1. What player transactions generate a charge against the salary cap?
There are a multitude of events that generate cap charge for a team. Players may generate a cap charge for a team even if they are not currently under contract.
The following items generate a cap charge:
- Active contract: A player under contract with a team for the current season.
- Dead money: Dead money is a term that refers to salary cap space that is occupied by a player who is no longer on the team. There are two items that can generate dead money. First, for cap purposes, signing bonuses are paid out over the length of the contract (up to five years). If a player is traded or released before his entire signing bonus has been paid, this remaining amount of signing bonus will accelerate and hit the team’s cap. Additionally, if a player has a guaranteed salary related to future seasons and is waived, these amounts will accelerate and hit the team’s salary cap. However, if a player is traded, this guaranteed salary amount would be the responsibility of the new team and therefore the only dead cap for the old team would be related to any unamortized portions of the signing bonus.
- Tenders: There are a number of tenders (contract offers) given to players that a team may have outstanding at any given time. While a tender is outstanding, a cap charge for the tender amount is applied to a team’s salary cap. The tenders are:
- Drafted rookies: Players taken in the draft are included in a team’s salary cap automatically at the minimum salary for an active player (player on active/inactive list) until the player is signed or waived. If the player remains unsigned through the Tuesday following the 10th week of the regular season, the player is not eligible to play that season and no longer carries a cap charge.
- Exclusive rights players: Players that have fewer than three years of experience and whose contract has expired may be tendered by their prior team for the applicable minimum active list Once tendered, the prior team has exclusive negotiating rights with the player and the tender amount is included in team salary until the player is signed or the team withdraws its tender.
- Restricted free agents: A player with three (but fewer than four) years of experience whose contract has expired may receive a tender, called the “qualifying offer” from the team he played for in the most recently completed season. By tendering the player with the qualifying offer, the prior team is eligible to match any contract offer the restricted free agent receives from any other team. The qualifying offer is included in team salary until: (1) the player signs the offer, (2) the offer is withdrawn, or (3) the Tuesday following the 10th week of the regular season.
Unrestricted free agents: Players who are unrestricted free agents because their contract has expired may be tendered with a “June 1 ” This tender provides the prior team with limited rights on the player. If the player has not signed a contract with another team by the later of July 22 or the first scheduled day of the first NFL training camp, and if the prior team made the June 1 tender, the player may only sign with the prior team. The player will be included on the prior team’s cap as of July 15 and thereafter until: (1) the player is signed, (2) the tender is withdrawn, or (3)the Tuesday following the 10th week of the regular season.
- Transition players and franchise players: The “franchise tag” or “transition tag” tenders are included in team salary once they are made until: (1) the player is signed, (2) the tender is withdrawn, or (3) the Tuesday following the 10th game of the regular season.
- Practice squad: All practice squad contract salaries are included in team salary.
- Termination pay: Players with four accrued seasons who are released during the season are eligible for termination pay once in their career. To the extent that a team is liable for termination pay, the liability is included in team salary at the time the player is released.
- Grievances: When a player salary grievance is filed against a club, a percentage of the amount claimed will be counted in team salary until the grievance is resolved or until the end of that League Year.
- Offseason workouts: Players receive daily per-diems for attending voluntary organized team activities (OTA) during the offseason. These payments are charged to the salary cap.
- Injury protection: Beginning in the 2016 League Year, any type of injury protection liability will be included in team salary for the League Year for which such injury protection applies or the League Year in which such injury protection is paid, agreed to be paid by settlement, or awarded, whichever is later.
2. What are the different payment structures that teams may use to pay players?
Every player contract has a base salary for each season covered by the contract. Additionally, the contract may provide players with other bonuses and incentives.
Every player has a base salary that they earn for playing in a particular League Year (season), regardless of their performance. As it is the fifth paragraph of the NFL contract template where players’ base salaries are listed, these salaries became known as “paragraph 5 (P5) salaries.” The CBA delineates the minimum salary a player must be paid based on his credited seasons (years of playing experience). Players need to be on the active/inactive roster for at least three games during the season to earn one “credited season.” The minimum salary for the 2016 season ranges from $450,000 for a rookie to $985,000 for a player with 10+ years of experience. There is no maximum amount a player may be paid.
Split salary: The CBA allows for contracts to provide a different minimum P5 salary amount for players not on the active/inactive roster. For example, if a player gets injured and goes on injured reserve and his contract called for a split salary, he would receive the lower, split salary amount (often referred to as the “down” amount) while on injured reserve. In 2016, the minimum split salary amount ranges from $333,000 to $478,000 depending on the player’s experience. The reason for this rule is that when a player is injured, his team will need to sign an additional player to take his place on the roster. The new player will require additional cap space. If the injured player has a split salary, it will help ameliorate the hit to the team’s salary cap. Teams will often require fringe players such as undrafted rookies or injury-plagued veterans to sign split salary contracts.
Signing bonus: This is a payment promised to a player upon the signing of a new contract or contract amendment/extension, regardless of the player’s future performance. The bonus does not need to be paid in full at the time of the contract and is often paid in several installments within a year of the contract signing.
Option bonus: An amount paid to a player when his team activates an option to extend the player’s contract.
The CBA allows teams to provide incentives to players in their contracts. The CBA has a list of approved incentives, which include specified statistical achievements related to either player performance (e.g., a threshold of running yards for a running back [1,000 yards, for example]), team performance (e.g., team wins), specified honors from the NFL (e.g., making the Pro Bowl), or specific honors (e.g., offensive player of the year) from specific media outlets (e.g., the Associated Press). If the statistical incentive, honor, or media outlet is not listed in the CBA, the incentive is not valid and not recognized by the NFL.
The CBA allows for additional incentives, including:
- Roster bonus: A bonus a player receives for being on a team’s roster on a certain date. The timing of the roster bonus varies by contract. Some players may earn the bonus within the first week of the League Year (early March), while, as specified by their contracts, other players may need to be on the active roster for a regular season game to earn the bonus. It all depends on what was negotiated in the contract. Of course, the earlier in the League Year the bonus is paid, the better for the player.
- Reporting bonus: A bonus a player receives for reporting to training camp on time.
- Workout bonus: A bonus a player receives for participating in an agreed-upon amount or percentage of optional organized team activities (OTA).