The football fan is constantly bombarded with the phrases such as salary cap and cap number.  Unlike most people, readers of Profootballtalk, know that these phrases have nothing to do with hats.  Incident to my ongoing objective to help you better understand the business side of the NFL, the following is a summary of the nuances of how a player’s salary cap number is computed. 

SIGNING BONUSES 

Signing bonuses and any amounts treated as signing bonuses are prorated equally over the length of the player’s contract for purposes of calculating the player’s salary cap number.  For example, if a $5 million signing bonus is paid on a five-year contract, the signing bonus will count $1 million annually against the team salary for each of the five years even though the player receives the full $5 million in the first year.  The amount of the signing bonus is simply divided by the number of contract years.  Note, however, if a player is released or retires before the end of the contract period, the general rule is that the remaining portion of the salary cap is accelerated so that the entire remaining portion of the bonus amount is recognized against the team’s salary in the year the player’s employment terminates. 

RENEGOTIATION/SIGNING BONUSES 

If a signing bonus is given in conjunction with a renegotiation and/or extension of a previously existing contract, the new signing bonus is prorated over the length of the new contract years, including the year that the renegotiation takes place.  For example, if a player was signed to a two-year contract for 2000 and 2001 and then receives a new signing bonus in during the 2001 season in exchange for adding two additional years (2002 and 2003) to the contract, then the new signing bonus is prorated (one-third in each year) equally over 2001, 2002 and 2003, not just in 2002 and 2003. 

PARAGRAPH  5 SALARY 

A player’s paragraph 5 salary (“base salary”) is always counted against team salary in full in the year that it is earned.  If a player is scheduled to make a base salary of $500,000 in 2002, then all of the $500,000 counts against his team’s salary cap that year. 

LIKELY TO BE EARNED (LTBE) COMPENSATION 

Other amounts players earn count against team salary only if they are likely to be earned (“LTBE”).  These other amounts include, but are not limited to, performance and honors incentives, roster bonuses, reporting bonuses and off-season workout bonuses.

To determine whether a performance or honor incentive is LTBE for veteran players, you need to examine the player’s and/or team’s prior year on-field performance.  If a running back will earn a $100,000 incentive if he has 1,000 rushing yards in 2002, his 2001 performance must be analyzed to determine if the 2002 incentive is LTBE (“likely to be earned”), thereby immediately counting $100,000 against the salary cap in 2002.  If the player rushed for 1,000 or more yards in 2001 then the incentive is LTBE in 2002 (i.e., counts against the 2000 salary cap).  If the player rushed for less than 1,000 yards in 2001 then the incentive is not likely to be earned (NLTBE) and does not count against the salary cap in 2002.  The same rule applies for any team incentives that are negotiated.  Note there are some exceptions to these basic rules. 

Per the CBA, there are different sets of incentives for rookies in the NFL.  For example, an incentive for a third round wide receiver that entitles the player to $10,000 if he has 6 Receiving Touchdowns would count $6,666 against the team’s Entering Player Pool and overall team salary cap via the rookie incentive chart contained in the CBA.  As is the case for veteran contracts, they are various defensive and offensive incentives for drafted and undrafted players. 

ROSTER BONUSES   

Roster bonuses are treated in a manner very similar to performance bonuses.  For veterans, the player’s prior year is examined to determine to what extent a roster bonus is LTBE for the current league year.  For example, if a player was a member of the 53 man roster for 14 games in 2001 and has a roster bonus for $50,000 if he is a member of the 53 man roster for the same or fewer amount of games in 2002, then the full $50,000 is LTBE in 2002 and counts against the salary cap.  If the bonus is written so that it is paid only if the player is on the 53 man roster for more than 14 games in 2002, then the roster bonus is NLTBE for purposes of 2002 and does not initially count against the team’s salary cap.  It should be noted, however, that unlike performance incentives, NLTBE roster bonuses will count against a team’s salary cap immediately once it is actually earned by the player (i.e., will count against the 2002 salary cap upon the player being on the 53 man roster for his 15^th game). 

For rookies, a chart noted in the CBA is utilized for purposes of determining the salary cap “hit” of a roster bonus.  Generally a regular season roster bonus that a drafted player receives if he makes the team will count 100% against the team salary cap in the contract year in which it is earned while an undrafted player’s roster bonus counts only 30% of the total bonus amount against the salary cap. 

Regardless if the player is a veteran or rookie, any roster bonus that is guaranteed is treated as a signing bonus and thus prorated equally over the length of the contract for salary cap purposes. 

REPORTING BONUSES 

All non-guaranteed reporting bonuses are LTBE and count in full against team salary in the year they are earned.  This is true for both veterans and rookies.  If a reporting bonus is guaranteed, then it is treated as a signing bonus and prorated equally over the length of the contract for salary cap purposes. 

WORKOUT BONUSES 

Workout bonuses are automatically LTBE and count in full against team salary in the year they are earned.  If the workout bonus is guaranteed, then it is treated as a signing bonus and prorated equally over the length of the contract for salary cap purposes.

RECENT CHANGES FOR VETERAN CONTRACTS

The recent extension of the Collective Bargaining Agreement  implemented a new system to make it less costly for teams to retain older veterans at the league minimum salary.  Per the new provisions, the Salary Cap count for a player with 4 or more Credited Seasons (i.e., on 53 man roster for at least 3 games in a season) who signs a Qualifying Contract will be the same as the salary cap count for a player with 3 Credited Seasons.  For example, in the 2002 League Year, a qualifying player with 5 credited seasons will receive a minimum salary of $525,000; only $450,000, however, will count against the team's Salary cap (under the previous rules, the entire $525,000 would count against the cap)  Similarly, a player with 12 Credited Seasons would be entitled to a minimum salary of $750,000: once again, however, only $450,000 will count against the team's salary cap.

In order for a contract to be deemed a Qualifying Contract under the new rules, it must be a new one year contract for the minimum salary in existence per the CBA in the year the contract is signed.  Additional compensation in the contract is limited to a maximum of $25,000, which includes the sum of all amounts paid for a signing bonus, a roster bonus, reporting bonus and incentive bonuses (whether or not likely or not likely to be earned). Note, however, the contract can be guaranteed up to the amount of the minimum salary for a player with 3 Credited Seasons ($450,000 in 2002). 

COMPUTATIONAL EXAMPLES