Summer School: The basic elements of an NFL contract explained

When it comes to the NFL salary cap and how various player contracts are structured, you can often learn a lot about how a team is potentially thinking regarding its roster.

This is why I’ve made it a personal and professional quest of mine to learn as many of the intricacies of the salary cap and how it works as possible so that when I receive questions from readers about whether I think a guy will be re-signed, cut, or restructured, I can offer an informed response.

So when I approached Ed about offering a “Summer School” piece on the salary cap, he was all for it.

I could easily write a book on the cap and all the little details, but for this piece, I’ll try to keep it to the basics to offer an understanding of the terms and numbers and what it all means.

[Note: Unless otherwise noted, all figures in this article are via Over the Cap.]

So take your seat, get your notebook ready and let’s get right to it.

P5 (base salary)

The P5 salary (also known as the base salary) is the minimum annual amount a player must earn according to the CBA, which is tied into the number of years accrued experience a player has.

However, there are two levels of a P5 minimum salary, as indicated in the NFL CBA, Article 26, Sec. 1 (b), 146.

The first is the full minimum amount a player must receive if he is on a team’s Active/ Inactive List (in other words, the 53-man roster or practice squad in this case) at any time during the regular season.

The second, or lower amount which you will see in the second table is called a split salary— the minimum a club must play the player if a player is not on a Club’s Active/Inactive List (excluding the Practice Squad).

In other words, if the Giants were to sign a player who had two years of credited experience, he would be due $630,000 if he were on the 53-man roster.

If that player had an injury history and the Giants were looking to save a few bucks, they could, in structuring the contract of the player, compensate the player the lower figure, $393,000 if that player were to end up on the injured reserve list.

Usually you see this mechanism used with players who have recent injury histories.

The signing bonus

The signing bonus, as the name suggests, is a large chunk of change given to the player once he puts his John Hancock on the dotted line, is spread out over the life of the contract up to five years.

In other words, if a player signs a six-year deal and gets $25 million to sign, the prorated amount of $5 million will hit just the first five years of the deal.

The workout bonus

The workout bonus is some offseason cash kicked over to the player if he meets a minimum attendance percentage for the voluntary offseason program (anywhere from 70 to 85 percent, depending on the team’s requirements).

The history behind the workout bonus, as I recall, is that in the old days, players held jobs elsewhere in the offseason. The workout bonus came about as a way to compensate those who wanted to devote themselves to their craft by working out at the team’s facility.

To be clear, the offseason program is voluntary and teams cannot force players to attend the workouts. Those who do meet a certain attendance requirement become eligible for their workout bonuses, which are typically paid out at the end of June.

Those who do not meet the requirement and hence do not collect their workout bonuses end up generating a cap credit for their team.

Roster incentives

Roster incentives are kind of a catch-all type of compensation in a contract. They can include a roster bonus paid to the player if he’s still on the roster by a certain date (usually no later than the fifth day of the new league year or if he makes the 53-man roster coming out of training camp); a per-game roster bonus (a typical clause given to a player with an injury history in which the player is compensated for each game he’s on the active 46-man game-day roster), and performance incentives which break down into likely to be earned (LTBE) and not likely to be earned (NLTBE).

The main difference between LTBE and NLTBE is that a LTBE is an incentive the player is likely to earn and is one which will count against the current year’s cap.

For example, hitting a certain number of receptions or receiving yards, or playing in a specific percentage of the snaps are various LTBE incentives. If the player fails to meet such incentives, the team ends up with a year-end cap credit that is applied to the following year.

EXAMPLE: Last year Dwayne Harris had a LTBE incentive that would have paid him if he finished the season with a punt return average of 10.0 yards or better. As we all know, Harris suffered a season-ending injury in Week 5, falling way short of that incentive. Hence, the Giants received a credit for that particular incentive since it was not earned at the end of the 2017 season which rolled into the 2018 cap.

There are also performance escalators which are put in place such as if a player ends up playing in a certain percentage of snaps.

For example, if a player has averaged playing in 40 percent of his team’s snaps throughout his career, a contract incentive could allow for a pay bump if that player ends up exceeding that average in any given year during his contract.

(This is not to be confused with the NFL’s Performance Based Pay program, which protects all players from being under-compensated should they be put in a position to play more than their fair share of snaps.)

Similarly, there are de-escalators such as if a player ends up playing in fewer snaps. Many players and agents don’t want de-escalators for obvious reasons, the most obvious being that the coach controls their snaps so why agree to such a clause if there is a chance of seeing the snaps decreased?

There are other types of bonuses such as reporting bonuses (paid if a player shows up for training camp) and weight clauses. All of these count against the current year’s cap.

Qualifying contracts

When the current CBA was being negotiated, there was a concern that veterans who were maybe nearing the end of their careers might be squeezed out prematurely.

Thus the qualifying contract was implemented to where a veteran player with four or more years accrued experience can sign a one-year contract that must consist of the league minimum P5 (base) salary commensurate with their experience level and, currently, no more than $90,000 in bonus money in order for their total cap number to be equivalent to that of a second-year player.

The $90K bonus money can be distributed anyway the team and/or player wants; for example, Giants cornerback Teddy Williams’ $90K in bonus money consists of a $60K signing bonus, a $15K roster bonus and a $15K workout bonus.

