The Warpath presents: Salary Cap 101
 

[I][FONT=Verdana]Brought to you by our resident capologist, CrazyCanuck. Hopefully this will help clear up some of the more common questions that we all have from time to time. Class is officially in session... pop quiz on Tuesday![/FONT][/I]

[B][U][FONT=Verdana]Cap 101[/FONT][/U][/B]

[B][FONT=Verdana]What is the salary cap?[/FONT][/B]
[FONT=Verdana]- The salary cap is the max amount that NFL teams can spend on their players in a given year. In basic terms, the salary cap is set at 58% of total league revenues (TLR). To calculate the salary cap for an individual team the calculation would be: (TLR * 0.58) / 32 (teams). The salary cap for 2008 is $116M per team.[/FONT]

[B][FONT=Verdana]Is there a minimum salary cap?[/FONT][/B]
[FONT=Verdana]- Yes. Each team must spend at least 85% of the salary cap on its players. This ensures that the players always receive at least 50% of the total revenue pie. So depending on how thrifty the owners are, the players will receive between 50% and 58% of total league revenues in any given year.[/FONT]

[B][FONT=Verdana]What comprises a player's salary cap amount?[/FONT][/B]
[FONT=Verdana]- A player's salary cap amount is the sum of his:[/FONT]
[FONT=Verdana]1. Base Salary[/FONT]
[FONT=Verdana]2. Signing Bonus Allocations[/FONT]
[FONT=Verdana]3. Other Bonuses[/FONT]

[B][FONT=Verdana]What is Base Salary?[/FONT][/B]
[FONT=Verdana]- Base Salary is not guaranteed. It is received in weekly installments during the season. A player's base salary counts in full against the salary cap while he is on the team. Once he is released or traded any future base salary amounts are wiped off the books.[/FONT]

[B][FONT=Verdana]What are Signing Bonus Allocations?[/FONT][/B]
[FONT=Verdana]- Signing bonus is guaranteed. It is usually received in a lump sum payment upon signing a new contract, though sometimes signing bonus payments are scheduled one or more years into the future. Signing bonus does not count in full against the salary cap in the year it is received. Instead, the signing bonus amount is allocated equally amongst the remaining years of the contract (6 years max). This is only for salary cap purposes; the player still receives the entire signing bonus amount up front. If the player is released or traded, any future signing bonus allocations accelerate to the present, and this amount will still count against the team's salary cap even though the player is no longer with the team. This is usually referred to as Dead Cap.[/FONT]

[B][FONT=Verdana]What are Other Bonuses?[/FONT][/B]
[FONT=Verdana]- Other bonuses include roster bonuses, workout bonuses, incentives, etc. Other bonuses are not guaranteed. They are usually received on a fixed date, and they count in full against the salary cap in the year they are received. If the player is released or traded, any future other bonus amounts are wiped off the books.[/FONT]

[B][FONT=Verdana]Example:[/FONT][/B]

[FONT=Verdana]Player A signs a 5-year $20M contract in 2008. The contract pays him a base salary of $1M per year, a $10M signing bonus, a $3M roster bonus in 2009, and a $2M workout bonus in 2011.[/FONT]

[FONT=Verdana]The player’s salary cap hits would break down as follows, (salary in thousands)[/FONT]

[B][FONT=Verdana]2008[/FONT][/B]
[FONT=Verdana]Base salary: $1,000[/FONT]
[FONT=Verdana]Signing bonus: $2,000[/FONT]
[FONT=Verdana]Other bonus: $0[/FONT]
[B][FONT=Verdana]Total cap hit: $3,000[/FONT][/B]

[B][FONT=Verdana]2009[/FONT][/B]
[FONT=Verdana]Base salary: $1,000[/FONT]
[FONT=Verdana]Signing bonus: $2,000[/FONT]
[FONT=Verdana]Other bonus: $3,000[/FONT]
[B][FONT=Verdana]Total cap hit: $6,000[/FONT][/B]

[B][FONT=Verdana]2010[/FONT][/B]
[FONT=Verdana]Base salary: $1,000[/FONT]
[FONT=Verdana]Signing bonus: $2,000[/FONT]
[FONT=Verdana]Other bonus: $0[/FONT]
[B][FONT=Verdana]Total cap hit: $3,000[/FONT][/B]

[B][FONT=Verdana]2011[/FONT][/B]
[FONT=Verdana]Base salary: $1,000[/FONT]
[FONT=Verdana]Signing bonus: $2,000[/FONT]
[FONT=Verdana]Other bonus: $2000[/FONT]
[B][FONT=Verdana]Total cap hit: $5,000[/FONT][/B]

