clock menu more-arrow no yes mobile

Filed under:

Jets Offseason 2016: What Does Restructuring a Contract Mean?

Kirby Lee-USA TODAY Sports

This is the time of year where you might be hearing a lot about players restructuring their contracts. For the Jets, that will certainly be the case. James Carpenter's deal was restructured yesterday. Going forward, the team's cap situation will likely dictate more reworking of contracts. What does it mean?

In many (but not all) cases, it means the team has turned base salary into signing bonus money.

You might remember some of our posts from earlier in the offseason. Base salary is paid to a player over the course of the season. Signing bonus money is paid to a player up front,  but it is counted equally over the life of a contract.

What does this mean? Let's imagine a player signs a 3 year contract worth $12 million. There is no signing bonus on the contract. The cap hit might look like this.

Year Base Salary Signing Bonus Cap Hit
2016 4 million 0 4 million
2017 4 million 0 4 million
2018 4 million 0 4 million

Now let's say this player's team needs to free up some cap space. The team might restructure the contract to turn $3 million of that 2016 base salary into a signing bonus. The $3 million gets spread over the life of the contract equally. Since it is a 3 year contract, that makes the signing bonus hit $1 million for each year.

Year Base Salary Signing Bonus Cap Hit
2016 1 million 1 million 2 million
2017 4 million 1 million 5 million
2018 4 million 1 million 5 million

The base salary was reduced by $3 million. $1 million is applied to each of the 3 seasons on the contract. The team has thus reduced its 2016 cap hit by $2 million and raised its 2017 and 2018 cap hits by $1 million. This is akin to using a credit card.

What is in it for the player? Even though the cap hit for the signing bonus is spread out, the player gets the full $3 million immediately because it is a bonus payment. Back when this money was base salary, the player would have had to wait until the season to get this $3 million.

Many times you see people praise players for "helping the team" by restructuring their contract. Really the conversation might as well be something like this.

General Manager: If we can give you a check for $3 million right now, it would really help the team.

Player: If it helps the team, I'll do it.

One thing that is important to note is the team will have to pay that $3 million against its cap at some point no matter what, even if the team cuts the player. Whatever is left of that $3 million payment will remain in dead money.

Is this a good way to manage the cap? It depends. Again, it is a lot like a credit card. If you use this tool responsibly and in a targeted way, it can help a team's finances in the short run without comprising its long-term fiscal health. If it is not used responsibly and too frequently, it can destroy a team's long-term cap situation. You have probably heard about D'Brickashaw Ferguson's $14 million cap hit in 2016. I'll give you one guess as to how it got that high.