NFL free agency is upon us and visions of sugar plum players filling roster holes dance in our heads. Now is the time when salary cap room is paramount and teams with giant gobs of cap space "win" the offseason.
In connection with creating more salary cap space to pursue free agents you may often here talk of June 1 cuts and how they "create more room under the cap." So what exactly are June 1 cuts and do they really create more room? Let's find out.
The NFL salary cap makes distinctions between player moves that happen before June 1 and after June 1 of any given year. Removing a player from the roster, whether by cutting said player or trading him, prior to June 1 results in the acceleration of all remaining prorated bonus money into the current year. One thing to note here is that the June 1 designation applies to trades as well as cuts, though June 1 cuts are all we are likely to hear about in salary cap discussions.
So what is prorated bonus money? For accounting purposes under the salary cap, every contract that contains a signing bonus (as opposed to, for example, base salary, roster bonuses, workout bonuses, incentive bonuses, etc.), has the amount of the signing bonus evenly divided over the length of the contract, up to a maximum of five years. So, for example, a player who signs a five year deal with a $15 million signing bonus has that signing bonus prorated over the life of the contract, with each year of the contract having $3 million of said signing bonus count against that year's salary cap, in addition to whatever other base salary and bonuses the player may earn in each year.
Now let's say this player with a $15 million signing bonus is cut or traded after two years. The first two years have already had $3 million each year of the original signing bonus counted against the salary cap, for a total of $6 million already accounted for. The remaining $9 million is then accelerated to all count in the year the player is cut, provided he is cut or traded prior to June 1.
The June 1 designation changes the accounting for signing bonuses (and ONLY for signing bonuses; accounting for all other compensation remains the same under the cap). If a cut or trade happens after June 1 then only the prorated amount for the current year counts against the current year's cap, while the remaining prorated amount accelerates into the following year. In our example of a $15 million signing bonus for a player cut or traded after two years, only $3 million of the remaining $9 million in prorated bonus money accelerates and counts against the current year's salary cap, while $6 million counts against the following year's cap. Again, this is true whether a player is cut or traded.
The NFL salary cap being what it is, there are a few additional twists. A player can be cut as soon as the new league year begins in March and still be designated a June 1 cut, thus saving some cap space in the current year while pushing some of the hit into the following year. Teams are limited to the early (pre-June 1) designation of no more than two players per year as June 1 cuts. This is done to accommodate players who would prefer to be available in free agency immediately rather than wait until June 1 when many teams are close to out of funds for free agency. However, no matter when a player is cut, whether before or after June 1, if he is designated a June 1 cut the team cutting him does not realize any cap savings until after June 1. So a player cut in March but designated a June 1 cut remains on the books of the team cutting him for salary cap purposes even though he is free to sign with any other team immediately. The important thing to note here is that June 1 cuts, though they create more cap space in the current year than pre-June 1 cuts (at the expense of creating more dead money in the following year), do not create ANY cap space until after June 1, long after the free agent market for most of the best players has played out. Thus June 1 cuts, which are sometimes represented as an effective tool for creating extra cap space in free agency, are actually all but useless for that purpose, as you cannot access that cap space until after June 1. The only effective salary cap benefit of a June 1 cut is for use in signing draft picks after a team has been tapped out in free agency.
The main things to take away here:
1. The June 1 designation applies to both trades and cuts, but only cuts can get the designation early. Early June 1 designations are limited to two players per team.
2. The June 1 designation does indeed create extra cap space in the current year, but it does so at the expense of the following year's cap, and the space it creates in the current year cannot be used until after June 1, rendering it all but useless for the purpose of signing free agents.
3. The net cap space created by a June 1 cut versus a pre-June 1 cut is ALWAYS the same; the only difference is in which year(s) the prorated bonus money is counted against the cap. Basically there's no such thing as a free lunch. You can't cheat the cap with a June 1 designation, you can just move around a limited amount of prorated bonus money.
4. Because the benefits of June 1 cuts are so limited, they are far more often discussed by fans than actually done by teams. There just isn't a whole lot of benefit to a June 1 cut unless you need to create space to sign draft picks or free up space for a rare expensive unexpected late free agent opportunity.