[B][FONT=Verdana]2012[/FONT][/B]
[FONT=Verdana]Base salary: $1,000[/FONT]
[FONT=Verdana]Signing bonus: $2,000[/FONT]
[FONT=Verdana]Other bonus: $0[/FONT]
[B][FONT=Verdana]Total cap hit: $3,000[/FONT][/B]

[B][FONT=Verdana]Total[/FONT][/B]
[FONT=Verdana]Base salary: $5000[/FONT]
[FONT=Verdana]Signing bonus: $10,000[/FONT]
[FONT=Verdana]Other bonus: $5,000[/FONT]
[B][FONT=Verdana]Total cap hit: $20,000[/FONT][/B]

[B][FONT=Verdana]What happens when a player restructures his contract?[/FONT][/B]
[FONT=Verdana]- The typical restructure involves the player receiving a signing bonus payment in exchange for his current year’s salary or other bonus (i.e. roster bonus). The team benefits from this move from a salary cap perspective because instead of paying the player in the form of salary or roster bonus which counts towards the cap in full in the current year, the team pays him with a signing bonus which gets allocated to future years for cap purposes. In the example above, Player A might restructure his contract before the 2009 season when he is due a $3M roster bonus. By converting the $3M roster bonus to a signing bonus, he receives the $3M right away, but for cap purposes the money will be divided equally amongst the 4 remaining years of his contract, for a salary cap allocation of $750K per year. The team would save $2.25M ($3M - $750K) on the 2009 cap. The player is happy because he has his money guaranteed up front, and the team is happy because they saved money against the current year’s cap. Note that a restructure is not a pay cut. The player receives the same amount of money, only he gets it all right away instead of at a later date. He has no financial incentive to reject a contract restructure.[/FONT]

[B][FONT=Verdana]What is the Dead Cap?[/FONT][/B]
[FONT=Verdana]- The dead cap is money that still counts towards the salary cap, even though the player is no longer with the team. Dead cap is incurred when a player is released or traded, but he still has signing bonus allocations remaining on his contract. These future allocations accelerate to the present and count in full towards the cap in the current year in the form of dead cap.[/FONT]

[B][FONT=Verdana]What is the June 1 exemption?[/FONT][/B]
[FONT=Verdana]- Normally when a player is released or traded, any future signing bonus allocations accelerate to the present and count in full towards the cap in the current year in the form of dead cap. If the player is released or traded after June 1st, only the current year’s portion of the dead cap counts against the cap in the current year. The remaining portion of the dead cap counts against the cap in the following year. In the example above, if Player A was released on [/FONT][FONT=Verdana]May 25 2010[/FONT][FONT=Verdana], his dead cap hit would be $6M in 2010 and $0 in 2011. If he was released on [/FONT][FONT=Verdana]June 5th 2010[/FONT][FONT=Verdana], his dead cap hit would be $2M in 2010 and $4M in 2011. A new rule permits teams to designate certain players as June 1st cuts, even though they are actually released prior to June 1st.[/FONT]

[B][FONT=Verdana]What is the minimum player salary?[/FONT][/B]
[FONT=Verdana]- The minimum player salary ranges from $295K to $830K depending on years of service.[/FONT]

[B][FONT=Verdana]What is the vet min exemption?[/FONT][/B]
[FONT=Verdana]- Any veteran with 3 or more years of service who signs a 1-year contract at the minimum salary with a combined bonus less than $40K qualifies for the vet min exemption. The player will count against the cap at an amount equal to the minimum salary for a 3rd year player ($445K) plus any bonuses. This rule was implemented to make it less costly to keep veteran players at the minimum salary.[/FONT]

[B][FONT=Verdana]How does the salary cap treat incentives?[/FONT][/B]
[FONT=Verdana]- Incentives are divided into 2 groups:[/FONT]
[FONT=Verdana]1. LTBE (likely to be earned) – these incentives count against the cap in full. If the LTBE incentive is not reached the team receives a cap refund the following year.[/FONT]
[FONT=Verdana]2. ULTBE (unlikely to be earned) – these incentives do not count against the cap. If the ULTBE incentive is reached the team receives a cap charge the following year.[/FONT]

[B][FONT=Verdana]When must a team comply with the salary cap?[/FONT][/B]
[FONT=Verdana]- During the season a team must always be under the salary cap. Once the season ends they have until March 2 to comply with the following year’s salary cap.[/FONT]

[B][FONT=Verdana]What is the Rule of 51?[/FONT][/B]
[FONT=Verdana]- During the off-season only the top 51 players on each team count towards the salary cap.[/FONT]

[B][FONT=Verdana]What is the Rookie Pool?[/FONT][/B]
[FONT=Verdana]- The rookie pool is the max cap space a team can spend on signing draft picks and undrafted free agents. A team's rookie pool is based on the number and position of draft picks, with teams holding higher picks being allocated more dollars per pick than teams holding lower picks. The rookie pool counts against the salary cap until the players are signed or released.[/FONT]

[B][FONT=Verdana]What is the Barry Sanders Rule?[/FONT][/B]
[FONT=Verdana]- Since signing bonuses have become so prevalent in contracts, owners run the risk of paying a player a large sum of guaranteed money up front, only to have the player retire prematurely. To protect against this, the Barry Sanders “rule” allows owners to be compensated in certain situations.[/FONT]

[B][FONT=Verdana]What is the Deion Sanders Rule?[/FONT][/B]
[FONT=Verdana]- Basically the Deion Sanders rule limits the proportion of a contract that can be paid as signing bonus.[/FONT]

re: The Warpath presents: Salary Cap 101
 

good post. everyone should read

re: The Warpath presents: Salary Cap 101
 

Excellent stuff. I recommend putting this up in the drop-down under Team also, either as it's own page or under the "Salary Cap Info". That way it's always there for quick reference

re: The Warpath presents: Salary Cap 101
 

Wow, thanks! That's detailed.

re: The Warpath presents: Salary Cap 101
 

Thank goodness. This has been needed.

re: The Warpath presents: Salary Cap 101
 

Fantastic work.

re: The Warpath presents: Salary Cap 101
 

Awesome....thanks Matty!

re: The Warpath presents: Salary Cap 101
 

This is the 1st draft, hope it helps answer most of the standard cap questions.

If you have any cap related questions that don't appear here send me a PM and I can add them to the list.

re: The Warpath presents: Salary Cap 101
 

Very nice work.

re: The Warpath presents: Salary Cap 101
 

Matty & CC, you guys are tops when it comes to understanding salary issues.

re: The Warpath presents: Salary Cap 101
 

I realized I forgot to include a section about incentives.

Thanks to Hijinx for pointing it out. I will add a section to discuss incentives in the next couple days.

re: The Warpath presents: Salary Cap 101
 

[QUOTE=backrow;425138]Matty & CC, you guys are tops when it comes to understanding salary issues.[/QUOTE]

Thanks but don't forget about Schneed...

re: The Warpath presents: Salary Cap 101
 

[quote=backrow;425138]Matty & CC, you guys are tops when it comes to understanding salary issues.[/quote]

Schneed10 and CrazyCanuck deserve all the credit here for being our cap experts.

re: The Warpath presents: Salary Cap 101
 

Quick Question - concerning the Deion Sanders rule: With players usually recieving a crazy backloaded contract with money they will never see, I don't see the effectiveness of this rule. I would think the NFL would catch onto this and try to close this loophole if a lot of the lower revenue owners started complaining too much. Agree?

re: The Warpath presents: Salary Cap 101
 

i very much appreciate the post Matty, thanks.

re: The Warpath presents: Salary Cap 101
 

sorry, thanks to the CrazyCanuck as well

re: The Warpath presents: Salary Cap 101
 

i thought the cap was up to 62-64% of revenue, not 58%

it's a good read though. thorough.

re: The Warpath presents: Salary Cap 101
 

Can anyone remember the league office granting cap relief for "special circumstances"? I thought this was possible, however I couldn't find a story where it happened. I mean if the Skins didn'tqualify for the loss of ST what does.

Another few questions even though the NFL has profit sharing there is quite a difference in earning between teams. There is usually more than $100 million difference between the top teams and the bottom teams. What makes for this difference, just merchandising and concession sales?

This really means that for some teams the 50% min(about $100 mill) is almost a hardship. For example the Skins's revenue is usually the highest at about $315 million that means the skins will spend between 31.7% and 36.8% of their revenue on players. However for a team like the Vikings, with a revenue of about $180 million, they will spend about 55.6% to 64.4% of their revenue on players. That seems like a huge difference.

Perhaps is is no surprise that the lowest revenue teams(Vikings,49ers, Jags, Raiders, Falcons) seem to be doing poorly.

re: The Warpath presents: Salary Cap 101
 

[quote=Hijinx;425284]Can anyone remember the league office granting cap relief for "special circumstances"? I thought this was possible, however I couldn't find a story where it happened. I mean if the Skins didn'tqualify for the loss of ST what does.

Another few questions even though the NFL has profit sharing there is quite a difference in earning between teams. There is usually more than $100 million difference between the top teams and the bottom teams. What makes for this difference, just merchandising and concession sales?

This really means that for some teams the 50% min(about $100 mill) is almost a hardship. For example the Skins's revenue is usually the highest at about $315 million that means the skins will spend between 31.7% and 36.8% of their revenue on players. However for a team like the Vikings, with a revenue of about $180 million, they will spend about 55.6% to 64.4% of their revenue on players. That seems like a huge difference.

Perhaps is is no surprise that the lowest revenue teams(Vikings,49ers, Jags, Raiders, Falcons) seem to be doing poorly.[/quote]

it's like a cut, which is like a retirement. and it was a very very small amount of money. technically danny can sue the taylor family to get some of it back, but that'd be pretty low, and it'd net only 2mill or so if he won.

re: The Warpath presents: Salary Cap 101
 

[QUOTE=That Guy;425253]i thought the cap was up to 62-64% of revenue, not 58%[/QUOTE]

From: [url=http://www.askthecommish.com/salarycap/faq.asp]Ask The Commish.com - Salary Cap FAQ[/url]

"Under the old DGR model, the CBA Percentages were as follows:
1998-2001 63%
2002 64%
2003 64.25%
2004 64.75%
2005 65.5%
2006 64.5%
2007 Uncapped Year

However, when the model was changed and the DGR expanded, the players and owners agreed to a smaller set percentage of the larger pot. The $102 M figure in 2006 was based on a 57% share of the 2006 projected Total Revenues as was the $109 M figure for 2007. In 2008, the percentage jumps to 57.5%, and the same percentage applies to 2009 as well. In 2010 and 2011 the percentage will be 58%."

re: The Warpath presents: Salary Cap 101
 

I have a question that occurred to me today: Could the Cap number go down? The way the economy is heading I could [U][I]potentially[/I][/U] see the NFL having less revenue in the next few years. This would wreak havoc with team salaries. Is there a built in stop gap to prevent the cap from going the other way? Or is it just assumed that the NFL's revenue will grow?

re: The Warpath presents: Salary Cap 101
 

[QUOTE=Hijinx;426025]I have a question that occurred to me today: Could the Cap number go down? The way the economy is heading I could [U][I]potentially[/I][/U] see the NFL having less revenue in the next few years. This would wreak havoc with team salaries. Is there a built in stop gap to prevent the cap from going the other way? Or is it just assumed that the NFL's revenue will grow?[/QUOTE]

From: [url=http://www.askthecommish.com/salarycap/faq.asp]Ask The Commish.com - Salary Cap FAQ[/url]

"Note: The actual dollar amount of the Salary Cap can not be less than the actual dollar amount of any Salary Cap for the preceding year. So, for example, if Total Revenues should decline from one year to the next, the players are protected against a smaller associated Salary Cap. However, the Projected Benefits, plus the amount of the Salary Cap multiplied by the number of Teams in the NFL, can not exceed 61.68% of Projected Total Revenues."

re: The Warpath presents: Salary Cap 101
 

[QUOTE=Hijinx;426025]I have a question that occurred to me today: Could the Cap number go down? The way the economy is heading I could [U][I]potentially[/I][/U] see the NFL having less revenue in the next few years. This would wreak havoc with team salaries. Is there a built in stop gap to prevent the cap from going the other way? Or is it just assumed that the NFL's revenue will grow?[/QUOTE]

As CC said it could technically happen but realistically the league has never had a negative growth season. It is very very unlikely to happen economically.

re: The Warpath presents: Salary Cap 101
 

[quote=FRPLG;426078]As CC said it could technically happen but realistically the league has never had a negative growth season. It is very very unlikely to happen economically.[/quote]

Agreed. NFL fans are passionate (if you're willing to pay thousands to attend 8 football games, you must be). When times get economically tough for them, season ticket holders are likely to pull back on other expenditures before giving up their season tickets. And for many teams like the Redskins, even if ticketholders give up their seats there will be plenty of people willing to take their place.

The NFL has little competition, few threats from competitors. I look at their revenue growth prospects being as safe as big oil's.

re: The Warpath presents: Salary Cap 101
 

[quote=Schneed10;426124]Agreed. NFL fans are passionate (if you're willing to pay thousands to attend 8 football games, you must be). When times get economically tough for them, season ticket holders are likely to pull back on other expenditures before giving up their season tickets. And for many teams like the Redskins, even if ticketholders give up their seats there will be plenty of people willing to take their place.

