How and when contract incentives count against the salary cap

Wednesday marks exactly four weeks until the official start of the 2023 NFL League Year, with teams able to officially sign free agents from other teams to new contracts beginning at 4:00 pm New York time on March 15. In the meantime, teams will be working to extend their own free agents, while also looking to make the moves necessary to both comply with the 2023 salary cap and remove dead weight from the roster.

The process of roster trimming for salary cap purposes started Tuesday, with the Las Vegas Raiders releasing quarterback Derek Carr and the Cleveland Browns moving on from linebacker Jordan Kunaszyk. With free agency looming just over the horizon, the big question for many fans turns to the salary cap, and in recent days and weeks several commenters have inquired how and when incentives factor into the salary cap. As such, now seems as good a time as any to provide a high level overview of how the accounting for performance incentives works.

That said, there are different types of incentives that players can earn, with the specifics of the allowable incentives laid out in Article 13 of the collective bargaining agreement. However, for the purposes of this piece, two different types of incentives will be looked at, and those are per game roster bonuses and performance incentives.

Per Game Roster Bonuses

Many teams use per game roster bonuses in player contracts to hedge against the cap costs of needing to sign injury replacements in season, and the Seattle Seahawks often do the same in many of their contracts. The explanation for the way per game roster bonuses are calculated into the cap comes across as complicated, but is relatively simple once looked at through an example.

The way these per game roster bonuses are accounted for when the new league year starts is to look back at how many games for which a player was active the prior season, and that number of games worth of per game roster bonuses count against the cap. If the player exceeds the number of games they played in the prior season, then immediately following each game played which exceeds the number of games played the prior year the cap cost of one per game roster bonus goes onto the cap. If, at the end of the season the player was active for fewer games than they were in the previous season, the difference goes back into the cap for the subsequent season.

Now, that’s a whole lot of words to explain something and most readers who aren’t already familiar with the mechanisms of how these per game roster bonuses work are likely confused. Thus, in order to make things more digestible, here is the previous paragraph explained using a real world hypothetical using the contract of Seahawks defensive tackle Bryan Mone. Mone’s contract has up to $510,000 in per game roster bonuses available, or $30,000 per game, so when accounting for his 2023 cap number the process starts by looking at how many games for which he was active in 2022.

As Mone was active and played in 13 games during 2022, that is how many of the per game roster bonuses will count against the Seahawks cap when the new league year starts in mid March. Doing the multiplication on the 13 games times the $30,000 per game roster bonus, that yields a total expected cost of this to the team of $390,000 for 2023. That makes the accounting for Mone’s total cap number as follows:

• $2,285,000 (base salary) + $500,000 (signing bonus amortization) + $500,000 (roster bonus) + $390,000 (per game roster bonuses)

Then, if Mone is active for more than 13 games, each additional game will immediately take $30,000 out of the 2023 salary cap. If he is active for fewer than 13 games, which seems likely given the reported severity of the knee injury he suffered late in the year, then the difference of $30,000 per game under 13 games will be credited to the salary cap of the Seahawks for the 2024 season.

Performance Incentives

With the mechanism for understanding per game roster bonuses laid out, understanding how on field performance incentives are accounted for will be simple. Performance incentives are categorized as either likely to be earned (LTBE) or not likely to be earned (NLTBE), with the categorization determined by looking at the performance of the player in the prior season. If a player reached a performance threshold in the prior year, the incentive is considered LTBE and counts against the cap. If a player did not reach the performance threshold in the prior year, it is categorized as NLTBE and will not count against the cap.

Similar to per game roster bonuses, if a LTBE incentive is not earned, it goes back to the team as a cap credit in the subsequent season, while if an incentive categorized as NLTBE is earned, it comes out of the cap in the following year.

One of the best ways to illustrate this is to look at Seattle quarterback Geno Smith, and some of the performance incentives he had in his 2022 contract. Those incentives were:

• 4,000 passing yards ($1M)
• Playoffs ($1M)
• Playing time ($1M)
• Pro Bowl and 20 TDs ($500k)

Now, for Geno’s statlines for 2021 and 2022:

• 2021: 702 passing yards, no playoffs, 20.48% of snaps played, no Pro Bowl & 5 passing TDs
• 2022: 4,282 passing yards, playoffs, 100% of snaps played, Pro Bowl & 30 passing TDs

So, what this means for Geno’s 2022 contract was that all four of the incentives were considered NLTBE, and thus were not a part of the cap hit for Smith during the 2022 season. However, since he achieved all four of the incentives, the $3.5M will be charged to the 2023 cap of the Seahawks.

Now, moving into next season, if Smith were to sign a contract that included the same incentives, those incentives would count against the 2023 salary cap. However, if he failed to reach those same performance thresholds during the season, Seattle would see a credit back to the cap in the amount of the incentives for 2024.

So, for those who have asked, that’s how incentives are calculated for cap purposes.