With the heart of the NFL offseason rapidly approaching, among the big stories across the league is how multiple teams will make the moves necessary in order to get under the 2022 salary cap threshold. Those discussions have led to the idea that many bigger name players could become cap casualties, or that teams could hold a fire sale in order to free up the necessary cap space. There will certainly be teams that make moves, but it’s unlikely that star players in their prime are about to hit the free agent market as cap casualties because of the ability of teams to use accounting tools like void years. In particular, on Friday the Seattle Seahawks will see the 2022 contracts of four 2021 starters void.
That, of course, brings up a question that fans across the league have been asking: What exactly are void years. The short version is they are fake years added to contracts for salary cap purposes. Those interested in the long answer may continue reading.
To understand void years requires an understanding of their purpose, and a quick detour is necessary in order to explain how a player’s cap hit is calculated. Thus, taking things back to a basic level, a player’s contract effectively includes four different methods of pay, and those are:
- Base Salary
- Signing Bonus
- Roster Bonus
All four of these different methods obviously put money into the pocket of a player. However, when the accountants at the league office calculate how much a contract costs against the salary cap, what type of payment it is determines when that payment is counted against the cap. There are intricacies and nuances, so this is far from exhaustive, but the general rules of thumb regarding when a player’s cap hit is recognized against the cap for each of these four types of earnings are as follows:
- Base Salary: In the season in which it is earned
- Signing Bonus: Prorated over the life of the contract, up to a maximum of five years
- Roster Bonus: In the season in which it is earned
- Incentives: Either in the season in which it is earned or in the season after it is earned
Looking at those, base salary and roster bonuses are fairly simple to understand in that they get paid in a season and they count against a cap in that season. For incentives, it depends exactly when in the season they were earned, whether the player performed at that level in the past, and so on. At the end of the day, though, incentives will count against the cap either in the season in which they are earned or the following season, simple enough.
Where there is some flexibility for teams to massage the cap or to get aggressive is in the area of signing bonuses. As noted, signing bonuses count against the cap over the life of the contract. Thus, when Russell Wilson received a $65M signing bonus on his 2019 contract extension that covered the five seasons from 2019 through 2023, the signing bonus was recognized in five equal portions over the five years of the extension. That, of course, breaks down to recognizing $13M per season against the cap for each of the five seasons.
This is the mechanism that can make converting base salary to signing bonus attractive to teams that are looking to free up cap space. By converting base salary to signing bonus, teams go from having to recognize the entirety of a player’s salary against the cap in the current season to only needing to recognize a portion of the player’s salary in the current season, with the remainder of the cap cost hitting in future years.
All of this is theoretical mumbo jumbo that is likely hard for most readers to follow, so here is a real world example to help with the understanding. Say the Seattle Seahawks decide to go heavy in free agency and want to sign multiple players to significant contracts, but in order to make these moves they need to free up cap space. The simple solution is to convert base salary to signing bonus for a player they are confident will be on the roster in the coming seasons and certainly not be traded for Derek Carr and a sixth round pick or whatever the ludicrous hypothetical Disney decided to dream up, so they’re going to convert Wilson’s base salary to signing bonus in 2022.
As things stand right now, Wilson is set to earn a base salary of $19,000,000. Under the most recent CBA, the minimum that Wilson can make in 2022 is $1,120,000. Knowing those two numbers, the amount of base salary that the team can convert to signing bonus is $17,880,000.
Now, as noted above signing bonuses are recognized against the cap over the life of the contract. Since Wilson has two years left on his contract, that $17,880,000 once converted to signing bonus would be recognized against the cap in equal parts in 2022 and 2023. That would then change the cap hits for Wilson in each of the following seasons to be:
- 2022: $28,060,000
- 2023: $48,940,000
In addition, if the Seahawks decided to release or trade Russ after the 2022 season, the team would be left with $21,894,000 in 2023 even though he would not be on the roster.
That illustrates how Seattle can shift $8,940,000 of Wilson’s cap hit from 2022 to 2023 by converting base salary to signing bonus. Where void years come in is that with just two years left on his contract, the signing bonus is broken up over two years. Say, however, that the Seahawks want to spread the cap hit of that signing bonus out over more years, but they don’t necessarily want to sign Wilson to another contract extension just year. Since signing bonus can be broken up over as many as five seasons, what the two sides can do is add void years to break the signing bonus up over a larger number of seasons.
Using the same numbers from above, if the Hawks want to break the signing bonus up into the smallest possible parts, they would need to have a five year contract in place. However, as noted above, they may not necessarily want to sign Wilson to an extension at this time, or maybe Wilson doesn’t want to sign an extension because he wants to play in New York in 2024, or whatever. In any case, neither side wants a real five year contract, but they do want the cap benefits of a five year contract.
Void years to the rescue.
Void years are nothing more than fake years on the end of a contract that exist today to help with the cap, but which will cease to exist at some point in the future. They’re something like disappearing ink in that they will soon be gone.
So, for the Wilson example, say the Seahawks add three years to Wilson’s contract with base salaries of $50,000,000 in each of 2024, 2025 and 2026. However, the contract automatically cancels for the 2024, 2025 and 2026 seasons five days after the Super Bowl following the 2023 season. What this contract does is allow the $17,880,000 that was converted from base salary to signing bonus to be recognized over a larger number of years, and thus increasing the amount of cap space that is shifted from the 2022 season into future seasons. Under this contract, Wilson’s scheduled cap hits would become:
- 2022: $22,696,000
- 2023: $43,576,000
- 2024: $53,576,000
- 2025: $53,576,000
- 2026: $53,576,000
Now, as noted above, five days after the Super Bowl following the 2023 season the contract voids, meaning the 2024, 2025 and 2026 seasons cease to exist. At that point the $3,576,000 of signing bonus that was scheduled to hit the cap in 2024, 2025 and 2026 would all hit the 2024 cap. That would mean Seattle would have a $10,728,000 cap hit in 2024 after Wilson’s departure, as the $17,880,000 of base salary converted to signing bonus would have been recognized against the cap in the following seasons:
- 2022: $3,576,000
- 2023: $3,576,000
- 2024: $10,728,000
And that’s it. The void years were fake contract years under which Wilson was never going to play, but which gave the team the ability to shift $14,304,000 of Wilson’s 2022 cap hit into future seasons. So, with the cap set to explode upwards and teams able to push cap hits into the future at 0% interest, it certainly makes sense why some teams have become very aggressive in their use of void years to push cap hits into the future.