PFR Glossary News & Rumors

Contract Guarantees

June 26th, 2014 at 9:00am CST by Luke Adams

Unlike in the NBA or MLB, players’ contracts in the NFL aren’t guaranteed by default. Typically, an NFL player will receive at least some guaranteed money when he signs a deal, but that money often comes in the form of contract bonuses, and in particular signing bonuses. While a player’s base salary, or P5 salary, will occasionally be guaranteed for a season or two, more often than not future seasons in that contract are fully non-guaranteed, allowing the team to escape the contract without much of a cap hit, particularly if the player’s bonus money was limited.

As our Zach Links detailed last night, the Steelers’ largest free agent expenditure this offseason in terms of years and overall dollars came when the team signed safety Mike Mitchell to a five-year, $25MM contract. However, the odds of Mitchell receiving that full $25MM aren’t necessarily great. The safety’s deal featured a fully guaranteed $4.75MM signing bonus and a $500K roster bonus, but that $5.25MM is the only part of the deal that’s guaranteed. Theoretically, Pittsburgh could release Mitchell tomorrow and not be on the hook for the base salaries in any of his five seasons.

Signing bonuses, which are generally paid in one or two lump sums, are fairly straightforward forms of guaranteed money, but not all guaranteed money is created equal. We saw a prime example of that when Colin Kaepernick inked a long-term extension with the 49ers earlier in June. When word of the agreement first broke, Kaepernick’s guaranteed money was reported to exceed $60MM+. However, upon learning the full details of the contract, we found that only about $13MM of that total was fully guaranteed, whereas another $48MM+ was guaranteed for injury only.

An injury-only guarantee is one of three types of guarantees that a team can write into a player’s contract that apply to his base salary in a given season. These guarantees are as follows:

Guaranteed for injury: If a player suffers a football injury and cannot pass a physical administered by the team doctor, he would still be entitled to his full salary if the team were to release him. For a player like Kaepernick who has several future seasons guaranteed for injury only, it would take a career-ending injury for the Niners to be on the hook for all those future injury-only guaranteed salaries.
Guaranteed for skill: The most subjective of the three, a player whose talents have significantly declined and is released for skill-related reasons (ie. another player beats him out for a roster spot) would still be entitled to his full salary if that salary is guaranteed for skill.
Guaranteed for cap purposes: This form of guarantee ensures that a player who is released due to his team’s need to create cap room will still be entitled to his full salary.

A team can use a combination of these forms of guarantees, making a player’s salary guaranteed for injury and skill, for example. In the event that a player’s salary is guaranteed for injury, skill, and cap purposes, we’d refer to that salary as fully guaranteed, since the player would be eligible for his full salary regardless of the reason for his release.

As is the case with prorated bonuses, all future guaranteed salary owed to a player by a team is considered “dead money” and would accelerate onto the club’s current cap in the event of his release (over one or two years, depending on whether the cut happens after June 1). For the most part though, beyond the first year or two of a deal, that prorated signing bonus money is the only guaranteed figure remaining on the contract, which is why teams often don’t have qualms about releasing a player in the later years of his deal.

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

Offset Language

June 23rd, 2014 at 12:05pm CST by Luke Adams

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. At the moment, only six players have yet to ink their rookie deals, including three first-round picks: Justin Gilbert (Browns), Taylor Lewan (Titans), and Dominique Easley (Patriots).

Although we don’t know for sure what the holdup is with those three players, 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 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.

As noted above, the Rams and Jaguars are among the teams who aren’t averse to forgoing offsets in their agreements with top picks, so Greg Robinson, Blake Bortles, and Aaron Donald don’t have offset language in their first NFL contracts.

Contract Incentives

June 9th, 2014 at 10:19am CST by Luke Adams

When I broke down the concept of contract bonuses in a previous PFR Glossary entry, I touched briefly on the idea of contract incentives, but it’s worth taking a more in-depth look at that specific kind of bonus. Whereas a signing bonus is fairly straightforward in its payment and its cap structure, incentives can be used to manipulate a player’s cap hit, and will often alter that player’s cap number after the fact.

