The Art of Navigating the NFL Salary Cap

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The Art of Navigating the NFL Salary Cap
Charlie Riedel/Associated Press

The Seattle Seahawks' dominant Super Bowl XLVIII win was seen by many as a triumph of defense.

Really, it was a triumph of cap management.

With two elite players at premium positions (quarterback and cornerback) signed to mid-round rookie deals, the Seahawks had the cap flexibility to address their top need in the 2013 offseason with two of the best free agents available: Cliff Avril and Michael Bennett.

Seahawks general manager John Schneider still had the resources to add the ultimate luxury: sparkplug Percy Harvin. Harvin's big-play ability as a receiver, returner and rusher cost the Seahawks a first-round pick, and also resulted in the team signing the playmaker to a six-year, $64 million contract, per Spotrac.

Harvin's lingering injury problems kept him off the field for most of the regular season; his only complete game this year was in the Super Bowl. How many other teams could sign a player to that kind of a contract, get no production out of him all year and still be the best team in football?

Yet, Harvin's two big end-arounds and kickoff return were major reasons the Seahawks' early lead became a late blowout. He was a luxury buy, but in the end he was worth every penny.

How does Schneider, and other top NFL GMs, play the salary cap like a fiddle?

 

The Great Equalizer

The NFL's salary cap has been finely tuned over the last two decades to maximize competitive balance. Instead of the best-run teams becoming dynasties that win championship after championship, the NFL's best-run teams simply never stop contending.

Using salary-cap data from OverTheCap.com, and Football Outsiders DVOA, we can see a strong correlation between cap spending and team performance in 2013:

Ty Schalter/Bleacher Report

Teams above the red line are beating the system, getting more production for their dollar. It won't surprise you to learn the topmost dot is the Seahawks, the second-highest dot is the runner-up Denver Broncos. Though they achieved the NFL's best overall performances, and they're well above the salary-to-production ratio of the rest of the league, they're all the way to the right; they maxed out their cap in the process.

The team represented by the third-highest dot, the Carolina Panthers, carried quite a bit of excess cap throughout the season; this made them arguably the NFL's savviest spenders in 2013.

It probably won't shock anyone reading this that the NFL's biggest disappointments, the Houston Texans, are the bottom-right point; they had a cap charge of over $115 million and finished with the league's third-worst DVOA. The Minnesota Vikings, New York Giants, Jacksonville Jaguars and Washington round out the worst cap-to-performance values.

These numbers represent cap savings through talent optimization: great scouting, great drafting, great coaching and a front office working in perfect sync with its coaching staff.

 

Cap Wizardry

There's another way to beat the cap, though: accounting trickery. Through mastery of the collective bargaining agreement's more obscure rules, clever general managers can actually lay out more cash to their players than will get charged against their salary cap.

OverTheCap.com tracks "cash-over-cap" spending, as it's called, and the teams that do it the most are working overtime to get around one of the strictest salary caps in professional sports.

Here are the top five and bottom five "cash-over-cap" teams from the 2013 season:

Ty Schalter/Bleacher Report

The Detroit Lions, who were weighed down by several massive rookie contracts from before the 2011 CBA eliminated them, are nearly on top of the trendline in the above graph ($104,771,088 cap charge, minus-0.02 DVOA). However, they're the NFL's most clever team when it comes to cap and contracts.

Laying out $161,015,390 in total cash, the Lions spent 48.2 percent more than their charged cap number. The Miami Dolphins, Green Bay Packers, Atlanta Falcons and Kansas City Chiefs all spent at least 27.7 percent more cash than was counted against their cap.

How did they do it? Here are some of the best ways to stretch salary-cap dollars:

  • Prorated Bonuses
  • Simple Restructuring
  • Incentives
  • Cap Carryover

Prorated signing or roster bonuses are the most basic way teams get money to players without charging it against their cap. When a top veteran or draft pick signs a rich multi-year contract, teams load a lot of the money up front in a signing bonus paid shortly after signing.

The player gets a quick lump sum, and the team can prorate (spread out) the hit over the length of the contract or five years, whichever is shorter.

Let's use Harvin's contract as an example. His signing bonus was $12 million, per Mike Florio at Pro Football Talk, and his contract is six years long. With the five-year limit, the cap hit for that $12 million (which Harvin was paid in full before the end of 2013) was just $2.4 million in 2013; there'll be another $2.4 million cap hit for that payment in 2014, 2015, 2016 and 2017.

The dangers here are twofold.

First, the more money that's prorated, the bigger a chance there is for "dead money" if he doesn't work out. If the Seahawks cut Harvin tomorrow, the cap hits for all of the next four seasons would immediately come out of the 2014 cap—and they wouldn't get the benefit of Harvin's talent on the field.

