PDA

View Full Version : Salary Cap 101 article...


Coogs
12-15-2000, 03:07 PM
*MUST-READ: Salary Cap 101

HOW TO COMPUTE A SALARY CAP NUMBER

The football fan is constantly bombarded with the phrases such as 'salary cap' and 'cap number.' Unlike most people, you, the reader of these columns, know that these phrases have nothing to do with hats. Incident to my ongoing objective to help you better understand the business side of the NFL, the following is a summary of the nuances of how a player's Salary cap number is computed.

SIGNING BONUSES

Signing bonuses and any amounts treated as signing bonuses are prorated equally over the length of the player's contract for purposes of calculating the player's salary cap number. For example, if a $5 million signing bonus is paid on a five-year contract, the signing bonus will count $1 million annually against the team salary for each of the five years even though the player receives the full $5 million in the first year. The amount of the signing bonus is simply divided by the number of contract years. Note, however, if a player is released or retires before the end of the contract period, the general rule is that the remaining portion of the salary cap is accelerated so that the entire remaining portion of the bonus amount is recognized against the team's salary in the year the player's employment terminates.<P>

Coogs
12-15-2000, 03:11 PM
RENEGOTIATION / SIGNING BONUSES

If a signing bonus is given in conjunction with a renegotiation and/or extension of a previously existing contract, the new signing bonus is
prorated over the length of the new contract years, including the year that the renegotiation takes place. For example, if a player was signed to a two-year contract for 1998 and 1999 and then receives a new signing bonus in 1999 in exchange for adding two additional years (2000-2001) to the contract, then the new signing bonus is prorated (one-third in each year) equally over 1999, 2000 and 2001, not just in 2000 and 2001.

PARAGRAPH SALARY

A player's paragraph 5 salary ('base salary') is always counted against team salary in full in the year that it is earned. If a player is scheduled to make a base salary of $500,000 in 2000, then all of the $500,000 counts against his team's salary cap that year.<P>

Coogs
12-15-2000, 03:12 PM
LIKELY TO BE EARNED (LTBE)

Other amounts players earn count against the salary cap only if they are likely to be earned ('LTBE'). These other amounts include, but are not limited to, performance and honors incentives, roster bonuses, reporting bonuses and off-season workout bonuses.

As noted in my previous column of July 14, 1999, to determine whether a performance or honor incentive is LTBE for veteran players, you need to examine the player's and/or team's prior year on-field performance. If a running back will earn a $100,000 incentive if he has 1,000 rushing yards in 2000, his 1999 performance must be analyzed to determine if the incentive is LTBE for 2000 and counts against his team's 2000 salary cap. If the player rushed for 1,000 or more yards in 1999 then the incentive is LTBE in 2000 (counts against the 2000 salary cap). If the player rushed for less than 1,000 yards in 1999 then the incentive is not likely to be earned (NLTBE) and does not count against the salary cap in 2000. The same rule applies for any team incentives that are negotiated. Note there are some exceptions to these basic rules.

Per the CBA, there are different sets of incentives for rookies in the NFL (see my previous article dated July 21, 1999). For example, an incentive for a third round wide receiver that entitles the player to $10,000 if he has 6 Receiving Touchdowns would count $6,666 against the team's Entering Player Pool and overall team salary cap via the rookie incentive chart contained in the CBA.<BR>

Mark M
12-15-2000, 03:13 PM
Anyone know what Chet's and D. Williams bonuses were? That may help fuel/squelch the debate on whether they should be cut or not.

Where was the article taken from?

MM
~~Hates math, but would love to see the numbers.

Coogs
12-15-2000, 03:14 PM
ROSTER BONUSES

Roster bonuses are treated in a manner very similar to performance bonuses. For veterans, the player's prior year is examined to determine to what extent a roster bonus is LTBE for the current league year. For example, if a player was a member of the 53 man roster for 14 games in 1999 and has a roster bonus for $50,000 if he is a member of the 53 man roster for the same or fewer amount of games in 2000, then the full $50,000 is LTBE in 2000 and counts against the salary cap. If the bonus is written for being on the roster for a greater number of games then the bonus is NLTBE in 2000. However, unlike performance incentives, NLTBE roster bonuses will count against a team's salary cap immediately once it is actually earned by the player.

For rookies, the chart noted in the CBA is utilized; generally a regular season roster bonus that a drafted player receives if he makes the team will count 100% against the team salary cap in the contract year in which it is earned while undrafted players' roster bonuses count only 30% (of the total bonus amount) against the salary cap.

Regardless if the player is a veteran or rookie, any roster bonus that is guaranteed is treated as a signing bonus and thus prorated equally over the length of the contract for salary cap purposes.<P>

Coogs
12-15-2000, 03:15 PM
REPORTING BONUSES

All non-guaranteed reporting bonuses are LTBE and count in full against team salary in the year they are earned. This is true for both veterans and rookies. If a reporting bonus is guaranteed, then it is treated as a signing bonus and prorated equally over the length of the contract for salary cap purposes.

WORKOUT BONUSES

Workout bonuses are automatically LTBE and count in full against team salary in the year they are earned. If the workout bonus is guaranteed, then it is treated as a signing bonus and prorated equally over the length of the contract for salary cap purposes.<BR>

morphius
12-15-2000, 03:16 PM
It should also be noted that when reporters begin talking about next years Salary Cap Numbers is that they are talking about Projected numbers and not the actual numbers. The Projected cap number has all the FA's current salaries added on to next season salary cap as if the players well all be resigned at their current salary and none will be released. Which means that Shields contract of over 4.5 mill is added into our projected cap number.

Just something to think about.

Coogs
12-15-2000, 03:17 PM
EXAMPLES
Compute the salary cap number for the following three players.

Example 1:

Rookie Player A

2000 Base: $400,000
Signing Bonus: $2,000,000 (5 year deal)
2000 Reporting Bonus: $500,000
2000 Workout Bonus: $50,000
Answer: Cap Number = $1,350,000
($400k base + $400k sign bonus proration (2 million - 5 yrs) + $500k rpt bonus + $50k w/o bonus = $1.35m)


Example 2:

Veteran Player B
2000 Base: $600,000
Signing bonus: $1,800,000 (3-year deal signed in 1999)
2000 Roster bonus: $200,000 (Note: was on team's roster for all of 1999)
2000 LTBE's: $150,000
Answer: Cap Number = $1,550,000

($600k base + $600k signing bonus proration (1.8 million 3 yrs) + $200k roster bonus + $150k LTBE's = $1.55M)

Note: If the roster or reporting bonuses were guaranteed they would be treated as signing bonus and the results would be different (i.e., they would be prorated over the term of the contracts).<P>

Coogs
12-15-2000, 03:18 PM
Example 3

Assume player B renegotiates his contract prior to the start of the 2000 season and
(a) receives a new $1,000,000 sign bonus,
(b) extends the original contract for two additional years, and
(c) lowers his 2000 base salary to $200,000.
What is his new 2000 cap number?
Answer: $1,400,000
($200k new base + $600k old sign bonus proration + $250k new sign bonus proration ($1,000,000 4 yrs. (2000-2004)) + $200k rost + $150k LTBE's = $1.4m)

Note: In a renegotiation the old signing bonus proration does not change.<P>

Coogs
12-15-2000, 03:20 PM
Sorry for the length. The last sentence is the on that scares me. The previous signing bonus is still in place even after renegotating.

kcred
12-15-2000, 03:24 PM
If you are talking about EG, his 10 mil is a roster bonus, signing bonus. But with all this info, how much does it cost to release Glock and Williams? Teischer said 7mil, and 4.2 mil.

Coogs
12-15-2000, 03:29 PM
MM,

Got this from NFLTALK last January.

KC RED,

I'm not sure what this means in relation to anyone on our current roster, but I hope with Carl having to renegotiate 40 Million dollars worth of excess, that it is not tied up in bonus money that has to be paid weather the player is here or not, as in Chet apparently.<P>

morphius
12-15-2000, 03:36 PM
Isn't it true that if a player is cut after a certain date that the player's cap can be spread over 2 years instead of just one?

G_Man
12-15-2000, 03:43 PM
kcred - Was that if they were released prior to June 1st, or after? I believe if the player is cut before June 1st then the signing bonus is accelerated, but divided over that season and the next.

G_Man
12-15-2000, 03:45 PM
Morph - I could be wrong, but I think it's if the player is cut before June 1st.

Coogs - BTW, cool stuff. I remember reading this last year, but it's always good to have a refresher course. :) A lot of the stuff I had forgotten.

morphius
12-15-2000, 07:59 PM
G_Man - That was my guess as well and that is how I thought it worked, odd as that may be.

kcred
12-16-2000, 08:43 AM
I believe his response was based on a cut before June 1. After that you can spread it over 2 years. So assuming that, it would cost 3.5, and 2.1, of course, we would not have their base salaries either, but don't know if that was figured in. With all the statistics floating around, there must be one, in which it shows, last contract signed, number of years, signing bonus, salaries are sort of inconsequential, because most of the cap is in the bonuses.

Mark M
12-16-2000, 09:28 AM
Coog--
This stuff is great. But it's making my head hurt. :eek: Their bee a reezon i gots to Englush degreez. :D

So: if the old bonus still counts against the cap, then the Chiefs are going to take a hit with Elvis whether or not he restructures his contract, right? If this is a roster bonus, Elvis has been on the roster, so it's LTBE. Again, it will still count.

Same with the two worthless DT's we have.

Another thread questions if Elvis will win the passing title. I don't know if he will or not, but I'm now wondering if there is another bonus coming as well.

Please correct me if I'm wrong.

Carl's job is a little tougher than we thought, eh guys? (Still hate the guy, though.)

MM
~~There's a reason his wife balances the checkbook.<P>