One of the more perplexing features of the NFL is the salary cap. On the one hand, it seems straight forward. You have a salary cap that all teams must fit under. Simple, right?
It gets more complicated in a hurry. After all, teams with very little cap space frequently sign marquee players to high dollar contracts. This is accomplished through bonuses, incentive-laden contract clauses, and back-loading a deal where the bulk of the contract’s value is paid in later years, where the team projects to have more cap space.
This salary cap planning and “manipulation” is what NFL salary capologists like Mike Bluem spend their time considering every day. How can we plan for the future in a way that allows Chris Ballard and Jim Irsay to field a team with the most talent in the NFL for the longest period of time? We can’t simply spend all the way up to the salary cap every year, leaving no space available, and hope to keep the nucleus together. Major contracts for our own players will consistently require work as the old ones expire and new deals need to be made.
Keeping in mind the needs for our own players, how much salary cap space do we have to work with to sign free agents and bring in outside talent? How do we work all of this together to make sure we stay above the NFL’s mandated 89 percent rule?
This week, we’ll take a look at these questions and do our best to shed light on the NFL salary cap, 89 percent rule, and what fans might be able to expect Chris Ballard and Mike Bluem to do in 2019 and beyond.
How the Salary Cap Works
Before we get into the 2019 and team specifics, it is important to understand how the NFL evaluates each franchise’s current salary cap hit.
During the off-season, NFL franchises can maintain a roster of up to 90 active players. They use this expanded roster to evaluate prospects. It would be impossible for many franchises to stay under the mandated salary cap if every player’s contract counted toward the regular season cap number.
In order to remedy this issue, when the new league year begins in March, each team enters the off-season period. This period includes free agency, the NFL Draft, rookie minicamps, full team minicamps, organized team activities, training camp and preseason games. During this period, the NFL’s Rule of 51 is in place.
The rule of 51 allows teams to only consider the top 51 contracts for players who are on the active roster, who are on PUP, injured reserve, or some other non-exempt designation. Ultimately, it means that NFL teams can over-sign the salary cap during the off-season and utilize cuts prior to the start of the regular season to comply with the NFL’s salary cap rules. This rule attempts to limit abuse by not allowing a franchise to sign players to such large contracts that the top 51 players by themselves would exceed the coming season’s salary cap.
Once the regular season begins, the Rule of 51 ends. At this time, NFL teams must include all players against the salary cap. This includes the 53 players on the active roster, all practice squad players, any player on injured reserve or the PUP, and any dead cap carried over from players who were previously on the roster. The only exempt players are ones given an exemption by the NFL for a myriad of possible reasons — although these exemptions are rarely granted.
To understand what parts of a player’s contract counts against the cap in a given year, it is important to understand that contracts include a number of different clauses that impact what a player makes and how his contract fits under the salary cap.
The base salary for a player in any given year counts against the cap, this portion is not guaranteed and is only paid if the player plays on the team in the respective season.
Signing bonuses can be prorated annually for the duration of the contract, up to a maximum of five years. Signing bonuses are paid up front and are fully guaranteed.
Option bonuses can be prorated annually for the duration of the contract, up to a maximum of five years. Option bonuses are paid annually according to the contract terms and are often fully guaranteed.
Roster bonuses are often added to a contract to pay a player a bonus for simply making the roster in each respective year. These portions of the contract are not guaranteed.
There are two types of incentives that can be included in a player’s contract. One is called “likely to be earned” or LTBE and the other is called “note likely to be earned” or NLTBE. An incentive is classified as LTBE or NLTBE based upon the player’s performance in the specified area in the previous year. If the incentive pays a player $250k if he rushes over 1,000 yards and that player rushed for 1,200 yards the previous year, it is LTBE.
LTBE incentives count against a team’s current year salary cap. If they are not attained, the incentive is added as a credit to the salary cap the following year. NLTBE incentives do not count against the team’s current year salary cap. If they are attained, the portion will be debited from the following year’s salary cap.
