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NFL Free Agency: A Basic Explanation of the Complex Concept of "Dead Money"

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NFL Free Agency: A Basic Explanation of the Complex Concept of
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NFL free agency has football analysts liberally using the term "dead money," and while many NFL fans assume that dead money is a bad thing, they do not know its exact function.

Simply put: Dead money is the salary cap space a team must allocate to a particular player who has been cut. It serves as a device to ensure that every dollar a team has paid players is eventually allocated to that team's salary cap.  And while there are several complexities in calculating dead money, this article seeks to provide the reader with a basic understanding of the general idea. 

Assume the New Orleans Saints sign "John Doe" to a five-year, $25 million contract with $17.5 million guaranteed. The terms of the contract include a $10 million bonus due at signing and separate workout bonuses, worth $500,000 each, that are payable once Doe has satisfied the offseason workout requirements.

Year Base Salary Signing Bonus Miscellaneous Cap Hit
2013 $600,000 $2,000,000 $0 $2,600,000
2014 $1,600,000 $2,000,000
$500,000
$4,100,000
2015 $2,600,000 $2,000,000
$500,000
$5,100,000
2016 $3,600,000 $2,000,000
$500,000
$6,100,000
2017 $4,600,000 $2,000,000
$500,000
$7,100,000
Total $13,000,000 $10,000,000 $2,000,000
$25,000,000

 

In the table above, the yearly salary cap hit is calculated for John Doe's contract. However, salary cap hits often differ from the amount of money a player was actually paid that year. One reason cap hits differ from the amount actually paid is that teams may "prorate" signing bonuses throughout the life of a contract. The table below shows when the money in Doe's contract is actually scheduled to be paid.

Year Base Salary Signing Bonus Miscellaneous Actually Paid
2013 $600,000 $10,000,000 $0 $10,600,000
2014 $1,600,000 $0
$500,000
$2,100,000
2015 $2,600,000 $0
$500,000
$3,100,000
2016 $3,600,000 $0
$500,000
$4,100,000
2017 $4,600,000 $0
$500,000
$5,100,000
Total $13,000,000 $10,000,000 $2,000,000
$25,000,000

 

Fast forward three years. After the 2015 season, the New Orleans Saints are considering cutting John Doe. So far, the Saints have paid Doe $15.8 million. 

Year Base Salary Signing Bonus Miscellaneous Actually Paid
2013 $600,000 $10,000,000 $0 $10,600,000
2014 $1,600,000 $0
$500,000
$2,100,000
2015 $2,600,000 $0
$500,000
$3,100,000
Total $4,800,000 $10,000,000
$1,000,000
$15,800,000

 

However, New Orleans has only taken a total of $11.8 million in cap hits attributable to John Doe. 

Year Base Salary Signing Bonus Miscellaneous Cap Hit
2013 $600,000 $2,000,000 $0 $2,600,000
2014 $1,600,000 $2,000,000
$500,000
$4,100,000
2015 $2,600,000 $2,000,000
$500,000
$5,100,000
Total $4,800,000 $6,000,000
$1,000,000
$11,800,000

 

If the Saints cut John Doe before the 2016 season, they would have to satisfy the terms of the contract before he could be released. Doe's contract guarantees that he receives $17.5 million, and the Saints have paid him a total of $15.8 million. Hence, New Orleans would need to pay John Doe the remaining $1.7 million he was guaranteed before he could be cut. 

The dead money associated with cutting Doe would be the total amount of money the Saints had paid him over the course of his contract, plus the remaining money he was guaranteed, minus the total cap hit New Orleans had taken for John Doe over the course of his contract.

Year Total Paid + Guaranteed - Total Cap Hits = Dead Money
Before 2016 $15,800,000 + $1,700,000 - $11,800,000 = $5,700,000

 

The dead money comes out to $5.7 million, which is only $400,000 less than the $6.1 million cap hit the Saints were scheduled to take from Doe's contract. Thus, New Orleans would not open up much cap room by cutting John Doe before the 2016 NFL season. 

The Saints decide to hold onto Doe for another year, and after the 2016 season, New Orleans is considering cutting him again. 

Year Base Salary Signing Bonus Miscellaneous Actually Paid
2013 $600,000 $10,000,000 $0 $10,600,000
2014 $1,600,000 $0
$500,000
$2,100,000
2015 $2,600,000 $0
$500,000
$3,100,000
2016 $3,600,000 $0
$500,000
$4,100,000
Total $8,400,000 $10,000,000
$1,500,000
$19,900,000

 

As seen in the table above, the Saints have paid $19.9 million to Doe in the first 4 years of his contract. New Orleans has satisfied the $17.5 million guarantee requirement in his contract, but New Orleans has still paid John Doe more than the cap hit they have taken for him.

Year Base Salary Signing Bonus Miscellaneous Cap Hit
2013 $600,000 $2,000,000 $0 $2,600,000
2014 $1,600,000 $2,000,000
$500,000
$4,100,000
2015 $2,600,000 $2,000,000
$500,000
$5,100,000
2016 $3,600,000 $2,000,000
$500,000
$6,100,000
Total $8,400,000 $8,000,000
$1,500,000
$17,900,000

 

If New Orleans decides to cut John Doe after the 2016 season, they would assume $2 million of dead money. However, the Saints would save $5.1 million in salary cap space by cutting Doe before the 2017 season due to the $7.1 million cap hit they were scheduled to take for his contract.

Year Total Paid + Guaranteed - Total Cap Hits = Dead Money
Before 2013 $0 + $17,500,000 - $0 = $17,500,000
Before 2014 $10,600,000 + $6,900,000 - $2,600,000 = $14,900,000
Before 2015 $12,700,000 + $4,800,000 - $6,700,000 = $10,800,000
Before 2016 $15,800,000 + $1,700,000 - $11,800,000 = $5,700,000
Before 2017 $19,900,000 + $0 - $17,900,000 = $2,000,000

 

Teams attempt to avoid too much "dead money" in their salary caps. But dead money is simply a sunk cost. If cutting a player creates $6 million in dead money and $4 million in salary cap space, a team should cut the player if it can upgrade at his position for less than a $4 million cap hit.

In the end, dead money is just one of the many variables teams must consider in a complex decision making process.

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