Show Me The Benjamins

The NFL, under the latest collective bargaining agreement (CBA), has both a Salary Cap (the Cap) and a Cash Spending Floor (the Floor).   While by now most fans understand on at least a basic level how the Cap works, there seems to be a bit more confusion about the Floor.  In hopes of clearing up a few hazy items, let's take a look at the Floor, how it works, and what implications there are for the Jets and John Idzik's plans for the near future.  For those who really have a masochistic bent and 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 recently 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 he turns out to be monumentally bad in 2014, and the Jets cut him prior to the 2015 season.  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 $28 million in Cap space according to the good folks over at overthecap.com.  At this point in free agency, the large majority of big money contracts have already been signed, so it is probably safe to assume the Jets will not spend anything close to the Cap this year.  As a kind of back of the envelope calculation, suppose for a moment that the Jets signed 12 more free agents at an average first year Cap number of $1.4 million.  Some would likely be more, some less, but since nearly all of the big money free agents are off the board, the average figure of $1.4 million is probably pretty reasonable.  Those 12 players would, in the aggregate, account for $17 million in new Cap Spending in 2014.  That takes us almost to the Cap, right?  Not so fast.  Those 12 players would replace 12 back of the roster players currently on the Jets.  That would result in the Jets lopping off about $6 million in Cap Spending, making the net result of signing the 12 free agents an increase of only $11 million in Cap Spending.  Throw in  the net $2 million it's going to take to sign the Jets' 2014 draft class and you've increased the Cap Spending by $13 million and basically finished the 2014 offseason (undrafted free agents have the net effect of a small decrease in Cap Spending, but it is not much more than a rounding error for the purposes of this discussion).  So it is likely the Jets will have at least $15 million in Cap space going into the 2014 regular season, barring any blockbuster trades.

Now let's look at the 2014 Cash Spending.  As of today, the Jets have $89 million in Cash Spending on the books for 64 players in 2014.  The 12 player rookie class will amount to approximately $11 million in Cash Spending, including all signing bonuses.  If the Jets were to sign the 12 free agents discussed above (just an assumption for the purposes of trying to get a ballpark understanding of where things might end up), that would add something like $22 million, including signing bonuses, in Cash Spending.  So between the rookie class and the new free agents we've added about $33 million in Cash Spending, bringing the Cash Spending number to $122 million.  However, we also now have 88 players on our roster.  35 of those players will have to be cut to get down to the 53 man roster.   Assuming  at least a few of them will be more than minimum salary players, let's assume those 35 players account for Cash Spending of about $20 million.  Subtracting that from our Cash Spending total yields a ballpark estimate of Cash Spending of about $102 million for 2014.  That would represent a shortfall of $16 million under the Floor for 2014, and an accumulated Cash Spending shortfall of about $23 million in the first two Floor years.  So, if you're still with me, and your eyes haven't glazed over yet, the Jets will be forced to spend about $23 million more than the Floor over the two years 2015 - 2016.

There is at least one more major consideration to account for: Mark Sanchez.  He will undoubtedly either be cut, traded or have his salary severely reduced sometime in the 2014 season.  Let's assume for the purposes of this discussion that he is cut.  Don't worry, Sanchez fans, if he is still here much of this discussion will still apply, with slight modifications to account for his greatly reduced salary.  So, if Sanchez is cut in 2014, what happens to the Jets Cap and  Floor?  Sanchez has a base salary of $9 million in 2014, with roster and workout bonuses totaling $2.5 million, and prorated bonus money of $4.8 million remaining on his contract.  If Mark is cut, the Jets will save $8.3 million in 2014 Cap Spending, resulting in current Cap space of about $36 million and Cap space after the 2014 offseason is completed of about $23 million.  The Jets will also save $11.5 million in Cash Spending in 2014, resulting in total Cash Spending of less than $91 million in 2014, a shortfall of a whopping $27 million in Cash Spending in 2014, and a cumulative Cash Spending shortfall of  $34 million.  So if Sanchez is cut, the Jets will be required under the Floor to spend $34 million more than the cumulative Floor in 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 $34 million shortfall they accumulated in 2013-2014, so the Jets would be required to spend $289 million in Cash Spending.  In other words, in 2015-2016, the Jets may well be required by the Floor to have Cash Spending in excess of the aggregate Salary Cap for those two years.

Now, let's look a bit more closely at 2015 and 2016.  Without the Sanchez contract, which has already been accounted for, the Jets currently have about $27 million in prorated bonus money on the books for 2015 and 2016 combined.  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 $29 million (the $27 million needed to make up for the non Cash Spending prorated bonus money on the books for 2015-2016, plus the $2 million more than the Cap the Jets will have to spend to make up for the 2013-2014 accumulated shortfall).  The implication is just this: the Jets will be virtually required to spend, and spend big, in 2015-2016.  In order to just reach the  Floor, the Jets will be virtually required to dole out $29+ million in signing bonuses, at a bare minimum, and to sign contracts that in the aggregate dole out an average of at least $145 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.  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.  Thus it would seem very likely the Jets will one way or another find a way to at least spend to the Floor.

For all you Jets fans who have grown frustrated with the lack of spending this offseason, the implications of all this might make you a bit happier.  Basically the Jets have little choice other than to spend, and spend big, 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 $71 million in Cash Spending in 2015.  Take out the Sanchez contract and that number goes down to $57 million.  That number is for 40 players under contract.  Add in the Cash Spending for the 12 free agents we speculated Idzik might still add in 2014 ($17 million), the Cash Spending for the 12 draft picks for 2014 ($7 million - remember, 2014 signing bonuses will not count against 2015 Cash Spending), another $9 million or so for the 2015 rookie class, and we get a Cash Spending commitment in 2015 of roughly $90 million for 71 players.  Back out about $10 million for the 18 players who will need to be cut to get down to a 53 man roster and we're looking at Cash Spending of roughly $80 million.  Now remember, the Jets are going to need to average about $145 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 $135-140 million in 2015.  If that were to happen, the Jets would have to sign free agents with approximately $55-60 million in Cash Spending in 2016.  Do you see how the Jets are going to have to spend big, and soon?

Now, there are some downsides to all this.  To an extent, John Idzik has already essentially placed all his chips on the table for the 2015 and 2016 free agent classes.  If those free agent classes prove to be disappointing, or if other teams end up with oodles of Cap space and have positions of need similar to the Jets, Idzik might be faced with unwanted bidding wars he essentially needs to win.  To stick to his guns and lose out on signing all but one or two high profile targets might well mean that Idzik is forced to simply go below the Floor and waste money in distributions to players already on the team.

On the other hand, there are a few high profile free agents of their own the Jets might wish to lock up.  Certainly Muhammad Wilkerson is one.  It's possible Coples is another, although that would not appear to be anywhere close to the same magnitude or priority.   Other than those two, there are only relatively low cost players like Jeremy Kerley and Kyle Wilson, among others, to consider.  The upside here is that there will be no problem affording the Jets' homegrown talent, and given the need to spend, the chances of the Jets losing any high profile free agents to free agency are virtually nil.

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, or if they were to do the unexpected and keep Sanchez on under the current terms of his contract, 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 in a big way the next two years.  For those wanting more of the upper tier free agents, it would appear the answer to your prayers is less than a year away.

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.