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 2013 and has an incentive in his contract that would reward him for surpassing 1,200 yards in 2014, 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 future pick changing hands from the Bills to the Eagles will be dependent on the performances of Stevie Johnson for the 49ers and Bryce Brown of the Bills. Those players don’t necessarily have personal incentives in their contracts, but depending on how they perform, Philadelphia could pick up either a 2015 fourth-rounder, a 2016 third-rounder, or a ’16 fourth-rounder.

Note: This is a PFR Glossary entry. Our glossary posts will 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.

Restricted Free Agency

May 2nd, 2014 at 8:15am CST by Luke Adams

Two players who received restricted free agent tenders this season remain unsigned, as Doug Baldwin of the Seahawks and Byron Bell of the Panthers have yet to accept the offers from their respective clubs. Since today is the deadline for either player to sign an offer sheet with a rival club, it’s worth taking a closer look at exactly what restricted free agency entails, and how it works.

Restricted free agency applies to players who have exactly three accrued seasons, meaning they’ve been on a full pay scale for at least six regular-season games in three years in the NFL. Players with fewer than three accrued seasons and no contract are exclusive rights free agents, while players with four or more accrued seasons are eligible for unrestricted free agency. For draftees, the default rookie contract runs for four years, meaning those players will generally be unrestricted free agents when their original deals expire.

As such, restricted free agents are generally players who aren’t coming off traditional rookie contracts. Baldwin, Bell, Broncos cornerback Tony Carter, and Lions running back Joique Bell are among the notable players who were restricted free agents this offseason, and all four guys went undrafted out of college.

As the name suggests, restricted free agency limits players from negotiating freely with all potential suitors. Unsigned players don’t become restricted free agents by default after their third accrued season — the player’s previous club must extend the player a qualifying offer, also known as a restricted free agent tender, to ensure that the player doesn’t become unrestricted. The amount of that offer varies depending on how much the team is willing to pay for one year of the player’s service, and how much the player made in the previous season. For instance, in 2014, the RFA tender amounts were the following amounts, or 110% of the player’s previous salary, whichever is greater:

$3.113MM – First round tender
$2.187MM – Second round tender
$1.431MM – Original round tender
$1.2MM – Right of first refusal only

All four tender amounts give the player’s previous club the right to match any offers for the player, so the difference in the offers – besides the salary – is related to the compensation the team would receive if the player signed with another team. For example, Baldwin received a second-round tender worth $2.187MM from the Seahawks. That means that if the veteran receiver signed an offer sheet with another team, Seattle would receive a second-round pick from that club.

Given the compensatory picks tied to those top two tenders, we typically see teams pursue RFAs who received the lower tenders. For example, Andrew Hawkins reportedly received a $1.431MM tender from the Bengals prior to free agency. Had Hawkins been, for instance, a fifth-round pick, the Browns would have had to give up a fifth-rounder of their own when they poached the wideout from their division rival. Because Hawkins was an undrafted free agent though, the Bengals maintained the right of first refusal, but didn’t receive a compensatory pick when they decided not to match the offer.

After a player signs an offer sheet, his previous team has five days to decide whether or not to match that offer, which is why leave sheets must be signed at least five days before the draft to ensure that draft pick compensation gets resolved in time. If Baldwin or Bell were to sign an offer sheet today, the Seahawks or Panthers could pick up an extra second-round pick next week by declining to match that offer. Typically, that draft-pick cost is too steep for potential suitors, so it’s more likely we’ll see Baldwin and Bell simply accept their one-year tenders, earn $2.187MM salaries in 2014, and be eligible to hit the unrestricted market in 2015.