During the off-season, players receive compensation for the days they workout with the team that are not a part of the regular NFL season schedule. Teams have 36 days available to require players to attend workouts and will have these workout bonuses included against their current year salary cap.
In 2018, the workout bonus hold for each team’s salary cap was about $619,200, which is $215 per day (per day minimum for a player) x 80 players x 36 days of workouts. Once workouts are over, the actual amount spent will take over for the placeholder. ** The formula used is created by the NFL and likely assumes that not all players will join the team for off-season workouts.
What is Dead Cap?
The NFL allows teams to prorate certain guaranteed portions of a player’s contract over a period of years. This allows the team the benefit of signing additional players and not taking a full cap hit in the year the contract is signed. The downside to the team who prorates these portions of a contract is that not all players who receive signing or option bonuses will play out the entire period of their contracts. In this instance, the remaining prorated portions will be accelerated and count against a team’s salary cap in the year they are cut.
What is the June 1 Release Deadline and why does it matter?
In some instances, players have considerable prorated portions of their contracts remaining when a team chooses to move on.
Let’s discuss Antonio Brown.
Brown still has 3 years remaining on his current contract with the Pittsburgh Steelers. Included in those three years is an annual prorated signing bonus of $3.8 million. If the Steelers release Brown before June 1, they would be responsible for an $11.4 million cap hit in 2019 and receive nothing as compensation.
Every NFL team has the option of assigning two pre-June 1 players who are released or traded for post-June 1 salary cap treatment. This means that the Steelers could trade/release Brown before June 1 and breakup his cap hit between 2019 and 2020 at $5.7 million per year. The benefit of making this move is to create more 2019 cap flexibility.
Regardless of whether Brown is released or traded, the Steelers are on the hook for the $11.4 million in guaranteed money against their salary cap. Also, this situation applies to all teams and all players in similar situations.
What is the 89 percent rule?
The current NFL collective bargaining agreement requires NFL franchises to spend a minimum of 89% of team salary caps between 2017-2020. It is important to note the wording used in this clause. The clause is titled “Minimum Team Cash Spending” and the wording states that there shall be a guaranteed “Minimum Team Cash Spending of 89% of the Salary Caps for such periods.”
What is cash spending? Cash spending is not calculated on the prorated salary cap formula. If a team is short of 89%, they can sign a player with a $50 million bonus this year and spend $50 million dollars cash as far as the CBA is concerned. This means that cash spending will always be higher than what is reflected in a team’s current salary cap number. It also means that managing this four year average is relatively easy and teams aren’t sweating trying to stay above this number.
While we don’t know that the salary cap will be in 2019 and 2020, we can take the last four years as an example.
2018 — $177,200,000
2017 — $167,000,000
2016 — $155,270,000
2015 — $143,280,000
GT — $642,750,000.
From 2015 - 2018, the Indianapolis Colts had a salary cap hit of $597,631,019, which is 93% of the total salary cap. However, during the same time-frame, the Colts had a cash spending total of $610,222,337, which is a 95% cash spending versus the cap.
What is Carryover Cap?
Prior to the official start of each season, the NFL determines the new salary cap. Teams can acquire or sign players up to that salary cap number in the season. Any portion of the salary cap that goes unused can be carried over to the following season. This creates an adjusted salary cap number for each team and allows talented front office people like Mike Bluem to be even more strategic in how he approaches team building and contract structure.
Carryover cap and adjusted salary cap numbers can make the 89% rule look hard to reach over time. However, when you consider the salary cap number each season and that cash spending will always be higher, you will find that a team could carry over $70 million from 2018 and still safely fulfill the 89% rule.
There are a lot of moving pieces to the NFL salary cap. The number of calculations it takes to determine the cap, create cap-smart contracts, manage cash spending, navigate the impact of guaranteed money, and a myriad of other issues all play into how teams go about the financial planning portion of NFL football operations. Over time, those teams who are particularly gifted in this area should have an advantage over those who are not.
Please share in comments any questions you have or areas you would like to have clarified and we will do our best to answer.