With the confirmation of DeMarcus Ware's contract extension, a question was posed as to how the salary cap works. A complete answer, with all of the legal terminology and cross-references to sections, items and subsections, could put grown men into the fetal position for an extended period of time.
So in an effort to convey some of the basics, I can only impart what I understand to be the essential concepts of the Salary Cap. For those who want to be brave, you can read the Collective Bargaining Agreement at the NFL Players website. Good luck with that!
To start, you will have to know what specific terms mean, such as Paragraph 5 Salary, Rule of 51, Proration and the like.
So let's get started.
More after the jump ...
Paragraph 5 Salary: This team is used to identify the fifth paragraph of an NFL Player Contract, which, as you may guess, details how much salary will be given to a player.
Rule of 51: This is a term commonly used to refer to Article XXIV, Section 7, subsection (a)(i) of the Collective Bargaining Agreement. It reads as follows:
"The highest applicable Salary set forth in Paragraph 5 of the NFL Player Contract shall be included in Team Salary in the Year earned, except that, between March 1 and the first day of the regular playing season, only the following amounts from Paragraph 5 shall be included for players whose Player Contracts are not among the Team’s 51 highest valued Player Contracts, tenders and Offer Sheets (as determined under this Section 7): (1) Any amount that exceeds the Minimum Active/Inactive List Salary for Undrafted Rookie Free Agents; and (2) Any amount that exceeds twice the applicable Minimum Active/Inactive List Salary for all other players."
What this basically means is that only the top 51 salaries on a team are used to calculate the team's salary cap, with the following two exceptions:
- Any amount that is more than the minimum base salary for an undrafted rookie, and
- Any amount that is more than twice the minimum base salary for all active or inactive players.
Since teams generally give undrafted rookies, this rule rarely comes into effect. But that's what it means.
Proration: This term identifies how signing bonuses are applied against the salary cap. In general, the amount of the signing bonus is divided by the length of the contract to determine how much of it applies to the cap for that year. Usually the maximum number of years you can use for proration is six (6) years, but there is one exception: the bonus can only be prorated a maximum of five years(5) for contracts entered into during the period after the last regular season game of the League Year preceding the Final Capped Year through the end of the Final Capped Year.
Since 2010 is an uncapped year, this means that Ware's signing bonus can be prorated over six years, but would have only been able to be prorated over five years if the extension had been done in this upcoming offseason.
Acceleration: This term defines what happens to the prorated portion of the signing bonus if a player is removed from the team's roster. This could mean a release, a trade, or if a player is lost via the waiver wire. Essentially, all future portions of the signing bonus are lumped together in the current year's cap number.
The exception to this rule is when a player is released after the June 1 date - a date that you have long heard of when teams are looking for additional players just before training camp. Releasing a player after June 1 allows the team to count the current year's prorated bonus amount to this year's cap and the remaining prorated portions against next year's cap.
So if a contract from this past summer had a prorated $1 million signing bonus with 3 years left, releasing the player prior to June 1st would mean the cap number for the bonus against this year would have been $3 million, but releasing the player after June 1st would have $1 million against this year's cap and $2 million against next year's cap.
Incentives: Incentives, often called "Likely To Be Earned", or LTBE, are special items placed into a contract that allows a player to receive money. Some are simple, such as a roster bonus, meaning the player must simply be on the roster to get the extra money. Others include pertain to some sort of performance threshold, such as workout bonuses, honor bonuses (Pro Bowl, etc.), reporting bonuses, or number of sacks, or receptions, etc.
To determine if an incentive is likely to be earned, you review the player's and team's performance the prior year. If a player receives an incentive for accumulating 15 sacks, then his performance from last year is looked at. If the player had 15 or more sacks, then the incentive is likely to be earned. If he had 14 or fewer, then it is not likely to be earned. Only LTBE incentives could towards the current year's cap. However, it is not likely to be earned, and the player gets 15 or more sacks, then the incentive amount is counted against next year's cap.
DeMarcus Ware's contract numbers are as follows:
Ware received a $20 million signing bonus and had $5 million of salary added to this year's contract. He also receives $500,000 a year in workout bonuses from 2011 through 2015.
- 2010 - $7.8 million
- 2011 - $6.7 million
- 2012 - $4.5 million
- 2013 - $5.5 million
- 2014 - $12.25 million
- 2015 - $13.75 million
Total Salary: $50.5 million
Signing Bonus: $20 million
Additional 2009 salary: $5 million
Incentives: $2.5 million
Total: $78 million
(Note: autographied $1 bill from Jerry - priceless)
His $20 million signing bonus can only be prorated over 5 years, since 2009 is the Final Capped Year (see Proration above). This means that the prorated portion of the bonus has a yearly impact of $4 million. So this year's cap number for the Cowboys was just increased by $9 million.
Adding the prorated bonus amounts to the salary, the cap hit is:
- 2010 - $11.8 million
- 2011 - $10.7 million
- 2012 - $8.5 million
- 2013 - $9.5 milliom
- 2014 - $16.25 million
- 2015 - $14.75 million
Now add the workout bonuses to 2011 and 2015, plus the additional salary money he got this year:
- 2009 - $5 million
- 2010 - $11.8 million
- 2011 - $11.2 milliom
- 2012 - $9 million
- 2013 - $10 million
- 2014 - $16.75 million
- 2015 - $14.25 million
Grand Total: $78,000,000
Plus, of course, the extra buck from Jerry...