The rules of restricted free agency apply to players as long as that qualifying offer remains in play, but teams can withdraw the QO at any time, making the player an unrestricted free agent. Additionally, restricted free agents are eligible for the franchise tag, which creates a sort of heightened version of restricted free agency — salaries are larger for franchise players, and the price tag for rival clubs to sign away a franchise player is two first-round draft picks, which is why we haven’t seen any action on Jimmy Graham this offseason.

As for exclusive rights free agency, which I mentioned earlier, it’s a more strict form of restricted free agency as well, one that essentially removes any “free agency” from a player’s decision. It applies to players with less than three accrued seasons. If a player receives an exclusive rights free agent tender from his club – which is almost always worth the minimum salary – he must either accept the offer or not play in the NFL. He’s not eligible to negotiate with any other teams.

The Fifth-Year Option

April 9th, 2014 at 8:43am CST by Luke Adams

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 first-round pick who is currently in the fourth year of his rookie contract. Because this feature was introduced in the 2011 CBA, 2011’s draftees represent the first group of players whose teams will hold these fifth-year options, which apply to the 2015 season. In the last few weeks, for instance, we’ve heard that the Cardinals will exercise their option on Patrick Peterson, while the Lions won’t pick up their option on Nick Fairley.

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, 2011 first-rounders like Cam Newton, A.J. Green, and Von Miller will see their options for 2015 declined or – more likely – exercised within the next three and a half weeks.

For top-10 picks, the amount of each player’s 2015 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 amount for quarterbacks this year was $14.666MM, we already know that Newton’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 2015 option salary for players like J.J. Watt, Muhammad Wilkerson, and Mike Pouncey, 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.

Essentially, the fifth-year option gives the teams the option to add a year to a player’s rookie contract, keeping him under team control for an additional season. For some players, this won’t significantly affect their earnings, but for others, like Newton, it figures to delay a larger payday — $14.666MM is a nice one-year salary for a player coming off a rookie deal, but it’s still a bargain for the Panthers compared to what they’d be paying Newton in 2015 if he were eligible for free agency.

Note: This is a PFR Glossary entry. Our glossary posts will explain specific rules relating to free agency, trades, or other aspects of the NFL’s Collective Bargaining Agreement.

Post-June 1 Cuts

April 2nd, 2014 at 9:00am CST by Luke Adams

As we covered in our contract bonuses entry in the Pro Football Rumors glossary, including bonuses in NFL contracts is a good 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. So the cap charge for the bonus would be $2MM per year, rather than $10MM in year one.

This practice can come back to haunt teams if they want to get out of a contract early, however. 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. So 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. So far this offseason, players like Miles Austin (Cowboys), Daryn Colledge (Cardinals), Thomas DeCoud (Falcons), David Baas (Giants), LaMarr Woodley (Steelers), and Carlos Rogers (49ers) have been designated as post-June 1 cuts.

So how exactly does this scenario work? Let’s look at DeCoud’s contract for an example. Before he was cut, the remaining years on the safety’s contract looked like this:

Typically, DeCoud’s release would mean a $1.8MM cap number for 2014, with the three $600K bonus charges accelerating to the current league year. However, because Atlanta decided to designate him as a post-June 1 cut, that’s not the case. For now, DeCoud remains on the Falcons’ books, as if he hasn’t been released. His non-guaranteed base salaries for 2015 and 2016 have been wiped out by the transaction, but for the time being, his 2014 base remains on the Falcons’ books, along with his bonus money. Until June 1, DeCoud’s contract will look like this:

When June 2 finally rolls around on the calendar, DeCoud’s non-guaranteed base salary will officially come off the books, as would any likely to be earned incentives. The result:

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. 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 team 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 will often come in handy for signing draft picks.

A couple loose ends related to post-June 1 cuts:

The same rules applying to players who are released apply to players who are traded — if a team trades a player after June 1, his remaining bonus money can be spread out over two seasons. However, a club can’t designate anyone traded prior to June as a post-June 1 player.
Teams cannot designate post-June 1 cuts during the final league year of the Collective Bargaining Agreement.

