The Salary Cap and You

Over the course of the offseason, you will probably hear a lot about the salary cap and the strange terms surrounding it. I would like to touch on some of the basics before we really hit the offseason. The cap is a very convoluted thing so this is by no means a comprehensive breakdown. It is simply a basic summary of some key concepts.

The Salary Cap

The salary cap is a limit on how much teams can 20on players. It is in place to give teams a fair shot. It is intended to prevent teams that make big money from gaining an advantage by outspending others. More than this, it is intended to stifle big spending owners from giving out crazy contracts to raise the market price for others. For example, if Jerry Jones does something crazy and gives Tony Romo a contract that doubles what any other quarterback makes, it raises the price of quarterbacks across the league. Tom Brady and Aaron Rodgers might look at the Romo contract and say to their respective teams, "I'm better than Romo. I deserve more than him."

Say for a second the average salary for quarterbacks was $2. Brady and Rodgers might be happy making $3. Say Romo got a contract for $6. Brady and Rodgers will probably want at least $7. By giving Romo that contract, Jerry Jones would have raised the market price for other quarterbacks.

Base Salary

There are a number of components that work against somebody's cap number. The simplest is base salary. That is your normal wages. Let's say I sign you to a 2 year, $4 contract. Your cap number will probably look like this:

2012: $2

2013: $2

If I need a little extra cap space this year and have extra room in 2013, the numbers can change, though. We could agree to something like this. The base salary does not need to be the same every year of the contract.

2012: $1

2013: $3

Signing Bonus

To lure players, teams can offer them bonuses just for signing a contract. This is important because contracts are not guaranteed in the NFL. I could sign you for a 2 year $100 million contract, but it is not going to be attractive to you if it looks like this.

2012: $1 million

2013: $99 million

I would obviously cut you before 2013, and you wouldn't see the $99 million. Most cases are not this extreme, but the point stands. If you are taking a backloaded contract, you risk injury or a decrease in production that could make your team cut you before you make big money. This is why you frequently hear people say the numbers in NFL contracts are meaningless.

Signing bonuses for players hedge against the risk. These are guaranteed because the team has agreed to pay it if you sign. This money is guaranteed. It is spread out evenly over the life of a contract. For example, if I signed you to a four year contract with an $8 signing bonus, the bonus would count $2 against the cap over each of those five years. Your cap hit would look like this.

2012: Base Salary + $2 (Signing Bonus)

2013: Base Salary + $2 (Signing Bonus)

2014: Base Salary + $2 (Signing Bonus)

2015: Base Salary + $2 (Signing Bonus)

Roster Bonus

I might decide to tack on a roster bonus to your contract to entice you to stay. That means you get extra money for simply being on the roster. The roster bonus counts against the cap for the year it is given. I might give you a $3 roster bonus if you are on the roster in 2013 with the same contract above. Then your cap number would look like this.

2012: Base Salary + $2 (Signing Bonus)

2013: Base Salary + $2 (Signing Bonus) + $3 (Roster Bonus)

2014: Base Salary + $2 (Signing Bonus)

2015: Base Salary + $2 (Signing Bonus)

There is some leeway built in, though. Say 2012 passes, and my cap looks tight once we get to 2013. I can change the roster bonus into a signing bonus. You would not care because you are getting your money either way. Because the money would shift from roster bonus into signing bonus, it would could evenly over the remainder of the deal. The $3 would be spread out as $1 apiece over the last three years of the contract against the cap instead of a $3 lump sum this year.

2013: Base Salary + $2 (Signing Bonus) + $1 (Roster Bonus converted into Signing Bonus)

2014: Base Salary + $2 (Signing Bonus) + $1 (Roster Bonus converted into Signing Bonus)

2015: Base Salary + $2 (Signing Bonus) + $1 (Roster Bonus converted into Signing Bonus)

Dead Money

If you choose to cut or trade a player, all of his unpaid bonus money counts against the cap. Let's say you are playing under this contract.

2012: Base Salary + $2 (Signing Bonus)

2013: Base Salary + $2 (Signing Bonus)

2014: Base Salary + $2 (Signing Bonus)

2015: Base Salary + $2 (Signing Bonus)

Now let's say the 2012 season is over. If I cut you, I do not need to worry about what you were paid in 2012. That is already paid. The other bonus money, though, is a different story. I would still be on the hook for the $6 ($2 in 2013, $2 in 2014, $2 in 2015) remaining. This is referred to as dead money. Say your base salary in 2013 was $3. That means cutting you would actually cost me $1 against the cap more than keeping you would.

2012: $3 (Base Salary) + $2 (Signing Bonus) = $5 (Cap Number)

$ 5 (Cap Number) - $6 (Dead Money) = -$1 (Cost of cutting or trading you)

This is why it is very difficult to get rid of somebody in the first year or two in a big money contract. Most of the bonus money is unpaid and becomes dead money.

This is an overly simplistic view. There are plenty of other nuances in the cap. These are meant more as an example of how concepts works than as a comprehensive review of the system.