Andrew Brandt's take on salary cap management

[Bulldog Colt]

http://mmqb.si.com/2014/02/26/nfl-salary-cap-explained/

[21isSuperman]

Good article.  It makes sense, but it's all theory.  In theory, the best teams are the ones whose cap and cash numbers match.  That way, you don't have major constraints in the future.  With that said, in reality, it's hard for that to occur.  Players and agents want more and more money, GMs will be in a rush to sign free agents so they take smaller cap hits now to be able to do so, etc.  Personally, I like to front-load the contract.  Take the bulk of the cap hit now, then allow yourself more freedom in the future.  But, of course, that has its own pros and cons

[Superman]

This is a good article. It's capturing the ideal cap management situation, something that most teams aren't able to achieve or maintain.

 

But for the Colts, we have a good cap situation, we have a QB on a rookie contract, and we don't have a lot of prorated bonus right now -- after 2014, the only veteran contract players that have annual prorated bonus of more than $1m/year are Cherilus, Landry, and Mathis. I'm sure we'll add to that list after free agency this year, but Grigson made a concerted effort to keep his contracts balanced out. I think they kind of made a mistake on Cherilus, getting hit with an arcane cap accounting rule that increased his prorated bonus and decreased his initial cap hit. I don't think that's what they originally intended to happen.

 

So if they keep the same approach with free agency this year, and with our own guys coming up for extensions, then we'll have the "pay as you go" structure among our highest paid players.

[SteelCityColt]

Good article thanks for sharing. 

 

Makes me feel better about last years foray in the FA market regardless of on field performance at least we were sensible with regards to contacts. To check my understanding though, we were correct to front load the contacts as we had enough cap to convert into upfront cash (That is paying it in base salary as opposed to signing bonus?) meaning that there is little or no sting in the tail going forward if we want to part ways with players from 2013 FA? 

 

As a comparison I had a quick look at Wallace's contact with the Phins.... Wow surely they're restructuring that at some point, I'm guessing when Tannehill's rookie contract is up. 

[Y2Jared]

So basically if you do not re-structure bonuses for future years and are stingy with guaranteed money, not the actual salary figure, you end up being in a good spot if a guy does not live up to the terms of the contract. Easier to work around that with the new rookie scale for replacements.

[husker61]

i am sure most gm's want to structure contracts the way he says, but players don't. why does he think a player would go along with his scenario and have no protection for injury, giving the team all the leverage over the life of the contract.

[Superman]

i am sure most gm's want to structure contracts the way he says, but players don't. why does he think a player would go along with his scenario and have no protection for injury, giving the team all the leverage over the life of the contract.

The team has the leverage anyways. It's up to them whether they want to deal with the cap penalty or not.

The trade off is that the player gets the same amount of money, just in the form of higher base salaries early on, rather than increasing salaries later on, which kind of force the team to do something. And with smaller prorated bonuses, it's easier for the team and player to restructure in the future, if necessary.

[husker61]

The team has the leverage anyways. It's up to them whether they want to deal with the cap penalty or not.

The trade off is that the player gets the same amount of money, just in the form of higher base salaries early on, rather than increasing salaries later on, which kind of force the team to do something. And with smaller prorated bonuses, it's easier for the team and player to restructure in the future, if necessary.

 

a player can freely shop himself to the highest bidder, so the team has absolutely no leverage to dictate contracts favorable to themselves. if the player gets hurt in the first year of the contract, he is screwed by a contract that you are talking about. that's why players want signing bonuses. a player that has several contract offers would never settle for a contract you are talking about. there are two sides to contract negotiations, not just the team. i believe there are rules that you can't overload the first years base salary. isn't this what happened with gosder cherilus's contract?

[Superman]

a player can freely shop himself to the highest bidder, so the team has absolutely no leverage to dictate contracts favorable to themselves. if the player gets hurt in the first year of the contract, he is screwed by a contract that you are talking about. that's why players want signing bonuses. a player that has several contract offers would never settle for a contract you are talking about. there are two sides to contract negotiations, not just the team. i believe there are rules that you can't overload the first years base salary. isn't this what happened with gosder cherilus's contract?

That's why you guarantee the first two years of the contract. Same money as a signing bonus.

I'm not talking about overloading Year 1. Just not backloading future years. What happened with Cherilus is that there was too much of a discrepancy between the base salaries, with Year 2 being lower than Year 1. So a portion of the Year 1 base was converted to bonus to comply. But that's not a point of negotiation. The deal was agreed to, then the league required the adjustment.

In any event, I'm talking about keeping the base salaries even, rather than sharply increasing. Teams do this all the time. Some contracts have little to no signing bonus, but big guaranteed base salaries. The Bucs did this to an extreme with Carl Nicks, then restructured the next year to create cap space. They aigned Revis with no bonus at all. There have been many other examples in recent years as well.

