The Dallas Cowboys face some issues under the NFL salary cap this year. The biggest ones involve what to do about DeMarco Murray and Dez Bryant, free agents now. Of course, the cap affects the entire roster. In order to sign the entire 53-man squad, all have to fit under the cap, and this not only involves who to sign and how much to pay them, but the various manipulations of money to create cap space.
We talk a lot about the cap, but it is a complicated topic. With how much attention we pay to it, I thought I would cover a little bit of the background of the cap. I do want to say that this is my understanding of things, and I am trying not to get overly technical. I am not going to get into all the various possibilities the Cowboys have to create space to re-sign their own free agents or bring in new people when free agency opens up outside of an example or two as illustration. This is intended to provide a little context for what all the cap talk is really about. If you want to see the actual contracts involved, a couple of excellent sources are Spotrac and Over the Cap.
First of all, why does the salary cap even exist? That goes into the whole concept of the NFL. Pro Football has become the undisputed leader in American sports, which means it is the biggest market in the sports world after soccer, or the sport called football by most of the rest of the planet. The numbers are staggering, billions of dollars in ad revenue and merchandising. Football has surpassed baseball, which is now a largely regional sport, with anemic television ratings even for the World Series, and the NBA and NHL have just not reached anywhere near the level of the NFL. Part of it has to do with the fact that NFL teams only play once a week during the regular season, and every game matters so much more than they do during the seemingly endless regular seasons of the other sports.
The NFL also is a much more collective organization than the other sports, with revenue sharing that makes even the most unsuccessful franchises lucrative possessions for their owners. But the league also does not want to have a situation where the more wealthy franchises can outbid the other teams for talent, such as exists in baseball. With a much more national fan base for the teams, it is in the best interest of the league to do whatever it can to keep have a situation where the teams who are doing poorly have a real ability to catch up. The salary cap set a limit on how much each team could spend on salaries, which was intended to even out the talent level between franchises. The constant churn in the teams that make the playoffs each year is one clear piece of evidence that it works. The fact that a small market team like the Seattle Seahawks are defending their championship from last year after so many years as an also-ran is another.
One of the motivating factors for the development of the salary cap was Jerry Jones, who was seen as using the cash flow he was generating with the resurgent Cowboys in an attempt to buy his third Super Bowl title. To a large extent that is what he did by outbidding everyone for the services of Deion Sanders. The salary cap was born largely to keep him from creating an NFL version of the New York Yankees where no one could compete with him for big-name free agents.
The cap is also something that the NFLPA negotiates with the league. They seek to increase the amount of money available to pay their members, and part of the negotiations for each new Collective Bargaining Agreement is how to calculate the cap, and what revenues are counted in the calculation. The biggest part of the revenues is the money paid to the league for rights to broadcast the games. The owners, or at least most of them, seek to keep this as low as possible, because that gives them more money to keep. In this area, Jerry Jones is in much better shape than most of his fellow owners, because he is the only owner to keep all of his own merchandising revenue (the other 31 teams pool this money), and he also has the huge income generated by AT&T Stadium, which he owns as part of the team. He has shown he doesn't mind paying his players, and probably chafes somewhat under the cap limits.
But the salary cap does not control how much money is actually paid to players in a given season. It is a complex accounting system. Salaries in the NFL are different from those in other sports. When a baseball or basketball player signs a contract, it is guaranteed. In the NFL, only part of a contract, or at times none of it, is guaranteed. If a player is released by his team, any non-guaranteed money just goes away (once a minimum number of games is played). In the case of guaranteed money or bonuses, this is prorated, and that pushes any of that money into a set number of years after the player is cut. In looking at a contract for a player, you can judge the real value the team places on a player by how big the guarantee is, if there is any at all. A small guarantee, such as the contract Henry Melton signed, with a big total number is pretty meaningless. The total deal was for $27.5 million, but with only $1 million guaranteed, the team can cut him for a minor cap hit of about $750,000 - and get back about $9 million for the cap this year. Given Melton's ending the season on IR, that is pretty much a done deal.
This allows teams to push money into coming years. The cap has been increasing yearly, and is estimated to be $140 million for 2015. Teams that push money forward this way are in essence capitalizing on the expected higher ceiling. One way to do this is to convert salary to bonus money, spreading it out over the length of the contract. The team has to account for the money eventually, but it can almost always open up more space in the current year.
This manipulation does not change how much money the player is actually paid, since this is done dealing with players who have large guarantees, like Tony Romo. According to the figures at Spotrac, his contract, which began in 2013, was for $108 million, with $55 million guaranteed. In 2015, the third year of his deal, he has a cap hit of $27,773,000. That splits up into $17 million base salary, and cap charges of $5 million for his signing bonus, $1.635 million for an option bonus, and $4.138 million for a restructuring bonus from when the team moved cap money around already. The charges are done, and with the cap charges that would have to be paid if he were to be cut, he has a huge dead money figure of $37.408 million if the Cowboys were to go crazy and release him.
But that $17 million represents money that could be converted all or partly to bonus money, spreading it out over the remainder of his contract. Yes, the team could gain a lot of cap space now, but would limit itself in the next few years.
That is the discussion involved, and why the Cowboys, and all teams, have to take care with the cap. You can only manipulate the numbers so much. It's why Dallas may want to avoid using Romo's salary to gain cap space, since they can clear a lot of cap liability if they don't mess with his salary. Even without touching him, the team can still come up with $31 million in space, assuming the projection of $140 million for this year is correct. That may be enough. And if they need less than the full $17 million represented by Romo's salary, they could still do a partial restructure.
The Cowboys, and it is assumed most if not all NFL teams, build in restructuring for their big money deals. These do not change the amount the player receives by one cent, just how it shows up in cap accounting.
With Stephen Jones as the guy in overall charge, Dallas has done pretty well of late. Expect that to continue.
Like I said, this was not meant to make anyone an expert in the cap, just to cover some of the basic elements involved. Given the success the league has had under the cap, and the way teams have been able to improve fairly rapidly under it, it is not likely to change much, at least before the next Collective Bargaining Agreement is negotiated.