Contracts that fall under this category only count the equivalent of a second-year player’s base salary plus bonus.

Using Williams’ contract as an example, which in addition to the bonus money described in the previous paragraph also consists of a $790K base salary (the minimum for a player with 4-6 years of accrued experience), instead of counting for $880K against the cap, Williams’ actual cap number is $720K ($630K plus the $90K in bonuses).

The “Top 51” rule

If you have ever wondered how teams can bloat their offseason rosters to 90 men without it wrecking the salary cap, the answer is the Top 51 rule.

This rule only counts the top 51 highest salary cap hits against a team’s cap. You then take that number and subtract it from the team’s starting salary cap space and the result is your functional cap space.

This rule begins on the first day of the new League Year (the first day of free agency) and ends just before the first NFL regular-season game is played, which this year is midnight, Sept. 6.

As the 90-men rosters are trimmed to 53, players whose cap figures weren’t initially part of the Top 51 now count toward the total cap allocation for contracts.

As part of the accounting process, any signing or workout bonuses already paid out to players who originally weren’t part of the Top 51 list will count as dead money against the team’s cap if that player doesn’t make the roster.

In addition, players on injured reserve (and, at the club’s discretion, non-football illness/injury), as well as those on the practice squad all count toward the team’s cap.

Players who do not count toward the cap include those who retire (they don’t end up collecting their base salaries) and players who are suspended. The teams receive cap credits for those players in question, though the prorated signing bonuses do count toward the cap.

Dead money

One of the tricks in good cap management is to avoid having an excess of dead money against the cap. Dead money, as the term implies, is money that’s taken up by players who are no longer on the team’s roster.

In the Giants’ case, they currently have $21,036,807 in dead cap money thanks largely to their trade of defensive end Jason Pierre-Paul to the Bucs. (When a team trades a player, his remaining prorated signing bonus accelerates into the current year’s cap.)

Dead money, if it’s not controlled, can choke a team’s cap space, which in turn can prevent it from potentially exploring extending some of its younger stars to contract extensions.

Unfortunately in the Giants case, it’s a necessary evil as the hope is that by the time the 2019 league year begins, their dead money total will barely make a blip on the overall cap landscape.

One other thing worth noting is that if a team cuts a player under contract and then later re-signs him, the team is still responsible for any dead money incurred as part of the original transaction since the re-signing indicates a new contract.

June 1 rule

Speaking of dead money, a method teams can control the dead money they accumulate should a star player either retire or be cut is to designate him as a post-June 1 transaction.

Each team is currently allowed two such transactions per year and what this does is it allows them to delay the full acceleration of the remaining prorated signing bonus into the current year’s cap.

While a team can designate a player as a post-June 1 transaction at any time, the team will not recognize the savings until after June 1. Also worth noting is that this rule cannot be applied to players whose contracts are traded, such as the Giants’ trade of Pierre-Paul.

EXAMPLE: Player A is cut prior to June 1 with two years remaining on his four-year deal which included a $16 million signing bonus. If he is not designated as a post-June 1 transaction, his remaining prorated signing bonus -- $8 million, will hit his team’s 2018 cap. If he is designated as a post-June 1 transaction, only $4 million of that signing bonus will hit the dead money cap total whereas the remaining $4 million will be charged to 2019’s cap.

Guaranteed money

In reality, NFL contracts are just a series of one-year deals strung together to avoid the hassle of having to renegotiate with 53+ players every year. Imagine how chaotic it would be for a front office if every year they had to meet with every player to re-do their contracts.

Enter guaranteed money. Because every player is looking to get as much cash as possible into his pocket, more and more agents are pushing for a higher percentage of their clients’ contracts to be guaranteed for one or more of “skill, injury and cap.”

Besides the signing bonus, usually the rest of the guarantees come in the form of the base salary.

The number of years guaranteed depend on the contract length, with all or part of the base salaries in the various years of the deal guaranteed due to skill, cap or injury (or any combination of those three elements).

Roster bonuses vs. signing bonuses

Many of today’s larger deals include roster bonuses for the players in addition to or in lieu of signing bonuses.

The use of a roster bonus helps optimize the cap savings later on in the deal in the event the team wants to terminate the contract early, whereas a signing bonus, as previous mentioned, is prorated over the life of the contract up to five years and can create a dead money deficit if the contract is terminated too soon.

Let’s look at Bucs receiver Mike Evans’ deal as an example of how a roster bonus works better than a signing bonus.

The Bucs gave Evans $55 million in guaranteed money, $38.258 million of which was due at signing — but no signing bonus.

Per Over the Cap’s breakdown of the contract details, the $38.258 million guaranteed consists of a $10 million roster bonus paid out in March of this year, a $8.258 million base salary for 2018, and $20 million 2019 base salary.

The rest of the guaranteed money comes in 2020 — if Evans is on the roster on the fifth day of the 2019 league year, that will trigger $11.75 million of his $16.75 million base salary in 2020 becoming guaranteed.

The rest of that 2020 base salary becomes fully guaranteed if Evans is on the Bucs’ roster on the fifth day of the 2020 league year.

Given the structure of the deal, the Bucs could get out of Evans’ deal as soon as 2019 with no dead money hitting their cap.