The NFL, under the latest collective bargaining agreement (CBA), has both a Salary Cap (the Cap) and a Cash Spending Floor (the Floor). As described in detail here, the Jets under GM John Idzik have been under the Cash Floor requirements in the first two years of the current four year Cash Floor window. Let's take a look at the Floor, how it works, what this year's spending has done for the Jets' Floor situation, and what implications there are for the Jets and John Idzik's plans for the near future. For those who wish to get into the nitty gritty details, I've provided the actual, somewhat inscrutable CBA language regarding the Floor at the end of this article.
Under the CBA every team over the 4 year period from 2013 through 2016 must spend cash amounts (Cash Spending) of at least 89% of the aggregate total of the Cap for the four years in question. What do we mean by Cash Spending? Simply put, Cash Spending is any money actually paid to players in a given year. It includes base salary and any bonus money actually paid in a given year. Cash Spending differs from Cap Spending primarily in the way signing bonuses are accounted for. Signing bonuses are prorated (spread evenly) over a maximum of 5 years under the Cap, but are accounted for entirely in the year they are actually paid in Cash Spending.
At this point an example might help illuminate the difference between Cap Spending and Cash Spending. Eric Decker was signed to a 5 year, $36.25 million contract by the Jets. His base salary in 2014 is $2.5 million, and he received a $7.5 million signing bonus. So for 2014, the Jets will pay Eric Decker $10 million in actual cash. This is Decker's Cash Spending number for 2014. His Cap Spending number is a good deal different. For purposes of the Cap, that $7.5 million signing bonus is treated as being paid in five equal annual increments of $1.5 million. So even though Decker's actual compensation in 2014 will be $10 million, his Cap Spending number will be the sum of his $2.5 million base salary and the prorated $1.5 million portion of his signing bonus allocated to 2014. That comes to $4 million in Cap Spending for Decker. Note the rather large differences that often occur among Cash Spending, Cap Spending, and the actual per annum compensation provided in a contract. For Decker his 2014 Cash Spending is $10 million, his Cap Spending is $4 million, and his average per annum compensation is a little more than $7.2 million.
Now let's look at year 2 of the contract. In year 2 Decker will receive $5 million in base salary. No other actual cash compensation will be paid to Decker in year 2. So Decker's Cash Spending number in year 2 will be $5 million. But his Cap Spending number will be the sum of his base salary, $5 million, and the prorated portion of his signing bonus paid in year 1, or $1.5 million, making Decker's Cap Spending Number $6.5 million in year 2. The point of interest here is that in year 1 of the contract, Decker's Cash Spending number will far exceed his Cap Spending number, as the prorated bonus money is allocated 100% to year 1 under Cash Spending while it's divided evenly among the 5 years of the contract under Cap Spending. For the remaining 4 years of the contract, Decker's Cap Spending number will exceed his Cash Spending number by $1.5 million per year, the prorated amount of the signing bonus. So in every year of the contract the Cash Spending Number and the Cap Spending number are different, yet by the time the contract is terminated or expired, the sum of the Cash Spending will always equal the sum of the Cap Spending.
The important implication to keep in mind here is the timing and effect of signing bonuses. Signing bonuses will always increase the Cash Spending number in the year they are paid, while decreasing the Cash Spending number in subsequent years. In a mirror image of this effect, signing bonuses will always decrease the Cap Spending number in the year they are paid, while increasing the Cap Spending number in subsequent years. Are we having fun yet?
It gets more complicated when a player is cut or traded. When a player is cut or traded his non guaranteed base salary and non prorated bonuses (workout bonuses, roster bonuses, unearned incentive bonuses, etc.) are removed from the Cap Spending of the cutting or trading team and, if traded, added to the Cap Spending of the team the player is traded to. However, all remaining prorated signing bonus money stays with the original team, and is instantly accelerated into the current year for Cap Spending purposes. So, going back to the Decker contract, let's suppose the Jets cut him prior to the 2015 season. No, that isn't likely to happen, but humor me just for the purposes of this discussion. In that extremely unlikely event, all remaining prorated bonus money, $6 million, would then be accelerated into the 2015 league year, but his base salary would not be paid. So if Decker were to be cut (or traded), his Cash Spending number for 2015 would be $0, while his Cap Spending number would be $6 million. Are we all still together here? I know, this is like going to the dentist, not exactly fun leisure time activity.
The purpose of the above discussion was primarily to explain the differences in Cash Spending and Cap Spending, and to show how signing bonuses can make for large differences in the two numbers in any given year. So how does this all apply to the Jets' situation? Let's take a look.
