I’m trying to understand nfl contracts. You read about players restructuring contracts to clear up cap space. Doesn’t a signing bonus count as cap space.
Edit. Thanks everyone for your answers, I get it now
In: 10
It does count against the cap, however, a signing bonus allows teams to give a player a lump sum now while spreading out the cap hit over the lesser of 5 years or the length of the contract
The bonus counts as cap space but spread over the length of the contract (or 5 years if it’s more than that). So they split the salary they would pay a player over the years of the contract. Eg, I have a player with a salary of $10 million this year and a 4 year contract. I can convert that to a signing bonus and pay $2.5 million over the next 4 years. I’d still have to pay them more the next 3 years, but if I really needed the cap space it saves $7.5 million. I don’t even need the player’s consent, but the catch is that regardless of what the terms of the contract were the signing bonus is 100% guaranteed.
The total value of the contract is evenly divided over all years for the cap hit.
Let’s say you give someone a $20 million dollar bonus and $4 million a year for 5 years. They’re getting paid $40 million over the next 5 years, or an $8M/y cap hit.
However, if after 3 years you trade them, then the new team they go to takes an $8M/y cap hit, but only has to pay them $4M/y. This means if they’re underperforming after a few years, you can dish them out to one of the teams that is more concerned with minimizing pay and has an excess of cap space. However, if they’re living up to potential, then you’ve effectively just paid them $8M/y.
Base salary changes over the life of the contract usually, with peaks in the middle or end of the contract. Turning this year’s salary into a signing bonus lowers the cap hit on the salary for this year, and spreads it out evenly over the next 5 years or years left in the contract (if under 5). It’s kind of like making installation payments over time.
Let’s say player’s cap hit is $10 million in salary this year, and they have 5 years left on the contract. The current cap hit this year is $10 million. They convert 5 million into signing bonus. The cap hit this year is now $5 million of the original salary plus $1 million for the signing bonus, lowering the total cap hit to $6 mil from 10. Next year’s cap hit will have an extra $1 million as well, and each year until the end of the contract. The overall hit of the contract is the same, but lowering this year’s hit and raising future years
In the most blunt financial terms, a football player is a depreciating asset for the majority of his career past his rookie contract in the eyes of many a GM, with a few exceptions for some absolute legends in the game.
In that light, most teams want players more in the moment than they might even a year or two later, but they also have to contend with the cap.
If I’m looking to sign a star quarterback who I think will be the face of my franchise over the next 10 years but think has his best years in the first few years of his contract (and the last I’m either hoping I’m getting a league-MVP quarterback for fairly cheap, or I’m willing to trade and his contract looks more favorable in a trade if the remaining cap hit isn’t abysmal), I might want to make his pay scale look something like this:
Y1: $50,000,000
Y2: $35,000,000
Y3: $30,000,000
Y4: $25,000,000
Y5: $20,000,000
Y6: $15,000,000
Y7: $10,000,000
Y8-10: $5,000,000
For a grand total of $200 million. But $50 million is a *ton* of cap hit for one year. So I might structure the first 3 years to be a $20m salary with a $55m bonus (paid over those 3 years) but applying that $55m to the cap as $5.5m on each year. So now my later years are closer to $10.5m per year on paper, and that first year is now cut in half on the cap, at about 25.5m, which gives me spare cap to get some more players in free agency or the draft to really make a run at the superbowl this year (in this example).
There are more intricacies in this (for instance, I *believe* that you retain any cap hit for bonuses already paid, even if you trade that player before his contract is up, which is where “dead cap” comes in) but that’s the basic idea of restructuring – making sure players get paid while allowing the office the wiggle-room to get (some of) the players they want on the team.
ETA: Messed up in that the bonus would only apply to the cap out to year 5, so that’s not quite as good (bringing $50m to $31m) but it’s also just an overly-simple example I pulled out of a sleepy brain.
It’s a game where if you are in a salary cap pinch in a given year, you can convert some of that into a signing bonus that spreads out the cap over the total length of the contract.
So like simple terms, if a team had a 5 year, $10M per year contract for Player X, they could convert the current year salary to a $10M signing bonus so the cap hit is $2M in Year 1 and $12M/yr for years 2-5. Same total money and the player sees the same amount of cash, but it is booked later.
It *usually* works out OK because the salary cap increases every year, so you’d rather absorb the $x cap hit in 5 years than today.
However, if you cut/release a player before their contract is up, that signing bonus you’ve already paid out but hasn’t counted against your salary cap (plus any remaining guaranteed money) becomes “dead money”. Depending on when you do the cut, it may hit immediately in the next season or be spread out over the next two seasons (that’s the June 1st designation).
This can backfire if the salary cap ever goes down, like it did during the COVID pandemic. It can also be an issue if you have to cut a player, since it increases the amount of dead money. Sometimes players essentially have negative grade value because they are guaranteed more money than they are actually worth, so they teams will ‘pay’ to get rid of them in the form of draft picks.
Sometimes they do a “kick the can” approach where they backload a player’s contract. You get crazy stuff where a player might be on a $35-40M/yr contract but have a $60M+ cap hit in the last year of the deal because the GM converted some of the salary to signing bonus a couple times. The team would be over the cap so they need to sign an extension that spreads it out even further.
Finally, there are “void years” that are essentially pretend years added to the end of a contract, to speed out the cap. This is usually with older players that might retire. So let’s say your star player wants to go for 3 more seasons, you sign what’s actually a $15M/year, 3 year contract but on paper it’s technically a 5 year contract so you can have a $9M/year cap hit (for the same $45M). Then they convert money to signing bonus, the player gets the full $45M in 3 years and retires, then for 2 years there’s dead money on the books against the cap. That’s how you have teams still taking a cap hit for a player that retired a year or two back.
It’s all kind of a game that GMs know how to exploit
Latest Answers