The Jet Set

Thoughtful coverage for thinking fans.

Breaking Down The Jets Salary Cap

idzik

– By Craig Hoffman –

The single most important aspect of team building in the NFL has nothing to do with scheme, meshing of personalities or even coaching. Understanding and managing the salary cap is what makes – and keeps – good teams great over long periods of time. In this short primer, we will break it down using a common sense approach showing how it affects the Jets in their current (and future) situation.

What is the Salary Cap?

The salary cap in the NFL is the maximum amount of money that a team is allowed to pay to its players in a given year. All salaries, bonuses and ‘likely to be earned’ incentives are counted.  Salary can be guaranteed or non-guaranteed.  Here’s what all of that means: Non-guaranteed salary is money that will not be paid to the player if he is released – it will only be paid if the player is a part of the team for the entire year. Guaranteed money is money that will be paid to the player even if he is released. (This money can be fully guaranteed or guaranteed for skill (meaning he will be paid if the team decides to replace him with someone who is deemed to be a better player), injury (he is paid if he is released due to injury) or salary cap (he is paid if the team needs room to sign or retain players).) ‘Likely to be earned incentives’ are based on the previous year’s team or individual performance. An example would be writing an incentive into David Harris’s contract stating that he will earn $1 million if the Jets finish with a defense ranked in the top 10. Since the Jets have finished in the top 10 defensively each of the last 4 years, including most importantly last year, this incentive would be ‘likely to be earned’ and thus counted on the 2013 salary cap.

There is another category of incentives called ‘not likely to be earned’ that will be covered in a later section. The 2013 salary cap is $123 million. If a team didn’t spend to the limit of the salary cap in the previous season, they are allowed to carry over the money that they saved into the next season. This year the Jets have carried over an extra $3.4 million from 2012. The salary cap is also a ‘hard cap’, meaning that at no point in time during the league year can a team be over the limit. There are ways to massage it and we will cover those in the next section. From the beginning of the league year in April until the start of the regular season, a team is under the cap if the salaries of its top 51 players add up to less than $123 million. This top 51 does not include players on injured reserve, physically unable to perform (PUP) or training camp players. Once the regular season begins, the salaries of ALL players (including PUP, injured reserve and practice squad members) must total less than the salary cap limit. Starting this year, teams must spend an average of 89% of the Salary Cap over a four-year period. This means that if the cap were flat (ie it remained at $123 million) from 2013-2016 each team would have to spend $109.47 million in contract dollars. Tampa Bay spent $92.873 million on salary in 2011 so they would have to increase spending by roughly 17 million dollars just to reach the cap minimum. While not affecting big-spending teams like the Jets (who spent $126.560 million in 2012), as just shown this will increase the spending of smaller market teams such as Tampa Bay. (This is a key reason as to why the Bucs are prepared to pay big bucks for the services of Darrelle Revis).

How do you create cap space?

If a team needs to create cap space, the two most popular methods are to release players or restructure their contracts. They can also trade a player, but that happens a lot less often because it is somewhat complicated, as will be explained briefly.

Po'uha fell foul of having a high cap number in 2013.

Sione Po’uha fell foul of having a high cap number in 2013.

Just before the league year begins, a number of veterans are always cut because of high salary cap numbers. It is a cost-benefit analysis with the cost to keep the player being weighed against his usefulness to the team. Take for example Sione Po’uha – who was a good player, but he battled against back issues as age caught up to him in 2012. Po’uha was due to count $6.166 million against the salary cap in 2013 and was cut as a result. When a player is cut, the non-guaranteed salary as well as unpaid bonuses that they are owed are immediately removed from the salary cap. In Po’uha’s case that amount was $6.166 million. The signing bonus is actually paid in full at the beginning of a contract, but for salary purposes it may be prorated (evenly spread) over as many as five years. The only parts that remains on the salary cap are guaranteed money as well as the prorated portions of the signing bonus that remain on the contract. Those portions – even from future years – are accelerated onto this year’s salary cap and are called ‘dead money’. Po’uha had $2.333 million ($1.167 million each year) of dead money. So the Jets net savings by cutting Po’uha were $6.166 million in salary and bonus, minus $2.333 million in dead money, which equals a total saving of $3.833 million.

