Caponomics #101; How to Estimate a Players Cap Cost...................
As I read through various threads on who we may or may not go after in FA I often see members who are unfamiliar with how the cap works or cap estimates for players which may be unrealistic. It's all about how the deal is structured more so than the actual contract value.
We all read about the huge deals signed by top players but in many instances they will never receive the full value of the contract ergo the battles between player and management over the amount guaranteed and in what manner it is guaranteed. From the players perspective they want as much of the guaranteed money as soon as they can realistically get it and the teams objective is to make the deal as cap friendly to them as possible.
So here are the basic terminologies of contract structure and how they are accounted for on a cap cost basis. The cap cost is rarely the same as cash paid out to that player. In any given year the cap cost my be significantly more or significantly less than the monies received by the player.
Here we go;
Salary: A players salary is no different than yours or mine. It's his base pay for the year payable in 16 increments across the course of the season. One paycheck per game. 100% of his salary is charged against the cap at the beginning of the NFL year which is in March. If a player is cut the unused portion may be used for other signings or carried over until the next year. (see footnote*)
Signing Bonus: This is where teams can get very creative and often do. Although the signing bonus is paid in cash at the beginning of the contract the cap treatment is quite different. The team is permitted to amortize it in equal amounts over the life of the contract. In other words if a player receives a $12 signing bonus on a 4 year contract he's paid the $12 mil upfront but only $3 mil is charged against the cap in the first year and each of the three years following; 4 yrs x $3 mil each = $12 mil. This is the primary tool teams use to stretch their limited cap dollars more effectively when signing free agents from other teams or their own. (see footnote#)
Roster Bonus: This is just what it says. An annual bonus for making the 53 man roster. Although it is usually paid out in a similar manner to the players salary (1/16th each game) there are instances where that players contract calls for it to be paid in full at the beginning of the NFL year in March. This is why you'll see teams cutting still useful players who are deemed to be a "cap casualty" before the new year begins because a roster bonus is due and the team doesn't want to pay the cash or accept the cap consequences for a player who no longer fits their needs or may be in decline. Roster bonuses are charged at 100% of the amount of ther bonus in the year they are paid.
Workout Bonus: A small bonus, usually $100k max, for working out at team facilities or other acceptable facilities so that a player builds speed, strength or just maintains his fitness during the off season. This bonus is also charged 100% in the years it is paid.
Incentive Bonus: Paid for achieving a certain per-agreed goal. Examples would be; certain percentage of plays, number of receptions, number of td's, yardage gained, number of sacks, a Pro Bowl appearance, etc. They can be either ULTBE (unlikely to be earned) in which case they are only charged against the cap if earned and when paid the following year or likely to be earned (LTBE). Those constitute bonuses given for maintaining a certain level of excellence or reaching a goal that he been reached before. These bonuses are charged against the cap in year to which they apply but are credited back the following year if they go unearned.
For an example, promising Lance Briggs an incentive bonus for being chosen for the Pro Bowl would be LTBE because he's made it before on many occasions. Promising that same bonus to Nick Roach would be ULTBE since he has never been and isn't a lock to make in the future.
These are the basics of any NFL players contract although there are some twists and bends that can be used to also minimize a players cap cost in a given year or years. I won't go into those now and on top of that I don't claim to even be aware of all of them.
OK, we've talked about acquiring some high priced top tier FA talent like VJax or MWill and the operative thought is that we can't afford either let alone both. Actually the problem isn't signing both for 2012. The problem would come from the mushrooming costs of their compensation in later years. It's not all that hard to accommodate the costs of a huge contract in year one.
To create a viable example though let's use this one; We offer, and Mario Williams accepts, a 6 year contract for $90 mil with $45 mil guaranteed by a combination of Signing Bonus, Roster Bonus and Salary. So how do we structure this so although he averages $15 mil per year over the life of the contract his 2012 cap cost is only half ($7.5 mil) of that amount leaving us space to acquire other free agents.
Here's how we structure it; Of the $45 mil we guarantee $30 mil is paid upfront as a signing bonus. The other $15 mil will come as roster bonuses in later years or in the from a guaranteeing his salary in years 1, 2 and 3. His 2012 salary is $2.5 mil and their are no other bonuses paid or charged against the cap in 2012. So here's how we figure his 2012 cap cost.
Sal.= $2.5 mil
SB. = $5.0 mil (1/6th of his $30 mil Signing Bonus amortized over 6 years)
Total 2012 Cap Cost = $7.5 mil.
Why would he play for such a small 2012 salary? Because in addition to that we just handed him a check for $30 mil non-refundable even if he breaks his leg and can't play in 2012 or any other year as well. This is how players protect themselves and at the same time teams protect themselves against not being on the hook for more than a certain guaranteed amount. Plus the contract is extremely cap friendly in it's first year.
Costs will rise in ensuing years but with the expectation of the cap increasing and the contracts of other high dollar vets expiring those costs usually become manageable. So this is what the battle over contracts is all about. What players care about most is the sum guaranteed them and when they receive it whereas the team wants to minimize it's risk (guaranteed monies) and get the best cap structure for themselves possible.
I'd be willing to guess most of the Forte battle is over the amount guaranteed and in what manner it is guaranteed.
#Salary Footnote; A portion of a players salary may be converted into a signing bonus coincident with a contract extension. This is a tool for managing a high salary which may negatively impact the cap. Generally a short extension may be done with several years left on the original contract thereby creating a new one which allows for a portion of that years salary to be amortized over the remaining years of the new deal. This is what the Bear did with Urlacher's contract a few years ago.
*Signing Bonus footnote; If a player is cut or traded before the end of his contract any remaining unamortized amounts of his signing bonus will be charged against the cap in that year. Even though the player is no longer with that team there will still be a cap charge for him. This is what is referred to as "dead cap space".
Well this is the basics of how a players cap cost, or the more politically correct cap value, as the NFL likes to refer to it, is calculated. Hope this may be of some help to those of you doing mocks which include FA's as well as draftees or for those merely curious about this stuff works. :drinking61:
