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When an NFL team finds itself short on cap flexibility and in need of some space, one of the most effective short-term fixes is to restructure a player’s long-term contract. While cutting or trading players can often be solutions as well, a contract restructure allows the team to keep its roster intact while also providing immediate cap relief.

The base salaries of NFL contracts typically aren’t guaranteed, but players can receive guaranteed money in the form of signing bonuses. While those bonuses are considered to be up-front payments, for cap purposes they can be spread out over up to five years of the contract. For instance, if a player were to sign a four-year deal with a $12MM signing bonus, that figure would prorate equally over the four years of the contract, amounting to a $3MM cap hit per year. If a team were to release that player one season into the deal, the club could avoid paying most of the player’s annual base salaries, but would still be on the hook for the remaining bonus money, along with the cap total for that money.

As such, the most common form of contract restructuring involves converting a portion of a player’s base salary for a given year into a new signing bonus. That bonus can then be spread out over several years, moving it away from the current season.

This is exactly the sort of agreement the Ravens and Tony Jefferson reached this offseason. In 2017, the Ravens signed Tony Jefferson to a four-year deal worth up to $37MM. This year, the Ravens moved some of that cash around to give themselves breathing room under the cap. Baltimore converted $5MM of Jefferson’s $6MM base salary into a signing bonus, creating $3.3MM in space for 2018. Meanwhile, Jefferson’s 2019 and 2020 cap numbers increased by $1.67MM.

Restructuring a contract by converting base salary to a signing bonus creates immediate relief, but also creates problems in future years. A year from now, the Ravens may have to make another move with Jefferson, which will likely mean restructuring his deal once again, to reduce a $12.657MM cap number for 2019.

There are ways a player can remain under contract with a team while also helping to create or maintain both short-term and long-term cap flexibility. A player agreeing to take a pay cut, for instance, could allow a team to reduce his current cap number without necessarily moving that money further down the line in the contract. However, that generally happens in situations in which the team’s leverage outweighs the player’s leverage.

In most cases then, a restructured contract that sees base salary converted into bonus money is the simplest short-term fix for a club. The bill will come due eventually, but restructuring a deal allows a team to put off a more significant decision for at least one more year.

Note: This is a PFR Glossary entry. Our glossary posts explain specific rules relating to free agency, trades, or other aspects of the NFL’s Collective Bargaining Agreement. Information from Joel Corry and Over the Cap was used in the creation of this post.

This year’s biggest free agents have already come off of the board, but there are still plenty of notable veterans available, including Antonio Gates, DeMarco Murray, Dez Bryant, Tre Boston, and Johnathan Hankins. When these players eventually sign, they’re likely to have contract incentives built into their deals. With that in mind, we wanted to give a refresher on contract incentives and their various forms.

Signing bonuses can sweeten the pot for free agents and are largely self-explanatory, but incentives are a bit trickier. At the most basic level, contract incentives are designed to reward a player for his performance — in some cases, these financial rewards are linked to individual or team production, while other incentives can be earned simply by the player earning a spot on his team’s active roster from week to week. These incentives are divided into two categories: Likely to be earned (LTBE) and not likely to be earned (NLTBE).

Under the NFL’s definition, a likely to be earned incentive is generally one that was achieved the year before. So if a running back racked up 1,300 yards on the ground in 2017 and has an incentive in his contract that would reward him for surpassing 1,200 yards in 2018, that incentive is viewed as likely to be earned and counts against his cap hit from the start of the year. On the other hand, a back who has never surpassed 700 rushing yards in a season could have an incentive on his deal for 2014 that would reward him for rushing for 800 yards — such a bonus would be considered not likely to be earned, and wouldn’t count against the player’s cap number.

Because the player’s or team’s performance in a given season dictates whether or not the incentive is actually earned, the player’s cap number is sometimes altered after the fact. For instance, there’d be no change if a player met the criteria for a $50K LTBE incentive, but if he failed to earn that incentive, his team would be credited with $50K in cap room for the following season. Similarly, if a $50K NLTBE incentive isn’t reached, nothing changes, but if a player does earn that incentive, his club’s cap space for the following season is reduced by $50K.

A simple incentive linked to yardage or touchdown totals in a season isn’t too hard to track, but there are more convoluted forms of bonuses. Let’s say a player coming off an injury that limited him to six games played signs a contract that would pay him $500K in per-game roster bonuses. That player would be considered likely to appear in six games, but unlikely to appear in more beyond that. So, of his $500K in roster bonuses, $187,500 would initially count against the cap, as the LTBE portion.

Here are a few more notes on contract incentives and how they work:

• Any incentive that is considered to be in the player’s sole control, such as weight bonuses, or his presence at workouts, is considered likely to be earned.
• Any incentive in the first year of a rookie contract is considered likely to be earned.
• Individual performance incentives can be linked to most basic statistical categories, such as yardage, yards per attempt, and touchdowns. However, more obscure stat categories typically aren’t allowed for individual incentives. For instance, a receiver couldn’t have an incentive tied to receptions of 20+ yards. Meanwhile, a defender could have an incentive linked to sacks or interceptions, but not to tackles for a loss.
• In some cases, individual performances can also dictate the value of traded draft picks. For example, the Jaguars making the playoffs in 2017 altered their trade for Marcell Dareus. The Bills received a conditional 2018 sixth-round pick for Dareus in the parties’ October trade, but that pick became a fifth-rounder when the Jags reached the postseason.

Note: This is a PFR Glossary entry, modified from an earlier entry by editor emeritus Luke Adams. Our glossary posts explain specific rules relating to free agency, trades, or other aspects of the NFL’s Collective Bargaining Agreement. Information from Russell Street Report, Over The Cap, and Salary Cap 101 was used in the creation of this post.

Since the NFL’s latest Collective Bargaining Agreement has made rookie contracts fairly regimented, negotiations between teams and draft picks have become smoother than ever, with few – if any – players expected to be unsigned by the time training camp gets underway. Still, a number players have yet to ink their rookie deals, including several first-rounders.

Although we don’t know the inner workings of each negotiation, one factor that continues to play a role in contracts for first-round picks relates to offset language. Over the last several years, only a handful of players in each year have managed to avoid having offsets language written into their deals. In 2015, Marcus Mariota‘s camp haggled with the Titans until the two sides finally reached an accord with partial offset language, a compromise that was not consummated until late July. In 2016, Joey Bosa’s holdout dominated headlines until the linebacker inked his deal on August 29th. In most cases, a lack of offsets for a player simply relies on which team drafted him — clubs like the Rams and Jaguars traditionally haven’t pushed to include offsets in contracts for their top picks, even in an era where most other teams around the league do.

Offset language relates to what happens to a player’s salary if he’s cut during the first four years of his career, while he’s still playing on his rookie contract. For the top 15 to 20 picks in the draft, those four-year salaries will be fully guaranteed, even if a player is waived at some point during those four seasons. For example, if a player has $4MM in guaranteed money remaining on his contract and is cut, he’ll still be owed that $4MM.

However, if a team has written offset language into the contract, that club can save some money if and when the player signs with a new team. For example, if that player who had $4MM in guaranteed money left on his contract signs with a new club on a $1MM deal, his old team would only be on the hook for $3MM, with the new team making up the difference. If there’s no offset language on that first deal, the old team would continue to be on the hook for the full $4MM, and the player would simply earn an additional $1MM from his new club.

Although the negotiation of offset language might potentially delay a rookie’s signing, the offsets rarely come into play, since few top picks flame out badly enough that they’re released during their first four seasons. And even in those rare instances, if a player has performed poorly enough to be cut in his first few years, he likely won’t sign a lucrative deal elsewhere, so offset language wouldn’t help his old club recover more than perhaps the league minimum.

Note: This is a PFR Glossary entry, modified from an earlier post by PFR editor emeritus Luke Adams. Our glossary posts explain specific rules relating to free agency, trades, or other aspects of the NFL’s Collective Bargaining Agreement. Information from OverTheCap.com was used in the creation of this post. 

NFL teams will often use bonuses in contracts as a way to spread out a cap hit that might otherwise be exorbitant. For instance, if a player’s five-year deal includes a $10MM signing bonus, that money can be paid immediately but spread out over five years for cap purposes. This way, the cap charge for the bonus amounts to $2MM per year for cap purposes, rather than $10MM in year one.

However, this practice can come back to haunt teams if they want to get out of a contract early. Suppose the team in the above scenario wanted to release the player in the third year of his contract. Even if none of the player’s base salary is guaranteed at that point, the team will still have to account for that remaining prorated bonus money. Rather than counting on the cap as $2MM per year for three seasons, that dead money “accelerates,” and applies to the cap for the league year in which the player is released. In other words, the remaining $6MM in prorated bonus money immediately counts against the club’s cap.

Although these rules apply to many cuts, a different set of rules is in place for players released after June 1. In that case, a team can spread the cap hit across two seasons rather than one — for the current season, the prorated bonus figure stays at its original amount, with the remaining bonus balance accelerating onto the following season. Referring again to the above scenario, that means the player would count against the cap for $2MM in the league year in which he was cut, with the remaining $4MM applying to the following league year.

The guidelines for pre-June 1 and post-June 1 cuts are fairly straightforward, but things become a little more complicated when we take into account that teams are allowed to designate up to two players as post-June 1 cuts even if those players are released before June. This offseason, we’ve seen a number of players designated as post-June 1 cuts, including Ndamukong Suh (Dolphins), Orlando Scandrick (Cowboys), Mychal Kendricks (Eagles), and Coby Fleener (Saints).

In the case of Kendricks, the Eagles were initially slated to pay him a $5.85MM in base salary this year with a $7.6MM cap figure. Under typical circumstances, the release would have left the Eagles with a $3.2MM dead money obligation for 2018. However, through the post-June 1 designation, they will unlock $6MM in cap space starting on Friday with just $1.6MM in dead money this year. In 2019, they’ll be faced with the remaining $1.6MM charge.

Because the cap charge for the current league year isn’t reduced until June, designating a player as a post-June 1 cut isn’t hugely advantageous for teams. By June, just about every notable free agent is off the board, so the new savings likely won’t be put toward a major move.

Still, releasing a player in March and designating him a post-June 1 cut can be mutually beneficial for a player and his team. It allows the player to hit the market when potential suitors still have cap room and are still looking to add free agents, and it allows the club to spread out the player’s cap charge without having to actually wait until June 1 to release him — waiting until that point could mean paying roster or workout bonuses in the interim. Additionally, even if the team doesn’t need that June cap space for free agency, it can come in handy for signing draft picks.

In the case of the defending champs, who faced a serious numbers crunch heading into the offseason, the June 1 designation allowed for some much-needed wiggle room. Before the move, the Eagles had an NFL-low $103K available under the cap.

Over the next several weeks, we’ll be passing along a number of reports relating to the fifth-year option, which a team can exercise on a 2015 first-round pick who is currently in the fourth year of his rookie contract. Last month, the Panthers informally got the party started when word leaked out that they’ll be exercising the 2019 option for linebacker Shaq Thompson.

So what exactly is the fifth-year option? Essentially, it’s a way to extend a player’s rookie contract by an extra year, at the club’s discretion. Players  don’t have any say in whether or not these options are picked up, though players and teams are still free to negotiate longer-term contracts that would render the fifth-year option unnecessary. Otherwise though, the decision is in the hands of the team, and must be made by May 3 in the player’s fourth season. So, barring multiyear extensions, 2015 first-rounders like Marcus Mariota, Amari Cooper, and Marcus Peters will likely see their options exercised within the next month.

For top-10 picks, the amount of each player’s 2019 option has already been determined. The fifth-year salary for a top-10 pick is equal to the transition tender at the player’s position during his fourth season. So, because the transition tag for quarterbacks this year was $20.922MM, we already know that Mariota’s fifth-year option will be worth that amount.

For first-rounders picked outside the top 10, the calculation is a little more complicated. These players’ fifth-year option also relies on the previous year’s salaries at the player’s position, but it’s determined by the average of the third through 25th top salaries at that position. So we could come up with estimates for the 2019 option salary for players like Melvin Gordon, Byron Jones, and Trae Waynes, but they’re not set in stone quite yet.

Fifth-year options are guaranteed for injury only between May 3 and the start of the following league year. As such, they’re not entirely risk-free, but as long as the player remains healthy, a team could exercise his fifth-year option, then cut him before his option year gets underway without being on the hook for his salary. When the league year begins, the player’s fifth-year salary becomes guaranteed for skill and cap purposes, as well as injury.

Note: This is a PFR Glossary entry. Our glossary posts explain specific rules relating to free agency, trades, or other aspects of the NFL’s Collective Bargaining Agreement. This post was modified from an early entry by editor emeritus Luke Adams. 

Pro Football Rumors is in the process of creating a glossary of terms related to free agency, the salary cap, and other areas of the NFL’s Collective Bargaining Agreement. If you’re confused by our references to concepts like franchise players or reserve/futures contracts, or just want further clarification on the specifics, the glossary should help clear things up.

We’ll continue to add entries to this glossary, which can be found anytime on the right sidebar under “PFR Features.” 

This offseason, the Raiders found themselves in a bit of a controversy over their head coaching search. On Christmas Eve, owner Mark Davis reached a verbal agreement with Jon Gruden to become the team’s next head coach. It wasn’t until after New Year’s Day that two minority candidates – Oakland tight ends coach Bobby Johnson and USC offensive coordinator Tee Martin – were interviewed for the position. On January 6, the Raiders rolled out the black-and-silver carpet to announce Gruden’s return in an over-the-top press conference. It was clear that neither Martin nor Johnson had a real chance at getting the job.

Established in 2003, the Rooney Rule stipulates that teams must interview at least one minority candidate for head coaching positions. Named after former Steelers owner Dan Rooney, the rule is in place to make sure that candidates of color have a fair shake at climbing the ranks. Some felt that the Raiders broke the spirit of the rule by not giving real consideration to a minority candidate, but the NFL recently declared that the Raiders did in fact comply with the protocol. The Fritz Pollard Alliance, which works with the NFL to monitor minority hiring practices, has vowed to push for changes to the rule that will prevent a similar situation from playing out.

When the Rooney Rule was introduced, there were historically very few non-white head coaches in the NFL. Fritz Pollard became the first black head coach in NFL history in the 1920s and the league did not see another minority head coach until 1979 when the Raiders hired Tom Flores.

Since the advent of the Rooney Rule 15 years ago, dozens of qualified minority candidates have been given opportunities to showcase themselves for head coaching positions. However, it’s hard to say concretely whether this has directly led to a greater number of minority hires as the number has vacillated over time. For example, there were four head coaches of color in 2003, eight in 2011, four in 2013, and eight again in 2017. The number stands at eight today, matching the all-time high, with Mike Tomlin, Todd Bowles, Anthony Lynn, Vance Joseph, Hue Jackson, Marvin Lewis, Ron Rivera, and Steve Wilks all holding HC positions.

In recent years, the rule has been extended to general manager vacancies. In December 2016, the NFL agreed to informally apply the rule to offensive and defensive coordinator positions, though there are no penalties for noncompliance. If a team is found to have broken the Rooney Rule in a head coaching search, the club may be faced with a substantial fine and/or a forfeiture of draft picks.

In the wake of the Raiders controversy, we could see further reform to the Rooney Rule between now and the 2018/19 offseason.

With the offseason just around the corner, we wanted to give a refresher on contract incentives and their various forms. Signing bonuses can sweeten the pot for free agents and are largely self-explanatory, but incentives are a bit trickier.