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

Contract Bonuses

February 26th, 2014 at 11:00pm CST by Luke Adams

When a player signs an NFL contract, the key piece of his annual salary is the P5 amount, or what we know as the base salary. That’s the amount that the player actually earns in weekly installments throughout the NFL season. However, there aren’t many deals whose entire dollar amounts consist of the base salary. Generally, NFL contracts also include various kinds of bonus money, including perhaps signing bonuses, option bonuses, roster bonuses, or workout bonuses.

For salary cap purposes, this bonus money is counted differently than a player’s base salary, and also may or may not be earned, depending on what specific kind of bonus it is. To better understand exactly how these contract bonuses work, let’s break down the various types that can be included in a player’s contract….

Signing bonus:

The most common type of bonus, it’s typically reported at the time a contract is signed. While a player who receives an $8MM signing bonus on a new four-year contract generally receives that lump-sum payment up front, that $8MM actually prorates over the course of the deal for salary cap purposes. So it would count on the cap as $2MM per year, rather than $8MM in year one.

Signing bonuses prorate for up to a maximum of five years, so for a player inking a six- or seven-year deal with a $15MM signing bonus, that amount would count for $3MM against the cap for the first five seasons of the contract.

These prorated bonuses also represent guaranteed money, whereas other types of bonuses aren’t guaranteed at the time of the signing. That can make it tricky to release a player early on in a contract that included a large signing bonus. When a team releases a player, his remaining prorated bonus money “accelerates,” meaning it applies to his cap hit in the current league year. So if that aforementioned player who signed a four-year contract with an $8MM signing bonus is released in the second year of the deal, the remaining $6MM in prorated bonus money accelerates and counts against the cap for that season.

The effect of acceleration can be alleviated slightly by designating a player as a “June 1 cut,” or actually releasing the player after June 1. This allows the team to spread the so-called dead money remaining on a player’s contract over the course of two seasons rather than having it all apply to the current league year.

Option bonus:

An option bonus functions in a similar manner as the signing bonus, but applies to a later season. When the option bonus is due, perhaps in the second or third year of a contract, the team must commit to paying the full bonus if it intends to keep the player on its roster.

Using the above example of a player who signed a four-year contract with an $8MM signing bonus, let’s say that deal also includes a $3MM option bonus in the second year. If the team keeps the player, it will be on the hook for the new $3MM bonus, which will prorate and be worth $1MM per year in the remaining three seasons. So the last three years of the contract would each now feature $3MM in total annual bonus money — the initial $2MM per year due to the signing bonus, plus the new $1MM due to the option bonus.

Like the signing bonus, the option bonus represents guaranteed money once it’s picked up, so contracts that include both forms of bonuses become even trickier to release due to the increase in dead money.

Roster bonus:

Roster bonuses act as a sort of pay-as-you-go charge for teams. They’re not initially guaranteed, but must be paid at certain dates if the club intends to keep the player on its roster.

In many cases, a roster bonus is a lump sum due shortly after the new league year begins. For instance, Jets quarterback Mark Sanchez has a $2MM roster bonus owed to him next month if the team doesn’t release him by March 25. This form of bonus is fairly player-friendly, since even if the team doesn’t intend to pay it (like the Jets with Sanchez), it means the player will be released early in the league year, giving him plenty of time to catch on with a new team.

Another form of roster bonus is the per-game variety, which is more club-friendly. In that case, a player typically earns a portion of his roster bonus each time he remains on the team’s 53-man roster for a regular season game.

Roster bonuses contribute to a player’s salary, but unlike signing or option bonuses, the roster bonuses still remaining on a player’s deal when he’s released don’t need to be paid. So if and when the Jets release Sanchez, the team will be off the hook not only for his $2MM 2014 roster bonus, but also the $1MM roster bonuses he’s owed in 2015 and 2016.

