibillion dollar television contracts. The DGR for the NFL salary cap also includes ticket sales and merchandise sales. What DGR didnít include was local revenue, which includes sponsorships like stadium naming rights. However, those local revenue streams are now included into the salary cap pot, called total revenue.

 

It doesnít matter whose team makes more money, the total revenue is divided evenly by 32, setting the salary cap for each team. (So, there should no longer be any complaining about how your team is in a small market and canít get the top guys to come to town.) Currently, the players rake home an approximate 57% share of total revenue. The share was higher Ė in the low to mid 60s Ė when using the DGR system, but even with a lower percentage, it results in an increased salary cap due to the larger starting revenue pool. With seemingly no limits to the popularity of the NFL and because television contracts are always increasing, so is the salary cap. The cap started at roughly $35 million in 1994 and 14 years later, it has increased itself more than threefold, to over $115 million per team per season.

 

Another important aspect of the NFL salary cap to remember is that itís unbreakable, and no team is above its law. In the NBA, you can go above the salary cap if youíre willing to pay a so called ďluxury taxĒ. In the NFL, there are no ifs ands or buts about it, the cap is the cap. But...

 

Whatís the deal with signing bonuses and guaranteed money?

 

You canít escape the cap, but you can try to outrun it with certain techniques. For starters no contract in the NFL is guaranteed. That means that if a player gets injured, falls out of favor with management, starts to play worse or anything else, the team can release him at any time and his salary is toast. But the term guaranteed money is thrown around a lot today, so what does that represent? Guaranteed money comes in the form of signing bonuses.

 

Smarter players and craftier agents now bargain harder for more guaranteed money and lower total contracts. The obvious reason for this is you want to guarantee yourself getting as much money as possible. The more complex reason for this is that under the salary cap, NFL contracts are typically ďbackloadedĒ. Being backloaded means that the playerís salary increases dramatically in the later years of his contract (a time when the team figures he will either be cut, or the contract will be renegotiated, so the huge salary never gets paid). So a player with a 4 year, 15 million dollar deal, might have a $2 million salary in year one, a $3 million salary in year two, $4 million in year three and a $6 million salary in the final year. This makes contracts seem much larger than they actually are, because the final years rarely come to fruition.

 

The signing bonuses do in fact count against the NFL salary cap, under a prorated system. This means it doesnít all got tossed into the teamís salary cap for one season, but rather itís spread evenly over the duration of the contract length. So when your hotshot number one draft pick gets $20 million guaranteed and a 5 year deal, the team ends up having that $20 million counted as $4 million against the cap for each of the 5 years. In addition to the backloading salary cap technique described above, this allows for additional maneuvering and finagling by GMs looking to squeeze the most out of their cap space.

 

However, signing bonuses donít always turn out well. When you try to outrun the inevitable, you usually end up being caught from behind. Often a player wonít pan out, or may have a serious injury that lowers his playing time or quality. If a player with a signing bonus is cut, the team has to count the entirety of the remaining signing bonus on the cap for one season. If the player is cut before June 1st, it counts towards the coming season and if the player is cut afterwards, it counts towards the following season. Teams that dole out huge and unwise signing bonuses end up in rough financial shape when they have to cut the underachieving players and count the remaining bonus towards just one season.

 

There are also other bonuses and incentives that are put into contracts. These include everything from reporting bonuses for showing up to camp on time or in playing shape to on field performance bonuses of making a certain amount of tackles or catching a certain amount of passes. These bonuses are broken up into separate categories of likely to be earned and not likely to be earned. Likely to be earned bonuses and incentives, including reporting bonuses and the like, count against the cap, whereas not likely to be earned incentives do not. Either way, these extra bonuses and incentives are not guaranteed, as signing bonuses are.

 

Will there always be a salary cap in the NFL?

 

That is certainly not set in stone one way or the other. The NFL salary cap is adjusted and agreed upon according to the Collective Bargaining Agreement (CBA) that is made and renewed between the NFLPA and the owners. There have been grumblings that the current CBA will not be extended, and the final years will kick in. Those final years have no salary cap, and if that ever happens, it is unlikely that the NFLPA will ever agree to a salary cap again. Meanwhile, the owners are unhappy because they feel that the percentage of revenue they have to fork over to the players represents too large a slice of an incredibly lucrative pie. (Personally, I think the NFLPA would be wise to focus their bargaining power on guaranteed contracts. Even it means allowing a reduction in the percentage of revenue they receive, guaranteed money is a whole lot better than empty figures on a contract.)

 

The Franchise Tag

 

What is the franchise tag, and why do so many players loathe it? Every NFL team can designate one player with the franchise tag each season. It seems like a great deal for the player at first. A player with the franchise tag is guaranteed to make the average of the top 5 salaries of all players at his position across the league. If his previous salary was above that average, the minimum he can make for the coming year is 120% of that previous figure.

 

However, players despise this move because it puts them into a short term deal, rather than a multiyear deal with a large, guaranteed signing bonus. Additionally, if a team bestows the exclusive franchise tag to a player, that player is unable to even look into signing elsewhere. Heís stuck, whether he likes it or notóand for the record, the player usually will not. The team could opt instead to denote a player with a nonexclusive franchise tag. This means that the player can seek out other NFL teams to play for, but the team he goes to will have to fork over two first round draft picks to the previous team.

 

You have all of that covered? Iím not even sure if I do, and that still doesnít leave every stone unturned. People study the NFL salary cap as a career, so as you can imagine, it gets more complex than even this suggests. This was the basic, and hopefully intuitive and easy to understand guide to the NFL salary cap. Many of the finer points and more intricate details were left uncovered. Nevertheless, when your buddy starts ranting incoherently about guaranteed money or signing bonuses, you now have more than enough knowledge to quiet his yammering and restore the peace. The NFL salary cap is tricky to navigate and like a scorned lover, if you donít play by the salary capís rules, sheíll leave you and your team paying for it for years to come.