Free agency is just weeks away, and as of today teams are now able to apply the franchise tag to players who are set to become free agents next month. With that being the case, it’s a good time to go through a series looking at the salary cap in the NFL and how cap hits are computed so that when reports of huge contract numbers start rolling in for players, fans have a better understanding of exactly what they mean and what specifically to look for. Much of the information presented in this series will be nothing new for many readers, as this series is intended more to serve as an introduction to the basics of the salary cap for those who may not be as familiar with its machinations and how cap hits are figured.
In any case, jumping right in, we’ll get to the two main pieces that make up the cap hit for the majority of players, base salary and signing bonus. There are certainly several other parts of compensation that can make up a player’s earnings, those are topics for later in the week.
Base salary is just like it sounds, as it’s the money a player makes while they are in what’s called a “full pay status”. Full pay status can mean a variety of things, including on the 53-man roster or on the Physically Unable to Perform list. In short, a player on this list will earn a portion of their annual base salary for each game for which they are in a full pay status. Alternatively, in the case of a bye week, the player will earn a portion of their base salary for having been on the roster during the bye.
The calculations for base salary are very simple: a player gets 1/17th of their base salary for each week they are in full pay status. For an extremely simple example of the math behind this, Seattle Seahawks quarterback Russell Wilson is set to have a $17,000,000 base salary in 2019, and thus for each week that he is in full pay status he will earn $1,000,000.
The math is similarly easy for a player like Barkevious Mingo, who is scheduled to have a base salary of $3,400,000 in 2019. That salary divided by 17 means that Mingo earns $200,000 for each game for which he is on the roster. It’s a fairly simple system, and a fairly easy way to understand things.
Now, one thing I am often asked about is whether or not players who are placed on injured reserve are on full pay status, and the answer to that question is technically no. While many players who find themselves on injured reserve, especially high priced veterans such as Earl Thomas in 2018 or Kam Chancellor, Cliff Avril or Richard Sherman in 2017, continue to earn their full salary, that is not the case for everyone.
For a perfect example of this, 2018 fifth round draft pick of the Seahawks Jamarco Jones spent the entirety of the 2018 season on injured reserve. Because Jones was a day three draft pick, he did not carry any leverage into his negotiations with the team. Thus, his contract contained a clause that should he wind up on injured reserve, that his base salary would be reduced. This is reflected on his page on OverTheCap.com, where his 2018 cap number is listed as $424,251. Now, in 2018 the minimum salary for a rookie player was $480,000, so how could Jones have a cap hit lower than that? It’s because as a result of that noted language that reduces his base salary in the event of an injury which lands him on IR.
In Jones’ case, it’s fairly easy to compute the salary reduction. Based on his 2018 cap hit of $424,251, we can deduct the $61,251 attributable to his signing bonus, which yields $363,000. Thus, we know that as a result of having landed on injured reserve, Jones had his base salary reduced from the $480,000 he was scheduled to make to $363,000. The same was true for offensive lineman George Fant in 2017 while he was rehabbing his injured knee, as well as for many other players across the NFL. As shown, it’s not too difficult to figure the reduction in such a case, as the math is fairly simple.
It gets a tiny bit more complicated when computing the reduction for a player who spends part of the year in full pay status and then the remainder of the year on reduced pay status, such as Chris Carson or Rees Odhiambo in 2017, however, it’s not all that complicated. For those interested in the formula to compute that, it is (Cap hit-signing bonus proration) = (games in full pay status X (original base salary / 17)) + (games in reduced pay status X (reduced base salary / 17)).
In any case, the key portion of that equation is the signing bonus proration, as that brings us to the next important piece of the puzzle, which is how signing bonuses count against the salary cap. While base salary counts against the cap in the year in which it was earned, signing bonuses are different in that they are earned all at once, but then amortized over a portion, or all of, the life of the contract.
There are a lot of rules regarding the proration of a signing bonus for recognition against the cap, however, the basic rules are as follows:
- The signing bonus will be recognized in equal parts over multiple years of the contract, with the portion of the bonus recognized in each year of the contract equal to the amount of the signing bonus divided by the number of years the contract covers, or five, whichever is lesser.
That’s kind of some legalese, so in basic terms, what it means is that the signing bonus is broken down and recognized against the cap in equal parts, but that it cannot be broken into more than five equal parts.
For a simple explanation, say a hypothetical player signs a contract with a $6M signing bonus, which is a good number to use for a hypothetical because the math results in easy to compute numbers. Depending on the length of the contract, this signing bonus would be recognized against the cap in each season it covers in the following amounts:
- One year contract: $6M recognized against the cap in the lone year of the contract,
- Two year contract: $3M recognized against the cap in each year of the contract,
- Three year contract: $2M recognized against the cap in each year of the contract,
- Four year contract: $1.5M recognized against the cap in each year of the contract,
- Five year contract: $1.2M recognized against the cap in each year of the contract,
- Six year contract: $1.2M recognized against the cap in each year of the contract,
- Seven year contract: $1.2M recognized against the cap in each year of the contract,
- and so on for any longer contract.
Obviously, it’s highly unlikely that any contract that is six or seven years in length in the NFL would carry a $6M signing bonus, but since the numbers work out so round for the computations, it’s a good number for an example. In any case, it is this pro ration, or recognition of the signing bonus over time that creates dead money when a team releases or trades a player.
For example, following the 2014 season when Marshawn Lynch signed his contract extension in early 2015, the extension covered two seasons (2016 and 2017) on top of the 2015 season for which Lynch was already under contract. Thus, it was effectively a three year contract which he signed at that time, and the $7.5M signing bonus which he received was to be recognized against the salary cap in three equal parts of $2.5M in 2015, $2.5M in 2016 and $2.5M in 2017.
Everyone is aware, however, that Lynch decided to retire following the 2015 season, and that left the final two installments of $5M unaccounted for when it came to the cap. Thus, the Seahawks had to recognize $5M in dead money in 2016 as a result of the fact that unamortized signing bonus money doesn’t simply disappear when a player retires or is cut.
That concludes the basics on signing bonuses and base salary, and in the coming days I’ll dig into the pieces that make up the remaining pieces of a player’s cap hit, including roster bonuses, workout bonuses, incentives and others.
If any readers have specific questions about the salary cap or the calculation of cap hits, please feel free to ask those questions in the comments section (or for readers who are not registered to comment, feel free to at me on Twitter using my handle @SeahawksMachine). While I’m sure other commenters will be happy to answer any inquiries posed in the comments section, it’s always good for me to know what questions my readers have so that I can answer the questions in an article that is easier to reference than a comment in the future when the same question arises.