Workout bonus:

Teams can’t force player to participate in their offseason workout program, so clubs will often include workout bonuses in contracts to encourage players to show up for those offseason workouts.

If a player has a 2014 workout bonus worth $100K, he earns that money by participating in the team’s offseason workout program, and that amount remains on his cap number for the season. However, if he chooses to forgo the workout program, he simply doesn’t earn that $100K, which is removed from his ’14 cap hit.

If a deal includes workout bonuses, they’re typically worth the same amount every year. So a player who forgos a $100K workout bonus this season could still be eligible for a workout bonus worth the same amount in 2015. As is the case with roster bonuses, teams aren’t on the hook for future workout bonuses if the player is released.

Bonus incentives:

While they’re less widely reported, bonus incentives can also be included in a player’s contract, allowing the player to earn additional salary if he meets certain criteria. These incentives are considered either “likely to be earned” or “unlikely to be earned,” depending on whether the player met the criteria the year before.

Because the designation of an incentive relies on the previous year’s performance, the likely/unlikely binary doesn’t always make sense. For instance, an incentive for a Pro Bowl berth could be considered likely to be earned if the player was in the Pro Bowl the year before. However, if a wide receiver missed a season due to injury, including an incentive for catching 20 balls the following season would be considered unlikely to be earned, since he didn’t reach 20 catches the previous season.

At the start of the league year, incentive bonus money counts against the cap as long as it’s likely to be earned. At the end of the year, a player’s cap number is adjusted to reflect which bonuses he earned and which ones he didn’t.

While differentiating these bonuses can be tricky at first, the best way to understand the differences between them is to study contracts that include several different forms of bonuses. For our purposes, let’s pretend a 2014 free agent signs a six-year contract worth an overall amount of $55MM. The breakdown is as follows:

The player’s annual base salary starts at $3MM and increases by $1MM each year. The deal includes a $10MM signing bonus, as well as a $5MM option bonus due in 2015. There’s also a $2MM roster bonus due on the fifth day of the 2016 league year, with $1MM roster bonuses due at the same time in 2017 and 2018. Throw in annual workout bonuses worth $500K and here’s what the contract would look like (click to enlarge):

Because this player’s cap number doesn’t rise to eight figures until 2016, his $10MM guaranteed signing bonus ensures that the team wouldn’t create any cap savings by releasing him until at least the third year of the deal, even if none of his base salary is guaranteed. Even in ’16, the savings would be extremely limited — $6MM in signing bonus money and $4MM in option bonus money would accelerate, creating $10MM in dead money. In fact, assuming the option bonus is in fact exercised in 2015, those two prorated bonuses ensure there’s a significant amount of dead money in this hypothetical deal up until 2018, at which point the team would be on the hook for just $4MM if the player was released.

This is an example of a player-friendly contract, and it shows why a team may be reluctant to rely too heavily on signing or option bonuses, which limit the club’s cap flexibility. A more team-friendly contract may exclude those bonuses in favor of roster and workout bonuses, which don’t have to be paid unless the player remains on the roster.

For more information on how teams can create cap space by turning base salary into bonus money, check out our earlier piece on restructuring contracts.

Pro Football Rumors Glossary

February 19th, 2014 at 1:32pm CST by 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, this tool 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.” If there’s a specific concept you’d like us to cover, please let us know. Here’s what we have so far:

Franchise/Transition Tags

February 18th, 2014 at 1:01pm CST by Luke Adams

Yesterday marked the first day that teams can apply the franchise tag to free-agents-to-be for 2014. While no clubs have designated franchise players yet, there will likely at least a handful of players receiving the tag before the March 3 deadline, so it’s worth taking an in-depth look at what exactly it means to be designated as a franchise player.

