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Good post. Really informative.
This part was very interesting.
So, how exactly does a renegotiation work and how does it affect the Salary Cap?
The classic restructure is what is known as a “simple restructure”, in which the player’s Base Salary (P5) is reduced down to the applicable league minimum and the difference is immediately paid to the player as a Signing Bonus, which is then prorated over the remaining years of the contract. So, again, the player is receiving nothing less than he was original supposed to. In fact, he’s receiving the bulk of the money sooner as a Bonus, instead of spread out over the 17 weeks of the season.
Using the above contract example, if the team restructured the player’s contract in the 3rd year of the deal, the player’s 3rd year base salary of $5M would be reduced to the veteran minimum for a player of his service time (for example, $800K) and would give the player the difference of $4.2M as a Signing Bonus.
The new Bonus would then be prorated over the remaining 3 years of the contract and would count $1.4M in each of the 3 remaining years of the contract. So, the remaining years of the contract would then look like this:
Year Signing Bonus Proration Option Bonus Proration Renegotiation Bonus Pro-rations Base Salary Cap Number
3 $2M $1M $1.4M $800K $5.2M
4 $2M $1M $1.4M $7M $11.4M
5 $2M $1M $1.4M $9M $13.4M So, the restructure reduced the 3rd year Cap Number for the player from $8M to $5.2M, thereby creating $2.8M in immediate Cap space for the team. However, it comes at the cost of an additional $1.4M against the Cap in each of the final two (2) years of the contract.
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