Monday Money Matters
This week will be a busy one for general managers and Cap managers throughout the NFL. As of 4 p.m. EST Saturday, team Salary Caps will freeze (appropriate word for this time of year) until they re-open for business under the new 2009 Salary Cap number projected to be around $123M when franchise players are named in mid-February. And, as mentioned here often, the NFL Salary Cap operates in a use-it-or-lose-it manner, meaning that any leftover Cap room at the end of the year (Saturday) goes wasted. Therefore, there are maneuvers that teams will use to ensure they are not leaving money on the table. With $170M in available Cap room around the league as of this weekend an average of $5.3M per team there will be a lot of maneuvering before Saturday.
The most obvious way of using Cap room is to extend key players for future years of contract. However, despite the momentary discussion in November about the prospect of more deals being done to ensure the pre-Obama tax rate, this has not happened to any degree. The only notable extensions since the Bills re-upped Lee Evans on Oct. 2 have been those of Aaron Rodgers of the Packers and the two large cornerback deals, Chris Gamble of the Panthers and Corey Webster of the Giants. There does not appear to be a rush for more of these this week.
Another way leftover Cap room is soaked up is through earned incentives. Without getting too technical, NFL teams go through a netting process at the end of the season where unearned LTBE (Likely To Be Earned) incentives are netted out against earned NLTBE (Not Likely To Be Earned) incentives, creating a debit or credit toward the 2009 Salary Cap. Some teams are more incentive-oriented than others. At the Packers, I did not negotiate many incentive-laden deals unless they were for players coming off injuries, as experience showed that incentive-laden deals tend to lead players toward selfish rather than team-based goals.
Finally, the most common way of using up leftover Cap room at the end of the season is through a somewhat silly but allowable mechanism of phony incentives. By including a new incentive in a renegotiated contract at the end of the season, the incentive is by rule considered LTBE, thereby immediately counting against the Cap. Thus, when the incentive is not earned, and it never is, the money is then credited toward the next years cap, resulting in the double benefit of using up current Cap room and crediting new Cap room toward the next year.
As to how the above works, consider the following: A team will approach its third-string quarterback with one game left in the season and negotiate a clause that gives the player $5M for throwing 6 touchdown passes during the season. The $5M comes off the existing Cap, and when unearned, credits against the coming Cap.
I did this a couple of times with Craig Nall, bless his heart although I had a couple heart palpitations one year when we wrapped up a playoff berth moments before our last game against the Bears, making it entirely meaningless. Brett Favre only played a series or two, then Doug Pederson played the rest of the half. Then, to my surprise, Craig was to play the entire second half. After he threw a touchdown, I laughed. If he had thrown another, I would have started to worry a bit. If he had thrown a third, I may have come down to the sideline and pulled him out of the game myself!
Teams take various forms with this tactic. There are some 5 blocked punt incentives or 10 sacks incentives for players who rarely play. Due to the fact it is use-it-or-lose-it with Cap room, this becomes an allowable way for teams to push it out.
Thus, although the Cap this year is set at $116M and next year at $123M, few, if any, teams actually have that number as their Cap number. Due to the netting process and this form of phony incentive credits, most teams had a lot more room than $116M this year and will have more than $123M next year. Their Adjusted Cap number can be much larger, as much as $130M for this year and $145M next year for some teams.
The only rub with this tactic is the NFL Players Association. As this mechanism is not a real use of Cap room toward actually paying players, there have been questions about it and warnings to agents about letting their players do this. However, the union has now taken the position that as long as a team has spent to its minimum Cap-spending limits around $100M this year there is no problem with agents and players doing this. As the minimum is not a problem for any team now, we will see this technique used prevalently over the next few days.
Hope you enjoyed NFL Salary Cap 101 for today