Antonio Cromartie's contract restructure saved the Jets $4.23 million in 2013.

Antonio Cromartie’s contract restructure saved the Jets $4.23 million in 2013.

If the team decides that they still want a player on the team but wish to lower his cap charge, they will restructure the player’s contract. Restructuring means moving the money around either from one year to another or converting it from one type of pay to another, such as salary to bonus or salary to incentives. A team can also agree to guarantee some future money in exchange for some salary reduction now. The most popular way to achieve this is to take a player with a large salary and replace it with a signing bonus instead. This allows the team to prorate the salary cap charge over up to five years – a strategy that will reduce the cap charge significantly.

This year an example would be Antonio Cromartie. Cromartie originally had a salary of $7 million, a roster bonus of $2.3 million, $200,000 workout bonus, and a prorated signing bonus charge of $1.250 million – all of which adds up to a cap number of $10.750 million. The two sides chose to reduce Cromartie’s salary to $840,000 while converting the rest of the salary plus the roster bonus (which is not able to be prorated) into a signing bonus of $8.46 million prorated over this year and next. So after the restructuring, the Jets owed Cromartie his salary of $840,000, his workout bonus (if the conditions are met) of $200,000 and a prorated signing bonus charge of $5.48 million (the original signing bonus remaining of $2.5 million plus the new signing bonus of $8.46 million equals 10.96 million – which is divided by the two years remaining to equal a prorated charge of $5.48 million). That adds up to $6.52 million in cap charges for this year, which is a saving of $4.23 million off the original charge of $10.750 million. So Cromartie loses no money and gains a very large $8.46 million check while the Jets save $4.23 million in cap room. That is a win-win deal.

A word of warning, however, is that this transaction caused the dead money on Cromartie’s contract for next year to rise from $1.25 million to $5.48 million, so it would be more costly to cut him if the Jets so chose to do so next year. Excessively restructuring contracts may increase cap room in the short-term, but it can also make future situations more constrained.

Trading a player has the same effect to a team’s salary cap as releasing him. The non-guaranteed salary and unpaid bonuses are removed from the cap while the remaining guaranteed salary and prorated signing bonus money remains. The difference is that the salary and unpaid bonus money transfer to the player’s new team. So the team that is receiving the player has to have the cap room to accept his salary (or the room to execute a new or restructured contract) while the team trading the player has to have the cap room to accommodate the accelerated bonus money. (Not to mention that the two sides have to agree on compensation.)

These conditions make trades less common than restructures or straight releases. The obvious example here would be the Darrelle Revis situation, but that will get it’s own section later on, so instead we will take a look at a hypothetical trade of Antonio Cromartie. Earlier in the offseason, it was plausible that if the Jets felt they were able to sign Revis that they would trade Cromartie, so here is how that would look from a cap perspective. Under his original contract, if Cromartie was traded before his roster bonus or workout bonus were due the team receiving Cromartie would be on the hook for his $7 million salary, his $2.3 million roster bonus and his $200,000 workout bonus totaling $9.5 million in cap room needed to accept Cromartie. The Jets would receive the relief of that money subtracted by the $2.5 million of prorated signing bonus that would remain as dead money. The team receiving him would look to work the same restructure that the Jets implemented so as to reduce their cap hit. The teams would then have to agree on compensation which would most likely be a draft pick. The Jets would also need to have enough cap space to absorb the increase in their rookie compensation pool number due to an additional draft pick being acquired. (That will be explained along with all of the rules of the rookie compensation pool later on.)

How do you massage the Salary Cap?

Every system has loopholes for those smart enough to exploit them and the NFL salary cap is no different. Teams will never be able to avoid paying the money owed but with some creative accounting you can certainly make the most of what you spend. What follows is an explanation of the most popular cap management tricks of the trade.