Essentially, the franchise tag is a tool that a team can use to keep one of its free agents from freely negotiating with rival suitors on the open market. Designating a franchise player means tendering that player a one-year contract offer. The amount of that offer varies from year to year and from position to position, and also differs slightly depending on what sort of specific tag the team employs. Here’s a breakdown of the three types of franchise/transition tags:

Exclusive franchise tag:

The amount of the one-year offer is either the average of the top five highest-paid players at the player’s position in the current league year or 120% of the player’s previous salary, whichever is greater. The top five highest-paid players at the position are determined once the free agent signing period ends in May, so the exact amount isn’t known until then.
The player isn’t allowed to negotiate with other teams.
The player and his team have until July 15 (or the first business day thereafter) to work out a multiyear agreement. After that date, the player can only sign a one-year contract.
The exclusive tag is generally only used for extremely valuable free agents, such as franchise quarterbacks.

Non-exclusive franchise tag:

The amount of the one-year offer is determined by a formula that includes the salary cap figures and the non-exclusive franchise salaries at the player’s position for the previous five years. Alternately, the amount of the one-year offer can be 120% of the player’s previous salary, if that amount is greater.
The player is free to negotiate with other teams. If he signs an offer sheet with another team, his current team has five days to match the offer.
If the offer is not matched, the player’s previous team will receive two first-round draft picks as compensation from the signing team.
As is the case with the exclusive franchise tag, July 15 (or the first business day thereafter) represents the deadline for a multiyear agreement.
Due to the attached compensatory picks, the non-exclusive franchise tag is generally sufficient for free agents — few rival suitors are willing to give up multiple first-rounders in order to sign a free agent to a lucrative deal, so there’s not much risk for a team to give up exclusive negotiating rights.

Transition tag:

The amount of the one-year offer is either the average of the top 10 highest-paid players at the player’s position in the previous league year or 120% of the player’s previous salary, whichever is greater.
The player is free to negotiate with other teams. If he signs an offer sheet with another team, his current team has five days to match the offer.
If the offer is not matched, the player’s previous team does not receive any compensatory draft picks.
Because it does not include any draft compensation or exclusive negotiation rights, and is only slightly more affordable, the transition tag is rarely used.

The exact amounts of these tags won’t be known until the salary cap number for 2014 is announced, and even then, the exclusive franchise tag amount won’t be established immediately. However, Joel Corry of CBSSports.com has a breakdown of the projected non-exclusive figures, ranging from around $3.4MM for a punter or kicker all the way up to $16MM+ for a quarterback. No quarterbacks will be franchised in 2014 now that Jay Cutler has signed a long-term contract, but plenty of those other projections will be relevant — Jimmy Graham (TE/WR, Saints), Greg Hardy (DE, Panthers), T.J. Ward (S, Browns), Brian Orakpo (OLB, Redskins) are among the candidates to receive the franchise tag.

As we’ve discussed several times on PFR, positions for players like Graham and Dennis Pitta figure to be a point of contention this offseason. Both players lined up as receivers more frequently than they played at tight end in 2013, and the CBA clearly states that the franchise salary shall be determined by the position at which the player “participated in the most plays during the prior league year.” The difference between the tight end and wide receiver franchise salaries is expected to be between $4-5MM, so it’s an important distinction for players like Graham and Pitta.

Here are a few other relevant details on franchise tags:

Each year, the period for teams to designate franchise players runs from the 22nd day before the new league year begins, right up until the eighth day before that new year. In 2014, that means February 17 to March 3, with the 2014 league year set to start on March 11.
A team can withdraw a franchise or transition tag at any time once when the free agent period begins, but it would immediately make the player an unrestricted free agent, allowing him to sign with any team.
If a player is designated a franchise player for a third time, the amount of his one-year offer is equal to the exclusive franchise salary for the highest-paid position (QB), 120% of the five largest prior-year salaries at his position, or 144% of his previous salary. That’s why, for instance, the 49ers won’t franchise Phil Dawson this offseason — it would be his third franchise tag, so he’d be eligible for the QB franchise salary.
Teams are allowed to designated one franchise player and one transition player per offseason. A team can also designate two transition players if it doesn’t designate a franchise player, but can’t designate two franchise players.
Restricted free agents can be designated as franchise players.
If a player chooses to sign the one-year franchise tender, his salary is essentially guaranteed. The CBA notes that if a team releases the player due to a failure “to establish or maintain his excellent physical condition,” the team may recoup his salary. However, a franchise player released due to poor performance, injury, or cap maneuvering will receive his full salary.

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

Minimum Salary

February 14th, 2014 at 5:00pm CST by Luke Adams

The NFL salary cap is expected to exceed $126MM in the 2014 season, and while that figure gives teams a good deal of spending flexibility, each and every club will still have to fill out the back of its roster with players earning minimum salaries. The amount of that minimum salary varies from player to player, depending on service time. A veteran with 10 or more years of NFL experience is eligible for a minimum salary that more than doubles a rookie’s minimum salary.

For the 2014 season, the minimum base salary for a rookie will be worth $420K, while a veteran of 10+ years will earn $955K on a minimum salary. However, those figures are on the rise with each passing year, increasing annually by $15K. Here’s a breakdown of what the NFL’s minimum salaries will look like from the 2013 season through 2020 (dollar amounts in thousands):

Hypothetically, let’s suppose that when free agency opens next month, a player with three years of experience signs a two-year contract worth the minimum salary, with no signing bonus. His salary for the first year of the deal would be $645K, the 2014 amount for a player with three years of experience. The second year would check in at $745K, the 2015 figure for a player with four years of experience.

Players on minimum base salaries can still receive various kinds of bonuses, but those will count toward the player’s cap number, so teams are generally reluctant to include significant signing bonuses on minimum salary contracts.

As for that cap number, a team can avoid having a veteran player’s full minimum salary count against the cap by signing him to a qualifying contract. The league’s Minimum Salary Benefit Rule ensures that, for a player with four or more years of experience, his cap hit on a minimum salary contract will only be equal to the cap number for a minimum-salary player with two years of experience — for 2014, that figure is $570K. To qualify for this reduced cap number, the contract must be for no more than one year, and the bonus money cannot exceed $65K (this maximum bonus increases by $15K every three years).

In other words, let’s say a player with nine years of experience signs a one-year, minimum-salary contract with the Cowboys for the 2014 season. The deal also includes a signing bonus of $30K. While that player would earn a total salary of $885K (a base minimum of $855K plus the $30K bonus), the cap hit for Dallas would only be $600K — the $570K minimum, plus the $30K bonus. This rule ensures that teams won’t necessarily opt to sign young players over veterans in an effort to minimize cap charges.

While a player can sign a contract with a team and spend a full season with the franchise, that doesn’t necessarily earn him a credited season for minimum salary purposes. A player must be on a club’s 53-man roster for at least three weeks in order to earn a credited season. So if a rookie spends three games on a team’s 53-man roster, and then is cut, he’ll be considered to have one year of experience the following season, even if he didn’t appear in a single game. However, if a player spends two games on a team’s 53-man roster, then is placed on injured reserve, that’s not a credited season.

Players on injured reserve may also not earn their full minimum salaries. The contracts for many young players and veterans with injury histories include what is known as a split salary, so that if the player is placed on injured reserve, his salary is reduced to an IR minimum. Here’s the breakdown of what those minimum salary figures look like for the next several years:

While there are plenty of rules and guidelines surrounding minimum salary contracts, the NFL’s Collective Bargaining Agreement doesn’t include a limit on what a player can earn a season. A team must fit its full roster under the salary cap, which is why we typically don’t see annual salaries larger than $20-25MM. But with no defined maximum salary in place, an NFL team could, in theory at least, pay a player for double or triple that amount, assuming that player was surrounded by a few dozen teammates on minimum salaries.

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