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Pass the test and you're a cap master

Posted Mar 6, 2013

With free agency just around the corner, here's all you need to know about the salary cap


GREEN BAY—What appears below are the basic ingredients involved in structuring a player’s contract to achieve a desired salary cap number. Read the descriptions and then take the quiz. It’s OK to refer back to the descriptions for guidance. If you solve the problems in the test, you’re a cap master.

Salary—This is also known as “paragraph five salary” because it appears in the fifth paragraph of the standard player contract. By definition, it’s what a player receives in weekly compensation during the regular season. Its full amount must appear in each team’s annual salary cap. In other words, if a player is paid $1 million in “paragraph five salary” in a particular year, all of that money must be applied to the team’s salary cap in that year.

Signing bonus—This is money given to a player for having signed a contract. Its amount is divided by the years of the contract and applied evenly to those years of the team’s cap, up to five years. The payments may be deferred but how they’re charged to the cap doesn’t change. Signing bonus is often used as an instrument for pushing money out of a given year and into the future; that’s accomplished by a common contract restructuring tactic in which that portion of a player’s salary above the minimum wage is paid to the player as signing bonus, which allows that amount to then be spread evenly on the team’s cap over the life of the contract. Bingo! You got cap room.

Roster bonus—It’s a specified amount of money paid to a player on a specific day in or out of the season. Its full amount is charged to the cap in the year it’s paid. This is a tactic often used for prepaying on a team’s salary cap; the Eagles made it popular. For example, a young team with a lot of cap room might elect to do long-term contracts with its young core players, and pay those young players big roster bonuses that eat up cap room in the present that will allow for cap room in the future when the team becomes a Super Bowl contender. As a result, cap room will be available for the team to make a key free-agent acquisition that could put the team over the top.

Incentives—They are either likely to be earned (LTBE) or not likely to be earned (NLTBE). If they are LTBE, the amount of money the player would be paid must appear on that year’s cap. If they are NLTBE, that amount does not appear; if the player realizes those incentives, that amount will be applied to the following season’s cap. Conversion of LTBEs to NLTBEs is also a means for pushing money out. An incentive becomes LTBE if the player had reached that incentive the previous season. If you restructure the player’s contract to eliminate that incentive and designate a new incentive he had not reached in the previous season, the incentive becomes NLTBE and you got cap room. Of course, the player will likely want a little extra money for agreeing to restructure his contract to help the team.

Voidables—This is the ultimate in legal cheating. It’s a way to push out signing bonus by adding dummy years to the contract. Because the contract was written for, say, five years, all of the signing bonus can be prorated over that period of time, even though the contract voids on a date after, say, the second year of the deal. The downside to this tactic is that all of the remaining signing bonus amortization comes onto the new year’s cap when the contract voids. You lost cap room.

Dead money—Also known as acceleration because its expiration accelerates, dead money is what appears on a team’s salary cap from a player who is no longer on the roster. He has been cut by the team or his contract voided with bonus amortization remaining to pass through the team’s salary cap. For example, a player who signed a five-year contract but was cut after four years is likely to have a year of signing bonus amortization remaining. That signing bonus amortization now appears on the team’s salary cap as dead money.

June 1—If a player is cut before June 1, all of his remaining amortization (acceleration) comes into the current year. If he’s cut after June 1, then what’s in the year stays in the year and everything else goes into the next year. Each team has two pre-June 1 exemptions in which those players may be cut before June 1 but treated on the salary cap as though they were released after June 1.

Here’s some additional information you won’t need for the quiz, but you better know this stuff if you’re going to be a cap master.

RFA tenders—There are four levels, none of which guarantees a player’s salary. Any team signing an RFA owes that player’s original team compensation. 1.) The original team receives right of first refusal and draft choice compensation equal to the round in which the player was selected. This level paid the player $1.26 million in salary in 2012. 2.) Right of first refusal and second-round compensation; it paid $1.927 million in 2012. 3.) Right of first refusal and first-round compensation; it paid $2.742 million in 2012. 4.) Right of first refusal and first-round compensation, and the signing team may not include franchise or transition tag language in the offer sheet (poison pill protection); it paid $3.242 million in 2012.

Franchise tag—There are two franchise tags. The exclusive franchise tag pays the average of the five highest salaries at the player’s position as of the end of the RFA signing period, or 120 percent of the player’s previous year’s salary, whichever is greater. Exclusive franchise players are not free agents and cannot negotiate with another team. The nonexclusive franchise tag pays the average of the five highest salaries at the player’s position over the last five years, or 120 percent of the player’s previous year’s salary, whichever is greater. The player is a free agent and may negotiate with other teams. The original team may match any offer from a signing team, or decline to match and receive a first-round pick this year and next year from the signing team. The picks must be the signing team’s original picks or higher.

Transition tag—It pays the player at the average of the top 10 salaries at his position over the last five years, or 120 percent of his previous year’s salary, whichever is greater. The player is a free agent and his original team may match any contract the player receives, or lose him without compensation.

Exclusive rights player—The player’s contract has expired but he has not accrued enough seasons to have reached RFA or UFA status. He is usually sent a letter by his team informing him he will be paid the minimum wage tender.

OK, are you ready to cap somebody? Let’s start with an easy one.

Problem one—This player has signed a four-year contract that includes a $4 million signing bonus and salaries of $750,000 in 2013, $1 million in ’14, $1.25 million in ’15 and $1.5 million in ’16. What is his cap number in each of the years of his contract?

I knew you wouldn’t have a problem with that one. Now let’s take it up a notch.

Problem two—This is one of the core players on your team. He signed a five-year deal three years ago; it included a $20 million signing bonus. He has two years left on that contract, which would pay him $13 million in salary in 2013 and $14 million in ’14. The contract was written to spike in salary that way as a means of forcing the team to do a new deal by the fourth year. This is the fourth year and the player and the team have agreed to a three-year contract extension that converts his $27 million in salaries in ’13 and ’14 to signing bonus. His new salary in ’13 is $750,000. How much cap room did the team create in ’13 by doing this extension?

All right, get past this one and you can officially call yourself a cap master. Here we go.

Problem three—One of your older players is set to become a free agent. He is still performing at a high level but it would be a risk to do a new long-term deal with him, so the team does a voidable that would pay the player the top dollar he deserves, but without taking up too much cap space and allow the team to get out of the contract should the player’s skills decline. The contract is for five years, but it voids after two. The signing bonus is for $15 million and the player is to be paid salaries of $1 million in each year of the five years of the contract. In addition, he is to be paid a roster bonus of $5 million if he is on the roster on the first day of the league year in 2014. He also has NLTBE incentives totaling $1 million in ’13. What is his cap number in ’14 if he achieves his incentives in ’13 and his roster bonus is paid? Also, what are his cap numbers in ’15 and ’16 if you cut him after June 1, 2015?

All right, time to go to work. The answers to the three problems above will appear in Monday’s “Ask Vic.”

 
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