As most of us are painfully aware, Mike Tannenbaum, the prior Jets' GM, liked to push off Cap Spending until tomorrow by paying large signing bonuses today. In 2013, the first year the Floor went into effect, the Jets had a whopping $30+ million of prorated signing bonus money on the books, nearly 25% of the entire salary cap that year. The vast majority of this prorated bonus money was legacy money from deals Mr. Tannenbaum made in prior years. One well known effect of this was a sharp limit on the amount deals signed in 2013 could count against the Cap: our Cap Hell status for 2013. What may not be so well known or understood is the effect this also had on Cash Spending in 2013. Because the Jets had so much prorated bonus money on the books in 2013, and because John Idzik refused to continue the practices of his predecessor and push off Cap Spending into later years with large signing bonuses, there was a pretty severe limit on how much Cash Spending the team could do. The result was the Jets had only $102 million in Cash Spending in 2013, in a year in which the Cap was $123 million. That works out to a $7 million shortfall from the 89% Floor in 2013. Since the Floor is only accounted for in 4 year increments, this by itself is not particularly troubling; the Jets can make up for it in the remaining three years. For the moment, just stash in the back of your head that the Jets entered 2014 with a $7 million Floor shortfall.
Now, let's look at 2014. As of today the Jets have approximately $105 million in 2014 Cash Spending according to the good folks over at overthecap.com. That represents a shortfall of $13 million under the Floor for 2014, and an accumulated Cash Spending shortfall of about $20 million in the first two Floor years. So the Jets will be forced to spend about $20 million more than the Floor over the two years 2015 - 2016.
Let's assume the Cap goes up about 5%, or $7 million, to $140 million in 2015, and rises another 5% to $147 million in 2016. If that were to happen, then the Floor for 2015-2016 combined would be 89% of $287 million, or $255 million. But the Jets would be required by the Floor to make up the $20 million shortfall they accumulated in 2013-2014, so the Jets would be required to spend $275 million in Cash Spending. In other words, in 2015-2016, the Jets will be required by the Floor to have, at a minimum, Cash Spending within $12 million of the aggregate Salary Cap for those two years.
Now, let's look a bit more closely at 2015 and 2016. The Jets currently have about $20.8 million in prorated bonus money on the books for 2015 and $12.4 million in prorated bonus money on the books for 2015 for a combined total of $33.2 million in prorated bonus money in 2015 and 2016. That prorated bonus money has already been spent, meaning it will not count against the Cash Spending numbers for those years. So if the Jets just signed contracts that took them to the limit in terms of Cap Spending for 2015-2016, and those contracts contained zero signing bonuses, the Jets would fall short of the Floor by $21 million (the $33 million needed to make up for the non Cash Spending prorated bonus money on the books for 2015-2016, minus the minimum $12 million less than the Cap the Jets will have to spend to make up for the 2013-2014 accumulated shortfall). The implication is this: the Jets will be virtually required to spend fairly freely in 2015-2016. In order to just reach the Floor, the Jets will be virtually required to dole out $21+ million in signing bonuses, at a bare minimum, and to sign contracts that in the aggregate dole out an average of at least $138 million or so in Cash Spending in each of the next two years.
Now, you might ask, what if they don't? What if the Jets decide not to spend at least to the Floor? Well, the answer is, there is no penalty, per se. What happens is, to the extent there is a shortfall in Cash Spending when the 2016 season is done, the Jets will be forced by the NFL to pay the amount of the Shortfall to the players on the Jets' roster during those four years. In other words, if the Jets don't meet the Floor, they can just make up the difference at the end by paying the players who played for them the last four years. This may not sound so bad, until you realize that all that money could have gone to more and better players to improve the team instead of being distributed as a windfall to players already here. In addition, by the terms of the CBA, it would appear that the windfall money paid out to all those players as a result of the Cash Spending shortfall will count as compensation paid in 2017. In other words, if, for example, the Jets were to fall $10 million short of the 2013-2016 Cash Floor, then they would be forced in 2017 to dole out $10 million in bonuses to all the players they employed over those four years, and that $10 million would come off the top of the 2017 Jets Salary Cap. I think it's pretty likely the Jets would not be foolish enough to spend their money in the least productive way possible, getting literally zero production for whatever shortfall money they would be forced to dole out, while hurting their Cap for 2017. Thus it would seem very likely the Jets will one way or another find a way to at least spend to the Floor.