Second, money paid to a player as a signing bonus is effectively guaranteed; you can't reach back into his bank account and take the cash back if he performs poorly or is hurt. NFL contracts usually contain minimal fully guaranteed money for a reason: Players often get hurt and frequently underperform on the back ends of big-money deals.

Jim Mone/Associated Press

If a team is pressed for cap room in a given year, a simple restructuring of one of these long-term contracts can free up quite a bit of cash. The Lions did this with quarterback Matthew Stafford, defensive tackle Ndamukong Suh and receiver Nate Burleson in the spring of 2012, enabling them to get out from under three of their biggest contracts (for that season, at least).

A restructured contract is for the same amount of money and years as the remainder of the original contract, but it takes the base salary owed for the upcoming season and converts almost all of it to a signing bonus—which can then be prorated over the remaining life of the deal.

In Suh's case, the Lions paid him a lump sum of $9.71 million in 2012, per Spotrac, and his base salary was reduced to the veteran minimum of $540,000. That bonus was then prorated out over 2012, 2013, 2014 and 2015—on top of his original prorated bonus cap hits.

Per Spotrac, Suh's base salary was $540,000 in 2013, but that plus the hits from his original $13 million bonus and 2012 restructuring pushed his cap number to $6.56 million. In 2013, the Lions simply restructured Suh again; he received an $11.2 million payment, the cap hit for which was prorated over 2013, 2014 and 2015.

Over 2012 and 2013, Suh pocketed a combined $22.4 million in base salary and bonuses, but he counted for only $17.1 million against the cap in those seasons. This is a great deal for both sides: The Lions clear up cap space, and Suh gets almost all of his money for the year in a guaranteed lump sum.

Again, though, any time a club guarantees a player money, there's risk. Mark Levin, the NFLPA's director of salary cap and administration, told Mike Garafolo of USA Today Sports that teams need to choose who they restructure very carefully.

The important thing from a club's perspective is to pick the guys on the roster who are going to be on the roster for two or three more years. You're not going to pick a 12-year veteran to renegotiate his cap number and push out more money if you can avoid it. You want to pick your star players you suspect will be on the team so you don't have a big dead-money problem.

As young and talented as Suh is, the Lions can't keep kicking the can down the road; Suh's cap hit for 2014 is estimated by Spotrac at $22.4 million, and there's only one more year left to prorate over. They'll have to sign him to a new long-term extension or face him hitting the open market after 2015.

Performance incentives come in two flavors: "Likely to be Earned" (LTBE) and "Not Likely to be Earned" (NLTBE). These can be a little counterintuitive, as they're based mostly on a players' statistical performance from the year before.

If the Broncos signed quarterback Peyton Manning to an extension before the 2014 season and included a $10 million "throw-for-55-touchdowns" incentive, it would be "Likely to be Earned" as Manning threw for 55 touchdowns last season—regardless of whether Manning's actually likely to repeat that feat—and, therefore, count against the cap all season long.

Jeff Roberson/Associated Press

If Manning didn't match his record production of 2013 in 2014, though, that $10 million cap charge would become a cap credit in 2015. Teams used to use incentives like this to effectively "carry" cap space from one season to the next, but the new CBA took it one step further: Teams can simply choose to carry remaining cap space over from one year to the next.

There's a limit to how much cap space can be carried over, though, because from the 2013 season on out, a team has to spend at least 89 percent of its unadjusted cap space over a rolling four-year period. However, that word "unadjusted" is huge.

Let's say a team chooses to spend exactly 89 percent of its share of the salary cap over each of the next four years, rolling over the surplus each time. In the fifth season, the team will still only have to spend at least 89 percent of the standard 2018 salary cap all NFL teams will have—but that team's adjusted 2018 cap number will include that compounding 11 percent that's been growing exponentially since 2014.

Supposing the league-wide salary cap stayed flat at $125 million over the next four years, a team that spent $111.25 million each year and rolled over the remainder would have a whopping $180 million to spend in 2018.

Of course, if they spent every dollar of that $180 million in cap charges, next season they'd need to cut $55 million off the roster to get under this imaginary (and unrealistically flat) cap.

This is why the Seahawks have a real challenge ahead of them.

Ted S. Warren/Associated Press

They spent up all their cap space wisely and effectively, but OverTheCap.com estimates their 2014 cap space at negative $543,803. They've got no cap room to roll over, a bevy of free agents to re-sign and those bargain-basement players like Russell Wilson and Richard Sherman are going to demand massive contracts sooner rather than later.

Winning the Super Bowl earns a general manager a few years' grace, though, and Schneider's proven he knows how to draft well and build a team. If he can prove he's mastered the art of navigating the CBA's finer points, too, the Seahawks will become the kind of dynasty the NFL engineered the salary cap to prevent. 

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