The Minimum Salary Benefit Rule states that if a veteran signs a 1-year contract for the minimum salary based on his time in his league, no matter what that number is it will only count against the cap the same amount as that of the minimum salary of a second year player (as long as his bonus money does not exceed $65,000). For example, Antonio Garay is going into his eighth year in the league so the minimum salary for a player with that experience is $840,000. Only $555,000 of that (the minimum salary for a second year player) will count against the salary cap, so Garay gets all of his money and the Jets save $285,000 in cap space. Garay received a $65,000 bonus thus counting a total of $620,000 against the cap. This rule was instituted because veterans were being replaced with younger players who had lower minimum salaries, all of which had the result of shortening players’ careers.

While incentives likely to be earned are added to this year’s cap, the other category of incentives is ‘those not likely to be earned’ – which do not count against the current year’s salary cap. These are also based on the previous year’s team or individual results, the only difference being that a not likely to be earned incentive would be a target that the player or team did not achieve last year. This method is often used for a player coming off an injury, as it means a team can create incentives for games played (a number which would be deemed not likely to be earned because of the time missed during the previous year).

Santonio Holmes only played in 4 games last year so during restructuring the Jets could have had Holmes agree to a $2 million bonus based on playing 8 games in lieu of $2 million of salary. Most likely Holmes will get that money and it won’t count against the cap until 2014. It is risky for the player because they may never see the money if the injury reoccurs, and it is also risky for the team because they have to have enough salary cap flexibility the following year to pay out those incentives.

We discussed earlier how signing bonuses as well as option bonuses (which are the same as signing bonus except that they are given when the team picks up an option in the contract for an additional year) can be prorated over as many as five years. Sometimes the team and player have to find a creative way to both get the player his money and also keep the cap charges lower. When that happens a solution is to add voidable years to the contract. These voidable years can be removed if the player meets conditions set by the team. A player is usually going to want to become a free agent as many times as he can during his prime years in order to maximize the amount of money he will be paid while on the open market. Most of the time, the player will receive more money by being a free agent because salaries increase over time.

For example, if the Jets came to Mohammed Wilkerson and offered him a five year contract for $40 million he might be happy to accept it now but not so happy when in three years time the top defensive ends are making $12 million per year. If the Jets signed him to a five year contract for $40 million (and made the last two years voidable if he makes the Pro Bowl in any of those years) then Wilkerson would be out on the market in 3 years time. The Jets could then prorate any signing bonus he would receive over the full 5 years.  If Wilkerson left after 3 years the Jets would be stuck with the last two years of the prorated signing bonus as dead money accelerated on that year’s salary cap, but would have benefited from the extra prorated money in the first three years that had lowered Wilkerson’s cap charges.

Darrelle Revis: Signed one of the worst contracts in Jets history.

Darrelle Revis: Signed one of the worst contracts in Jets history.

This leads us to one of the worst contracts in Jets history which is, of course, the Darrelle Revis contract extension in 2010. The Jets put themselves in the worst possible bargaining position by agreeing to be on the HBO show “Hard Knocks” which was to chronicle all the story lines of training camp. Team Revis seized the opportunity of staging a nationally televised holdout and contract negotiation. HBO had it’s main story for the summer while the Jets had a huge problem with their best player making a fool out of them during a training camp where the team was preparing to make a run at a Super Bowl. With that as a backdrop ex-General Manager Mike Tannenbaum negotiated a 7-year contract that had 3 voidable years which were triggered if Revis did not hold out at any point during the contract. The salaries for the three voidable years were only $3 million per year (which is $9 million per year below the current average yearly pay of the other parts of his contract). Instead of a signing bonus, Revis received an $18 million option bonus in year 2 that was prorated for six years (the previous Collective Bargaining Agreement allowed signing and option bonuses to be prorated over six years, not the five that are allowed in the current agreement).

The key concession that Revis received from the Jets was an agreement that they would not designate him as their Franchise Player and thereby limit his free agency. Being designated a Franchise Player means you receive a 1-year contract equal to the average of the top five players at your position, or a designated amount that the league determines. If another team signs Revis when he is designated a Franchise Player the Jets would either have seven days to match the contract given to Revis, or let him go and receive two first round picks as compensation. Multiple first round picks are an enormous price to pay for a team, and they act as a deterrent from another team signing Revis. For 2013, the salary for a cornerback designated a Franchise Player is $10.622 million – which would be a pay cut for Revis in most years and a far cry from the $15 million per year that he is currently seeking. So the Jets are left with Revis’ contract and the prospect of voiding the remaining years at the end of this upcoming season as long as he does not holdout. Once it does void they have no ability to designate him as a Franchise Player either. Their options are to pay him what he wants ($15 million annually) or trade him now for what the market bears.