The NFL has little competition, few threats from competitors. I look at their revenue growth prospects being as safe as big oil's.[/quote]

except the growth of football enthusiasm isn't nearly as safe and the growth in energy consumption, and at some point, there may actually be a level off point, which would TOTALLY screw LDS's cap structuring program.

Re: The Warpath presents: Salary Cap 101
 

Is it still possible to restructure contracts?

Re: The Warpath presents: Salary Cap 101
 

[quote=That Guy;426532]except the growth of football enthusiasm isn't nearly as safe and the growth in energy consumption, and at some point, there may actually be a level off point, which would TOTALLY screw LDS's cap structuring program.[/quote]Except that, if there is football after 2010, it's likely not going to be capped. Only because with the death of Upshaw, there's no chance in hell they get the CBA redone prior to the last capped year (2009).

All owners support a salary cap system, but the big boys like Snyder and Jones aren't just going to sit on their hands this offseason simply because they haven't yet extended the CBA.

And with the economic situation what it is, there's no way to set a cap low enough to make it fair for the Buffalo's and Cincinnati's of the world that any of the mid or upper level franchise owners would agree to. So if you're those teams, you'd probably have to support no cap, because with declining league revenues, any sort of cap to the shared revenue being received would hamper their ability to put a professional product on the field.

Re: The Warpath presents: Salary Cap 101
 

The good news is that, unlike 2006, Snyder and Cerratto have a lot of flexibility if they are required to cut their salary.

Jerry Jones on the other hand, has no sort of flexibility to do so.

Re: The Warpath presents: Salary Cap 101
 

[quote=MrJL;506793]Is it still possible to restructure contracts?[/quote]No, not in the traditional sense that we have been using, at least without an extension to the CBA.

Contracts can be extended, and the bonus money can still be prorated, but any unpaid (but earned, and not prorated) bonus money will have to be paid in the last capped year.

But we can't take 2009 salary, and just opt to prorate it as guaranteed money through the life of the deal.

Re: The Warpath presents: Salary Cap 101
 

[quote=Slingin Sammy 33;425014]Excellent stuff. I recommend putting this up in the drop-down under Team also, either as it's own page or under the "Salary Cap Info". That way it's always there for quick reference[/quote]

Good idea. Thanks guys! You just turned Chinese into English for me.

Re: The Warpath presents: Salary Cap 101
 

Being new to the site and all, I just discovered this gem of a thread. My compliments the authors. It is very informative, and I know a lot more about the cap now than I did a couple of minutes ago.

Thanks -

Re: The Warpath presents: Salary Cap 101
 

Thanks, This is exacly what I needed. Thanks for putting in the work on this.

Re: The Warpath presents: Salary Cap 101
 

[quote=That Guy;426532]except the growth of football enthusiasm isn't nearly as safe and the growth in energy consumption, [B]and at some point, there may actually be a level off point, which would TOTALLY screw LDS's cap structuring program.[/B][/quote]

So far, nope. Not even in a down economy. The cap limit exceeded expectations, coming in at 127 million. 4.0 million more than the projected 123.

This is reflective of the consistently strong demand for games on TV and tickets. Revenue is actually coming in higher than forecasts, even in down years.

Re: The Warpath presents: Salary Cap 101
 

[quote=Schneed10;532190]So far, nope. Not even in a down economy. The cap limit exceeded expectations, coming in at 127 million. 4.0 million more than the projected 123.

This is reflective of the consistently strong demand for games on TV and tickets. Revenue is actually coming in higher than forecasts, even in down years.[/quote]

at some point :P i didn't say i saw it coming, but that's the only real risk... it'd involve a new contract with lower or equal money from TV, which is possible, but i don't see happening soon (thanks inflation!).

Re: The Warpath presents: Salary Cap 101
 

[quote=Schneed10;532190]So far, nope. Not even in a down economy. The cap limit exceeded expectations, coming in at 127 million. 4.0 million more than the projected 123.

This is reflective of the consistently strong demand for games on TV and tickets. Revenue is actually coming in higher than forecasts, even in down years.[/quote]
From what I heard on ESPN, the cap was higher than normal because teams were not using enough of thier cap space and the players have some sort of provision for that that increases it so that teams like the skins can spend more.

Re: The Warpath presents: Salary Cap 101
 

[quote=T.O.Killa;532244]From what I heard on ESPN, the cap was higher than normal because teams were not using enough of thier cap space and the players have some sort of provision for that that increases it so that teams like the skins can spend more.[/quote]

Cool, so essentially we're already migrating to a capless world in a lot of ways.