This time of year, you hear a lot about salary cap casualties. Dead money is a phrase that frequently comes up. I would like to offer a basic explanation.
To understand dead money, first you need to understand how a player's salary cap hit is calculated for a season. There are essentially two parts, base salary and signing bonus.
Base salary is a player's salary for that season.
Signing bonus is more complicated. A player is typically paid the actual money on a signing bonus shortly after he signs the contract. When it comes to a salary cap hit, the signing bonus is spread out evenly through the life of the contract.
What does this mean? Let's use Eric Decker as an example. Two years ago, Decker signed a five year contract with the Jets. His signing bonus was $7.5 million. If they used the normal process, the Jets cut Decker a $7.5 million check shortly after he signed. The cap hits on the signing bonus worked out like this.
The total adds up to $7.5 million. It is split evenly over the five seasons.
How much does Decker cost against the cap each year of his contract? You add his base salary for each season to that $1.5 million annual signing bonus hit.
|Year||Base Salary||Signing Bonus||Cap Hit|
|2014||2.5 million||1.5 million||4 million|
|2015||5 million||1.5 million||6.5 million|
|2016||6.5 million||1.5 million||8 million|
|2017||7.25 million||1.5 million||8.75 million|
|2018||7.5 million||1.5 million||9 million|
Now what is dead money? If you cut a player, your team is charged whatever signing bonus money has not been already paid against the cap.
If the Jets had cut Decker before he played a game, it would have been the full $7.5 million in dead money. Decker would have counted $7.5 million against the cap to not play for the Jets in 2014.
After the first season, the Jets would have paid off $1.5 million of the $7.5 million signing bonus. The dead money for cutting Decker would have gone down to $6 million.
Now Decker has played two seasons with the Jets. They paid $1.5 million in 2014 against the cap and $1.5 million against the cap in 2015. That's $3 million gone of the original $7.5 million. Cutting Decker today would now cost the team $4.5 million in dead money. If Decker plays for the Jets in 2016, another $1.5 million will be gone. Then cutting him will $3 million in dead money.
So how do you calculate whether a player can be cut? You subtract his cap charge from the amount of dead money the team would owe if he was cut.
So let's say the Jets wanted to cut Decker today. His cap hit for being on the team in 2016 would be $8 million. It would be $4.5 million in dead money to cut him. So the Jets would get an additional $3.5 million in cap space. But Decker would count $4.5 million against the team's 2016 salary cap to not play for them.
That's one of the things people don't realize about dead money. You might save money against the cap, but sometimes a player still costs cap space even if he is cut.
This is a basic example.
Note 1: This is an oversimplification. For the purposes of keeping this as simple as possible, I only discussed signing bonuses. There are other types of bonuses and incentives that come into play when calculating cap figures for players.
Note 2: I used Eric Decker only because his contract provided a simple example. I did not suggest the Jets might cut Decker. They won't. I did not suggest the Jets should cut Decker. They shouldn't. Please stop.
Note 3: Thanks to Over the Cap for the information on Decker's contract.