The offseason has yet to start, as the Tampa Bay Buccaneers and the Kansas City Chiefs are set to play for this year’s Lombardi Trophy at Raymond James Stadium in Tampa next Sunday. At that point the offseason will have truly arrived, and fans of teams that were eliminated earlier in the season can turn their entire focus to the upcoming free agency frenzy and the draft. That includes the Seattle Seahawks, who of course could be facing cap issues as they head into the 2021 season following a drastic reduction in league revenues due to the COVID-19 pandemic and the fact that there were very limited fans in stands.
So, while the league typically provides teams an estimate of the range the salary cap for the next year is expected to fall within at some point late in the season, that did not happen this year. However, the first official estimates are expected to come out later this week, and a significant drop is indeed expected.
Sunday’s @NYDNSports NFL Notes:— Pat Leonard (@PLeonardNYDN) January 30, 2021
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For those not willing to take the time to click through to the story from the New York Daily News and read the specifics of where that number comes from, here is a small piece of what the NYDN included on the topic:
The NFL Players’ Association is projecting the league’s 2021 salary cap to drop to $180 million, according to league sources, though that number is not official yet. There will be more NFL discussions on the cap early this week. The league’s cap was $198.2 million in 2020.
All the way back a little over a week ago, Field Gulls looked at what the cap situation for the team would look like based on a projection of a league wide cap of $180M, and it’s not exactly a pretty picture. There are certainly teams that are better positioned, but the Hawks are far from sitting in the worst position in the league. As noted in January, if the cap comes in at $180M, the Seahawks would start the offseason looking at being roughly $3M over the salary cap once having filled out the roster and addressed the questions of how to tender their exclusive rights free agents and restricted free agents.
Many fans will, of course, fret about what the team will do and immediately jump to look at which players Seattle may look to trade or release in order to come into cap compliance. However, as many teams across the league often do, the Hawks might look to take advantage of the fact that while the cap is fixed in any given season, the amount of cap space a team has is a function of its willingness to borrow from future seasons. In 2017 the Hawks did this twice, first on the eve of the season when they restructured Doug Baldwin’s contract in order to trade for Sheldon Richardson and then again at the trade deadline when they did the same with Russell Wilson when they brought in Duane Brown.
Basically, while fans sit and wonder how the New Orleans Saints and Philadelphia Eagles will be able to come into compliance with a reduced cap, the simple fact of the matter is that each team has hundreds of millions in future cap space it can dip into in order to come into compliance with the 2021 salary cap.
The reason teams are able to do this is because of the way the accounting works for base salary versus signing bonus. Specifically, base salary counts against the salary cap in the year in which the player earns the base salary, while signing bonuses are accounted for over the life of a contract.
So, say for example the Seahawks decide that they want to go after one of the bigger name edge rushers set to hit the market, such as Yannick Ngakoue or Matt Judon or whoever it doesn’t really matter because it’s a name being chosen at random for a hypothetical. For the sake of simplicity, assume that this hypothetical free agent has agreed to play for Seattle on a one-year, $11M contract.
Many, without understanding the intricacies of the accounting rules for the salary cap will assume that such a contract would carry an $11M cap hit in 2021, and for the most part, that is correct and is consistent with how the Seahawks have tended to manage their salary cap. However, other teams such as the Saints or Eagles have a tendency to be more aggressive. There’s nothing wrong with managing a cap aggressively as long as the cap continues to increase, however, if a cap has been managed aggressively and it then stops increasing or decreases, that can lead to the exact issues New Orleans and Philly will face this season.
In any case, getting back to the one year, $11M contract the Hawks have agreed to with this hypothetical free agent, there are multiple ways to structure the contract to defer portions of the cap hit into the future. On multiple occasions the New England Patriots have used a bloated second year cap hit to demonstrate to a player that the contract is really for just a single season, but which allows for half the signing bonus to be deferred. In the case of this example, the contract could be structured as a two year, $40M contract, with a $10M signing bonus, a $1M base salary in 2021 and a $29M base salary in 2022. The cap hits for that contract would look like the following:
- 2021: $6M ($1M base salary plus half of the $10M signing bonus)
- 2022: $34M ($29M base salary plus half of the $10M signing bonus)
Now, no team in its right mind is going to pay a pass rusher who agreed to play for one season at $11M a base salary of $29M the next season, so the player knows they will be cut before that $29M base salary comes onto the books. However, while both the team and player know the $29M is mythical and will never come to be paid, the insertion of that fake year and base salary allows the team to defer $5M of the $11M cap hit into the future.
Other teams that want to get into the bidding for the $11M free agent, but for whom a $6M cap hit in 2021 might still be too high, could get even more aggressive. The CBA allows teams to break up a signing bonus over as many as five seasons, so a team could use void years to defer an even greater amount of the cap hit into the future. There are several teams across the league that use void years for this exact purpose, and it will not be a surprise at all if teams aggressively use void years in free agency this offseason to push cap hits into the future.
For example, say a team with a limited amount of cap space feels it’s a contender in 2021 and wants to sign this imaginary $11M free agent to a contract with an even lower cap hit. This team could add four artificial years at a $2M base salary each year until the end of the contract that automatically void at the start of the 2022 league year. The effect of this is that at the time of signing the contract would carry the following cap hits:
- 2021: $3M ($1M base salary plus one fifth of $10M signing bonus)
- 2022: $4M ($2M base salary plus one fifth of $10M signing bonus)
- 2023: $4M ($2M base salary plus one fifth of $10M signing bonus)
- 2024: $4M ($2M base salary plus one fifth of $10M signing bonus)
- 2025: $4M ($2M base salary plus one fifth of $10M signing bonus)
Now, because the contract voids on the first day of the 2022 league year, the player knows they will not play under the base salaries going forward and will be a free agent again next offseason. However, by using the void years this player played on a one year, $11M contract that carried a 2021 cap hit of $3M. The additional $8M in cap hit will come in 2022 as a dead money charge after the contract voids and the portions of the signing bonus that haven’t been counted against the cap get counted against the cap.
What it all comes together to mean is that every single team has the ability to tap into the nine figure credit card that is future cap space in any given season. This tool will give teams that may be tight against the 2021 cap the ability to compete in free agency, and means that bargain free agents may not be as abundant as many fans hope, as teams like the Jacksonville Jaguars, Indianapolis Colts, New York Jets and New England Patriots all have significant amounts of cap space available without even needing to get aggressive in structuring contracts.
In short, it could be one of the most interesting offseasons in league history, and teams that are expecting the cap to bounce back quickly in 2022 and 2023 could dip aggressively into that expected rebound.