Since Revis’ salary plus bonuses equal $9 million and the remaining prorated option bonus is $12 million, it will actually cost the Jets $3 million in cap space to trade their best player. The market for cornerbacks has also dropped significantly, as all the free agents have signed for between $5-7 million per year, meaning that a team would have to pay Revis triple market value for the right to sign him. If the Jets re-sign him they will have a great player – but also a player who is taking up more than 10% of the entire salary cap by himself. If they let Revis walk away without trading him, the most they can get is a third round compensatory pick (a pick given to compensate a team for losing a free agent that is offset by the signing of other players. So if the Jets signed a few free agents with the extra cap space, this would lessen the compensatory pick and could theoretically eliminate it altogether). A compensatory pick is not even close to value for one of the game’s best player, and this is the situation the team is in because of Revis’ contract. What will the Jets do? What would you do? It is a very tough decision to make and we will evaluate it when we look at the Jets entire cap situation at the end of this article.

Teams that need to release a player due to diminished or poor skill (but would not normally be able to do it because of the large cap hit they would take from dead money) can cut the player after June 1st and split the cap charges over this year and next. This gives the team some extra cap room to replace the player that is being released. The only downside here is that the team would have to have enough cap space the following year to absorb the extra dead money. Since releasing a player after June 1st severely reduces his prospects of finding a new deal at a salary they desire, teams are now only allowed to cut a maximum of two players before June 1st and designate them June 1st cuts. (This means that the team receives the benefit of splitting the cap hit while the player gets more time to find a new team.) For example, if the Jets designated Sione Po’uha a June 1st cut, his $6.166 million in salary plus bonus would still come off the cap but instead of $2.333 in dead money it would only be $1.166 million this year. That would raise the cap savings in 2013 to $5 million while adding $1.166 million in dead money to next year’s cap. Guaranteed money stays on the cap even if the player is released, but there is one exception – ie if there is an offset provision in the contract.

An offset provision states that if the player is released, they cannot earn more than the amount of their guaranteed money for that season. If they are released and sign with another team, then the difference between what the player earns from his new team and the guaranteed money that he would have picked up from his previous team will be credited back to the team he has just left. Santonio Holmes’s contract has an offset provision in it which said that he could not earn more than his $7.5 million in guaranteed money if he was cut. If the Jets had cut him and he had signed with the Dolphins for $3 million the Jets would have received $3 million extra in cap space due to the offset provision.

How are rookies treated under the Salary Cap?

Each team is assigned a Total Rookie Allocation which is a cap based on the total amount of money that can be included in the contracts of all drafted rookies. Teams are also assigned a year one Rookie Allocation which allots the amount that can be spent on the current year’s cap for drafted rookies. This is not extra money above the $123 million dollar salary cap – instead it is a cap within a cap which reduces what a team can spend on other players. The Jets’ year one allocation in 2013 is $5.6 million, so they can in effect spend $117.4 million on their other players (including undrafted rookies). They do not need to hold $5.6 million in cap space to sign their rookies, however – all they really need is to have $2.765 million in space because the seven drafted players will replace the same number of minimum salary players on the roster. An undrafted rookie counts $405,000 against the cap, so the seven released players would credit $2.835 million which, when subtracted from $5.6 million, gives the real amount of space needed  ($2.765 million). The year one allocation is based on the value of the number of draft picks you have and where they are in the draft. So for example, the Jets first round pick (#9) has a year one value of $2.302 million. Now if a trade of Revis is made and the Jets acquire TampaBay’s first round pick (#13) as well as their 3rd round pick (#75) without giving up any picks themselves, the Jets would have an extra $2.956 million in year one rookie allocation.  Subtract the $810,000-$960,000 for the two minimum salary players that would have to be released, and the team would need to have about an extra $2.146 million in cap space to accommodate these picks. Every action has salary cap consequences.