Like I said before, it actually improves the player's chance of finishing the contract or being extended, rather than released. He doesn't have a sharply increasing cap hit, and he doesn't have a lot of unamortized bonus on the back end, so working things out is easier for the team in the future.

[husker61]

That's why you guarantee the first two years of the contract. Same money as a signing bonus.

I'm not talking about overloading Year 1. Just not backloading future years. What happened with Cherilus is that there was too much of a discrepancy between the base salaries, with Year 2 being lower than Year 1. So a portion of the Year 1 base was converted to bonus to comply. But that's not a point of negotiation. The deal was agreed to, then the league required the adjustment.

In any event, I'm talking about keeping the base salaries even, rather than sharply increasing. Teams do this all the time. Some contracts have little to no signing bonus, but big guaranteed base salaries. The Bucs did this to an extreme with Carl Nicks, then restructured the next year to create cap space. They aigned Revis with no bonus at all. There have been many other examples in recent years as well.

Like I said before, it actually improves the player's chance of finishing the contract or being extended, rather than released. He doesn't have a sharply increasing cap hit, and he doesn't have a lot of unamortized bonus on the back end, so working things out is easier for the team in the future.

 

but there is nothing protecting a player from a career threatening injury or being cut with even base salaries, the team holds all the cards. that's why players in demand don't do it . revis was payed a ridiculous amount of money to agree to that kind of deal. like i said, players that are in demand are going to get guaranteed money in the form of signing bonuses because they have leverage and it's in their best interest. i don't remember any top players signing contracts without guaranteed money.

[Superman]

but there is nothing protecting a player from a career threatening injury or being cut with even base salaries, the team holds all the cards. that's why players in demand don't do it . revis was payed a ridiculous amount of money to agree to that kind of deal. like i said, players that are in demand are going to get guaranteed money in the form of signing bonuses because they have leverage and it's in their best interest. i don't remember any top players signing contracts without guaranteed money.

Guaranteed money doesn't have to be in the form of a signing bonus. Guaranteed base salary is just as good. It's still guaranteed, and it's still money. The only difference is how it hits the cap, and if it's in the team's best interests long term, then it's in the player's best interests as well, for the reasons I mentioned above.

Also, as an accounting practice, teams often stagger bonus payments. A player receiving a $15m signing bonus doesn't always get that full $15m right away. He might receive that money over the course of a year or so. It's still guaranteed, and even if the player is released, it will be paid (assuming the player doesn't get arrested for murder).

There are also injury guarantees, etc., for future year's base salaries. Yeah, base salary can be guaranteed for injury only (meaning, if the player gets hurt, he still gets paid). Most high profile free agents have injury guarantees.

I'm not saying no guarantees, and I'm not saying no signing bonuses. I'm saying -- same as Brandt -- teams should avoid huge signing bonuses wherever possible. Jake Long was in demand last offseason, and received a big contract with a lot of guaranteed money: four years, $34m, $20m guaranteed. Only a $5m signing bonus. But Years 1 and 2 have fully guaranteed base salaries, and Year 3 went partially guaranteed at the end of Year 1. If the team approaches Long about a restructure prior to Year 3 or 4, they'll have plenty of room to navigate. There are many other examples as well.

Edit: Having large signing bonuses doesn't protect players from being cut, by the way. Teams bite the bullet on bad contracts all the time.

[husker61]

Edit: Having large signing bonuses doesn't protect players from being cut, by the way. Teams bite the bullet on bad contracts all the time.

 

and the player gets the money. when i talk about protection, i am talking about financially, nothing else.

[Superman]

and the player gets the money. when i talk about protection, i am talking about financially, nothing else.

 

I guess you're not understanding me. The player gets the money either way, whether it's signing bonus or guaranteed base salary. Dead cap hits after a player is released is all about accounting for money that's already been paid (or is guaranteed to be paid in the future). If releasing a player results in a $5m dead cap hit, the player doesn't get that $5m. They've already been paid that $5m.

 

Demanding a big signing bonus doesn't protect a player from being released later on. It makes it more painful for the team, but teams deal with that all the time, by choice. 

[husker61]

There are also injury guarantees, etc., for future year's base salaries. Yeah, base salary can be guaranteed for injury only (meaning, if the player gets hurt, he still gets paid). Most high profile free agents have injury guarantees.

I'm not saying no guarantees, and I'm not saying no signing bonuses. I'm saying -- same as Brandt -- teams should avoid huge signing bonuses wherever possible. Jake Long was in demand last offseason, and received a big contract with a lot of guaranteed money: four years, $34m, $20m guaranteed. Only a $5m signing bonus. But Years 1 and 2 have fully guaranteed base salaries, and Year 3 went partially guaranteed at the end of Year 1. If the team approaches Long about a restructure prior to Year 3 or 4, they'll have plenty of room to navigate. There are many other examples as well.