The implications of all this might make you a bit happier. Basically the Jets have little choice other than to spend in 2015 and 2016. To put into perspective just how much spending might be done in 2015 alone, let's take a look at the 2015 Cash Spending. As of today, the Jets are committed to about $77.5 million in Cash Spending in 2015. That number is for 40 players under contract. Add in the roughly $9.5 million in Cash Spending the 2015 rookie class should cost, and we get a Cash Spending commitment in 2015 of roughly $87 million for 46 players. Now remember, the Jets are going to need to average about $138 million in Cash Spending for each of 2015-2016. Let's say they back load that a bit, so the Jets only Cash Spend about $135 million in 2015. If that were to happen, the Jets would have to sign 7 free agents (to get the roster up to 53 players) with approximately $48 million in Cash Spending in 2015. That amounts to a Cash Spend number of about $7 million per player for 7 free agents in 2015.
Now let's delve into the nitty gritty details of what the 2015 roster might actually look like and the Cash Spending implications thereof. First, it's of course highly likely the roster cuts end up being somewhat different than what we posit here. Some guys I think might be cut won't be, and other guys I think are safe will be cut. So this is just a rough approximation of how things might look. The players on the current 2015 roster who I think may be cut prior to the start of the 2015 season are as follows: Chris Johnson, Calvin Pace, Antwan Barnes, Antonio Allen, T.J. Graham, Darrin Walls, Zach Sudfeld, Saalim Hakim, Wesley Johnson, and Walt Powell. If all these players are gone in 2015, that will mean the Jets have 36 players (including the 2015 draft class) on the roster in 2015 prior to signing any free agents. The players mentioned account for slightly more than $11 million in Cash Spending, meaning the Jets would then be spending about $59 million in Cash Spending for around 17 free agents in 2015. Yet the Jets are likely to have only somewhere in the neighborhood of $25 to $35 million in usable cap space in 2015. This means that the Jets are likely to be doling out upwards of $30 million in Cash Spending in excess of Cap Spending in 2015. This can only happen if the Jets dole out that $30+ million in signing bonuses for free agents in 2015. Some of that will undoubtedly be used up by bringing back 2015 free agents such as David Harris, Damon Harrison, and possibly Michael Vick. A little (around $3.5 million) will be used on signing bonuses for the 2015 draft class. The lion's share could be used for a Wilkerson extension, which would include a hefty signing bonus, and/or a Harvin restructure. If neither of those two get done in 2015 then the Jets will be signing one or more outside free agents to hefty signing bonus deals.
It should be noted that the numbers in this article are rough approximations based on best guesses as to what might transpire in the near future. If the Jets were to engage in some blockbuster trades the numbers would change dramatically. As such, this shouldn't be taken as a prediction of what will happen. Rather, it's just an effort to work out the possible implications of some of the more likely scenarios. If the numbers herein prove to be anything close to accurate, spending is about to ratchet up the next two years.
Section 9. Minimum Team Cash Spending:
(a) For each of the following four-League Year periods, 2013-2016 and 2017-2020, there shall be a guaranteed Minimum Team Cash Spending of 89% of the Salary Caps for such periods (e.g., if the Salary Caps for the 2013-16 and 2017-2020 are $100, 120, 130, and 150 million, respectively, each Club shall have a Minimum Team Cash Spending for that period of $445 million (89% of $500 million))
(b) Any shortfall in the Minimum Team Cash Spending at the end of a League Year in which it is applicable (i.e., the 2016 and 2020 League Years) shall be paid, on or before the next September 15, by the Team having such shortfall, directly to the players who were on such a Team's roster at any time during the applicable seasons, pursuant to the reasonable allocation instructions of the NFLPA.
(c) Cash Spending in a League Year shall consist of the sum of: (1) total Paragraph 5 Salary amounts earned or paid or committed to be paid to players; (2) signing bonus amounts earned or paid or committed to be paid to players (including amounts treated as signing bonus) without regard to proration and applying the valuation rules that apply to deferred Salary specified in Article 13, Subsections 6(a)(ii) and 6(d)(iii); and (3) any other non-Benefit amounts earned or paid or committed to be paid to players in that League Year (applying the valuation rules that apply to deferred Salary specified in Article 13, Subsections 6(a)(ii) and 6(d)(iv)) including, but not limited to, incentives, roster bonuses, reporting bonuses, offseason workout bonuses, weight bonuses, grievances settled, grievance awards, injury settlements or Paragraph 5 Salary advances. League-Wide Cash Spending shall consist of the aggregate of all Cash Spending in a League Year. Team Cash Spending, for each respective Club, shall consist of all Cash Spending by such Club.