Welcome to part two of this exciting, numbers-filled, hopefully-helpful series. Last week, I wrote about how more cap room isn’t always necessarily better. If you missed it, I'd encourage you to check that out. Do note that throughout this series you will probably see some overlapping concepts – that is just how the salary cap is.
Last March, Bryce Johnston wrote a phenomenal series on Over the Cap discussing a new concept called the "Cap Commitment Index". It was fairly groundbreaking, conceptually. In this series, Bryce discusses concepts like cap debt, cap commitments, and cap flexibility. I'm going to discuss some of the concepts Bryce coined - and explain how they relate to Myth #2.
Since reading this – I have become fascinated with this topic and convinced that cap flexibility is the one of the best ways to evaluate a team’s cap health. Along with other factors I discussed in part one, I’m going to refer back to Bryce’s calculations…as they’re just so good. Without further ado, let’s dive into Myth #2.
Myth #2: Cap space is the best way to evaluate a team’s cap health
Before we even start, let me define a term for you: cap flexibility.
Cap flexibility can be defined as the ability by NFL teams to open up cap space quickly and efficiently without large dead money repercussions.
Last week, I debunked the myth that more cap space is always better. Analyzing a team’s cap health solely based on cap space is an incredibly shallow way of evaluation. While I understand why fans (and even teams!) fall victim to this (even I do occasionally), one of the best ways to evaluate a team’s cap health is through cap flexibility. I’ll get into this in a little. But for now - let's set you up with some background.
The NFL salary is what many salary cap experts call a "hard cap" – different in most respects to other pro sports leagues. Many other professional sports leagues don't allow the salary cap to transfer over several years. In other words, previous years in no way effect the current year. However, the NFL is different. In the NFL, teams can carryover leftover cap space to the following year.
For example, last year the Jaguars didn’t use $21M in cap space. As a result, the money that went unused in 2014 carried over to 2015 – so the Jaguars can spend up to $143.2M + $21M (the rollover amount). The Seahawks have $4.8M in rollover money from last year. It’s important to again note that a large amount of cap rollover is not an indicator of good cap management (as I discussed last week: more room is not always better).
As I’ve discussed before on twitter and in previous salary cap related articles - a common trick by many NFL teams to open up immediate cap space is to convert a player’s base salary (commonly referred to as the "P5" – referring to Paragraph 5 in a typical player's contract) into a signing bonus spread out over several years. Signing bonuses are money paid out to the player immediately – but spread out over several years over the cap. It’s essentially just an incentive to get players to sign and a way to get money into player’s pockets immediately. It’s also a tool for teams to manage their salary cap. Signing bonuses can be prorated over a max of five years.
Let’s take Richard Sherman for example. Sherman has a $10M base salary in 2015. If the Seahawks wanted to, they could convert $8M of that $10M base salary into a signing bonus – putting $8M into Sherman’s pocket immediately and spreading $2M against the Seahawks cap each year for the next four years. It would immediately open up $6M in room (since $2M is prorated starting that year) – but at the cost of the future. Does that make sense? This practice decreases the cap flexibility of a team…since that money is fully guaranteed and already paid out to the player.
There’s nothing wrong with converting P5s into prorated signing bonuses as long as you save the room made from that conversion and carry it over to the next salary cap year. However, teams rarely do that – since their goal is to open up space and then use it on short term players, etc. This creates cap debt.
Cap debt is determined by adding up all future years of signing bonus proration from all player contracts on a team (2016 and beyond) and then subtracting the cap space of the current year. This gives us a number: the total amount of "future money" spent.
Teams with the highest amount of cap debt include the Ravens, Cowboys, Steelers, Bills, and Saints. The Seahawks find themselves right in the middle of the pack. Teams with the least amount of cap debt include the Jags, Bucs, Bengals, Colts, and Raiders. However, once the Bengals sign A.J. Green – that may change a little. Of course, these situations are constantly changing with team signings.
Cap debt is the first of two parts that determines a team’s cap flexibility. The other is cap commitment.
Cap Commitment is determined by adding up all future years of fully guaranteed base salaries (and roster bonuses) from all player contracts. So, this is important to remember: cap debt deals with future signing bonus proration, and cap commitment deals with future guaranteed base salaries.
Teams with the most cap commitments are the Dolphins (at over $100M!!!), Bills, Ravens, Chiefs, and Saints. These teams could have huge problems if these players who are due these fully guaranteed base salaries end up underperforming or injured. Due to their base salary being fully guaranteed, teams wouldn’t cut them (due to large dead money effects) – in turn potentially leaving these teams in really bad positions.
The Seahawks find themselves in the bottom half of NFL teams in terms of cap commitments. Many people wonder:
"How are they in the bottom half of the cap commitment index? They’ve handed out huge contracts!"
Many of the large Seahawks contract given out have already run their course – meaning once fully guaranteed base salaries are already paid…they’re no longer apart of future cap commitments…because they’re now in the past – not the future. Much of Seattle’s deals have large guaranteed chunks at the very beginning of their deals.
It’s important to note that cap commitment isn’t a bad thing – it only becomes a bad thing if anyone of those highly paid, fully guaranteed players starts to perform at less than productive levels.
Bryce Johnston, from Over the Cap, added all the cap commitments of all 32 teams and found the average cap commitment of an NFL team. Finding the average commitment is important because all this cap spending is relative. Bryce explained this way better than I ever could:
"If every team has "mortgaged its future" to the same degree, then no team has actually mortgaged its future at all, because all teams will be competing for players in the free agency and trade markets with equal ability to spend. As a result, signing players to significant contracts only supports the MFA with respect to a given team if those contracts put that team in a more committed future salary cap situation than the other teams in the league."
Per Bryce’s calculations and relative to the NFL standard level of cash spending – the Miami Dolphins have spent 224% more of their future cap space than the average NFL team. The Buffalo Bills are at 190%, the Ravens at 181%, and the Chiefs at 167%. Again – this isn’t necessarily bad unless players start to underperform or get injured (which does happen).
Cap flexibility is determined by amount of debt (acquired through future signing bonuses) and cap commitment (the amount of future guaranteed base salaries). Cap space is temporary. It’s kind of like the tip of the iceberg. Everyone looks at a team’s cap space as the ultimatum – but the ability to freely open up space quickly is of far greater importance. This is why having cap flexibility is so crucial to the cap structure of an NFL team.
Some teams can open up cap space very quickly. Others can’t. The teams that have more cap debt and more cap commitments have less cap flexibility. Relative to the NFL average, the teams with less cap debt and less cap commitments have more cap flexibility.
Teams with the most cap flexibility and the strongest core of franchise players have the healthiest cap situations in the NFL.