 

 

how does a injury guarantee work against the cap? i haven't heard of this.

 

i agree teams should avoid signing bonuses, but the player has to agree to it also and i don't think it is in their best interest to do so. i don't see how a guaranteed base salary is that much different than a signing bonus, they both count against the cap if a player is cut. any kind of guaranteed money hurts the team and favors the player. that's why the nfl held the line in not doing them for a long time and it's hurting other sports.

 

top players are going to get guaranteed money of some kind and if teams make a mistake on a player it will cost them, however it is structured.

 

if you are lucky enough to have a top qb, you give him the money. all other players you have to be really careful about the guaranteed money or you get into trouble eventually. it wasn't a popular opinion, but i didn't like a lot of the contracts bp gave players while he was here and i thought it hurt the colts. i like the pats model of letting player that demand too much money walk.

[husker61]

I guess you're not understanding me. The player gets the money either way, whether it's signing bonus or guaranteed base salary. Dead cap hits after a player is released is all about accounting for money that's already been paid (or is guaranteed to be paid in the future). If releasing a player results in a $5m dead cap hit, the player doesn't get that $5m. They've already been paid that $5m.

 

Demanding a big signing bonus doesn't protect a player from being released later on. It makes it more painful for the team, but teams deal with that all the time, by choice. 

 

i completely understand this.

 

when a player signs a contract, it's about how much money he is guaranteed. being cut only matters if there is no guaranteed money. that's why players demand guaranteed money in any form. you can't get around guaranteed money. it would be great if there was no guaranteed money in anything (not just sports). everyone would have to produce to get payed, but that's not reality.

[Superman]

how does a injury guarantee work against the cap? i haven't heard of this.

i agree teams should avoid signing bonuses, but the player has to agree to it also and i don't think it is in their best interest to do so. i don't see how a guaranteed base salary is that much different than a signing bonus, they both count against the cap if a player is cut. any kind of guaranteed money hurts the team and favors the player. that's why the nfl held the line in not doing them for a long time and it's hurting other sports.

top players are going to get guaranteed money of some kind and if teams make a mistake on a player it will cost them, however it is structured.

if you are lucky enough to have a top qb, you give him the money. all other players you have to be really careful about the guaranteed money or you get into trouble eventually. it wasn't a popular opinion, but i didn't like a lot of the contracts bp gave players while he was here and i thought it hurt the colts. i like the pats model of letting player that demand too much money walk.

The difference is how that guaranteed money hits the cap. Signing bonus is distributed throughout the contract, whereas salary is accounted for year by year.

So you can have a five year deal with a $15m signing bonus, and that bonus is guaranteed. But it is accounted for in $3m increments, year by year. So if the player is released after Year 2, the team has a $9m cap penalty. Or if you restructure, everything is added on top of the $3m a year that you already have to account for.

Let's say the team instead does a $5m signing bonus, but increases the base salaries in the first two years. You can still have the same amount of compensation in the first two years (or whatever timeframe, really), and it can still be guaranteed. But if the player is underperforming, the team has more leeway to restructure, because there's only a $1m bonus hit in each year of the contract.

And yes, those salaries can be guaranteed against injury, meaning if the player gets hurt, he still gets paid. Those guarantees are negotiable. In Jake Long's case, I believe Year 3 was always partially guaranteed for injury.

So what I'm saying is that, to the player, it's the same money and the same guaranteed money. The only difference is that the team has more flexibility in the future, and that's mutually beneficial for both sides.

[husker61]

So you can have a five year deal with a $15m signing bonus, and that bonus is guaranteed. But it is accounted for in $3m increments, year by year. So if the player is released after Year 2, the team has a $9m cap penalty. Or if you restructure, everything is added on top of the $3m a year that you already have to account for.

Let's say the team instead does a $5m signing bonus, but increases the base salaries in the first two years. You can still have the same amount of compensation in the first two years (or whatever timeframe, really), and it can still be guaranteed. But if the player is underperforming, the team has more leeway to restructure, because there's only a $1m bonus hit in each year of the contract.

So what I'm saying is that, to the player, it's the same money and the same guaranteed money. The only difference is that the team has more flexibility in the future, and that's mutually beneficial for both sides.

 

your example is meaningless without the base salary figures for each year. please show me the base salaries of this contract, because i don't believe it's the same money for the player if the he is cut after the first year. we have already established that you can't have a big discrepancy in yearly salaries.

[husker61]

And yes, those salaries can be guaranteed against injury, meaning if the player gets hurt, he still gets paid. Those guarantees are negotiable. In Jake Long's case, I believe Year 3 was always partially guaranteed for injury.

 

 

 

i'm not sure about this. if a player gets hurt, comes back, and is cut. is it because of the injury and does the guarantee kick in? who decides this? it seems like a mess that nether side would want to get involved in. private insurance would be a better solution.

[Superman]

your example is meaningless without the base salary figures for each year. please show me the base salaries of this contract, because i don't believe it's the same money for the player if the he is cut after the first year. we have already established that you can't have a big discrepancy in yearly salaries.

 

I thought you'd be able to figure this out on your own. Keep in mind, we're talking about a player being cut after the second year (almost no premier players get cut after one year, and if you read my previous posts, we're talking about guaranteed base salaries in at least the first two years).

 

So let's give Player A a long term contract with a big signing bonus and backloaded salaries. He's a 26 year old defensive end. Five years, $60m, with a $15m signing bonus, Year 1 base salary guaranteed, for a total guarantee of $18m. His base salaries are $3m, $5m, $8m, $10m, $14m. His cap hits are $6m, $8m, $11m, $13m, $17m. If he gets cut after Year 1, he will have received $18m, and the dead cap hit for the team in Year 2 would be $12m. (Again, that is unlikely in any event.) If he gets cut after Year 2, he will have received $23m, and the dead cap hit for the team in Year 3 would be $9m.

 

Player B is also a 26 year old defensive end, and he also gets five years, $60m as well, but his contract has a smaller signing bonus of $5m and more evenly distributed salaries, with the first two years guaranteed. His base salaries are $7m, $8.5m, $9.5m, $10m, $10m. Total guaranteed money is $20.5m. His cap hits are $8m, $9.5m, $10.5m, $11m, $11m. If he gets cut after Year 1 -- which won't happen -- he still gets his Year 2 base salary of $8.5m, and the dead cap hit is $14.5m in Year 2. If he gets cut after Year 2, he will have received, $20.5m, and the dead cap hit is $3m.

 

So there's a $2.5m difference, favoring the bigger signing bonus for the player. If necessary, that can be accounted for using staggered partial guarantees in Year 3 (like the Rams did with Jake Long), roster bonuses, etc., that still keep the cap hits even throughout the contract and give the team cap flexibility moving forward. Either way, it's essentially the same money, but the difference is how and when it hits the cap. The first deal with a bigger signing bonus has a backloaded cap structure, and it creates big cap penalties in the event of a future release. The second deal with a smaller signing bonus but bigger base salaries in Years 1 and 2 has a "pay as you go" cap structure, and it reduces the dead money cap holds in future years.

 

i'm not sure about this. if a player gets hurt, comes back, and is cut. is it because of the injury and does the guarantee kick in? who decides this? it seems like a mess that nether side would want to get involved in. private insurance would be a better solution.

 

You can look this stuff up. I'm not fabricating it. 

 

Injury guarantees have nothing to do with private insurance; private insurance reimburses the team if the player gets hurt and can't play anymore (and is usually only claimed if the player has to stop playing altogether). Or if the player doesn't have a long term deal and wants to protect himself. It's completely different from a contracted injury guarantee.

 

Injury guarantees are simple verbiage in the contract, and are a point of negotiation. Mike Wallace has his first two years fully guaranteed, plus an additional $3m guaranteed for injury only in Year 3. Drew Brees had only Year 1 of his contract fully guaranteed, but an additional $20m of future base salary was guaranteed for injury only. There are numerous other examples. It's a basic mechanism that protects the player in the event that he has a serious injury in the first couple years of his contract. This is really not pertinent, but whatever.

 

My point is just that contracts can be structured to pay as you go without reducing the guaranteed money to the player. The scenarios above are really just scratching the surface.

[husker61]

 

So let's give Player A a long term contract with a big signing bonus and backloaded salaries. He's a 26 year old defensive end. Five years, $60m, with a $15m signing bonus, Year 1 base salary guaranteed, for a total guarantee of $18m. His base salaries are $3m, $5m, $8m, $10m, $14m. His cap hits are $6m, $8m, $11m, $13m, $17m. If he gets cut after Year 1, he will have received $18m, and the dead cap hit for the team in Year 2 would be $12m. (Again, that is unlikely in any event.) If he gets cut after Year 2, he will have received $23m, and the dead cap hit for the team in Year 3 would be $9m.

 

Player B is also a 26 year old defensive end, and he also gets five years, $60m as well, but his contract has a smaller signing bonus of $5m and more evenly distributed salaries, with the first two years guaranteed. His base salaries are $7m, $8.5m, $9.5m, $10m, $10m. Total guaranteed money is $20.5m. His cap hits are $8m, $9.5m, $10.5m, $11m, $11m. If he gets cut after Year 1 -- which won't happen -- he still gets his Year 2 base salary of $8.5m, and the dead cap hit is $14.5m in Year 2. If he gets cut after Year 2, he will have received, $20.5m, and the dead cap hit is $3m.

 

 

i agree the 2nd contract structure is a better way to go.