What extra measures are there to help you keep your best players?

Any player who has a contract that has expired plus three accrued seasons (ie he is on a roster for at least six games per season either active, on injured reserve or physically unable to perform) enters restricted free agency. His present team has to tender a qualifying offer (an offer based on level of compensation that the team wants if they do not match) in order to retain the right to match any contract he may be offered by another team. The three levels of qualifying offers are first round (which is a tender of $2.879 million or 110% of previous year’s salary – whichever is greater), second round (which is $2.023 million or 110% of previous year’s salary – whichever is greater) and original round drafted (which is $1.323 million or 110% of previous year’s salary – whichever is greater). The qualifying offer is held on the team’s salary cap until the player signs the tender.

The player then has until April 19th to negotiate with other teams on a contract. If they agree to one, then the original team has seven days to match that offer. If they do not match, they receive compensation based on the level of the qualifying offer that was tendered. After April 19th the original team has exclusive rights to the free agent. If the tender is withdrawn or not made, the player becomes an unrestricted free agent. The team may replace the tender on or about June 1st and replace it with a one-year contract for at least 110% of the previous year’s salary.

An example would be if Austin Howard was signed to a big deal before April 19th by the Eagles. Since the Jets tendered Howard at the second round level they would have seven days to match the Eagles offer or receive Philadelphia’s second round pick as compensation. If Howard did not signed his tender by June 1st the Jets could replace that with a June 1st tender of $595,000 (which is 110% of Howard’s 2012 salary of $540,000). Howard would lose about $1.4 million in salary if that happened, so he would sign the tender to receive $2.023 million this year.

Jordan White: An 'exclusive rights free agent'.

Jordan White: An ‘exclusive rights free agent’.

Free agents who have less than three years of accrued seasons are called ‘exclusive rights free agents’. As long as the team offers a minimum salary tender of $405,000 for a rookie free agent, $480,000 for a free agent with one accused season, or $555,000 for a free agent with two accrued seasons, the team remains in exclusive control of that player. If no tender is made, the player becomes a unrestricted free agent. For the Jets this season Jordan White was an exclusive rights free agents who has one accrued season, hence he signed the tender for $480,000.

What is the Jets’ current salary cap position and how is it affected by a potential Darrelle Revis trade?

Jason from overthecap.com has already done a great job of detailing the implications of what the Jets actual cap position would be if Revis was traded. I will fill in the final pieces including what would occur if they received Tampa’s 13th and 75th overall picks for Revis.

Starting point: $13 million – Reported cap room for the Jets.

Minus: $4 million – Loss of cap space in a trade of Revis due to acceleration of bonuses paid.

Minus: $480,000 – Replacement of Revis on roster by 52nd highest-paid player.

Minus: $5.6 million – Estimated Year One Rookie Pool Allocation for Jets 7 draft picks.

Plus:  $1.92 million – Rookie displacement of players 48-51 in the current salary cap ($480,000 x 4).

Plus:  $1.215 million – Removing the base salaries from the rookie pool for players who do not displace a current top 51 contract ($405,000 x 3).

Minus: $960,000 – For players 52 and 53 who will now count against the cap once the season begins.

Minus: $816,000 – Maintaining an 8 player Practice Squad for the season (8 x 17 x $6,000).

Minus: $1.828 million – 2013 cap number of the 13th pick in the draft.

Minus: $564,375 – 2013 cap number of the 75th pick in the draft.

Plus:  $960,000 – Displacement of players 52 and 53 on the final roster ($480,00 x 2).

Finishing point: $2.847million – This is the Jets effective cap space.

(Please note: These figures do not include the recent signing of Dawan Landry.)

As you can see the Jets’ cap situation is presently very tight and other than one more free agent at about $1 million or so, any other signings have to be minimum salary players after all draft picks are accounted for.

I hope this salary cap primer was helpful in terms of affording fans an informed opinion on the moves or lack thereof that the team has made through this offseason. As always, any thoughts or comments are welcome and can be directed to me on Twitter (@craiglaurasam) or via the comments section below.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Information

This entry was posted on April 17, 2013 by in Craig Hoffman.
%d bloggers like this: