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Understanding Tony Romo’s Contract Is The First Step In Determining His Future

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When discussing what the Cowboys might do with Tony Romo this offseason, it’s helpful to understand Tony’s contract.

NFL: NFC Divisional-Green Bay Packers at Dallas Cowboys Tim Heitman-USA TODAY Sports

As many articles have discussed, both before and after the Cowboys’ season ended, Dallas is going to have to decide what to do with Tony Romo. Keep him? Cut him? Trade him? Let him retire?

This article is not intended to rehash those issues, but rather to make it clear how those choices will impact the Dallas Cowboys.

Tony Romo’s Contract And Cap Hit

According to Spotrac, Tony Romo contract looks like this:

Year Age Base Signing bonus Option bonus Restrucure bonus Cap Hit Dead Cap
2013 32 $1,500,000 $5,000,000 $1,635,000 $3,683,833 $11,818,833 $53,499,833
2014 33 $1,000,000 $5,000,000 $1,635,000 $4,138,000 $11,773,000 $49,181,000
2015 34 $1,000,000 $5,000,000 $1,635,000 $7,338,000 $14,973,000 $45,908,000
2016 35 $8,500,000 $5,000,000 $1,635,000 $5,700,000 $20,835,000 $40,435,000
xxx
2017 36 $14,000,000 $5,000,000 - $5,700,000 $24,700,000 $19,600,000
2018 37 $19,500,000 - - $5,700,000 $25,200,000 $8,900,000
2019 38 $20,500,000 - - $3,200,000 $23,700,000 $3,200,000

These are the important numbers from this table.

  • $14 million = Tony Romo’s 2017 base salary.

For anyone talking about having Dallas keep Tony Romo, this is the most important number. Unless he restructures his contract, this is the amount Dallas would lose in salary cap relief in 2017 compared to trading Romo, cutting him, or having him retire.

Critically, the cost of keeping Romo is NOT the cap relief Dallas would gain in 2017 from cutting or trading Romo. That number is Tony Romo’s 2017 cap hit of $24,700,000 minus his dead cap of $19,600,000, or $5.1 million. Often commentators suggest the Cowboys should keep Romo because he’s only “costing” them this $5.1M number. That is wrong. The cost is $14 million, which is the base salary Dallas will not have to pay if Tony Romo is elsewhere in 2017.

To give you some idea of how much $14 million would buy the Cowboys in other players, here are a few of the Cowboys’ free agents, their 2016 cap hits, and how many snaps they played this year. We have chosen players whose 2016 cap hits equal just over $14 million combined. All these players played a significant role for the Cowboys this year.

The other important point about $14 million is that it is the price other teams would have to pay Tony Romo in 2017 if they traded for him and didn’t re-negotiate his contract. That’s pretty cheap for a starting quarterback these days. It would rank Romo 23rd for average annual cost among starters. Moreover, if Romo were to get hurt again, another team would have no dead cap hit if they decided to move on.

  • $54 million = Dallas Cowboys’ cap savings from trading or cutting Tony Romo.

This number is the most important one, as it is the total cap savings over three years the Cowboys will reap once Romo is no longer on the Cowboys’ roster.

What is critical is to look at this number as a whole, and not worry that only $5.1 million of it will show up in 2017 once Dallas absorbs the $19,600,000 in dead cap space from trading or cutting Tony.

NFL contracts are often very cheap in the first year, with the larger payments in subsequent years. Let me use Travis Frederick’s new contract as an example.

In August 2016, Frederick signed a 6-year, $56.4 million extension with the Cowboys. That’s an average of $9.4 million per year. But the way this contract, like many others, is structured, it cost Dallas only $2.185 million on their cap in 2016. The cap hit in year two jumps to $14,871,000 because the base salary jumps from $691,000 in 2016 to $14,221,000. Dallas will reduce this 2017 cap hit by converting nearly all of this large salary to signing bonus and spreading it over the life of the contract. That’s one reason why Dallas is currently “over the cap” but in a position to get under the cap very quickly.

This approach can bite when players, like Tony Romo, end up at the end of their contracts carrying lots signing bonus money or converted bonus money, but it’s just the way Dallas does business. It also allows Dallas to take full advantage of the $54 million freed up by moving on from Romo, even though most of that money is not available in year one.

Dallas can fit several contracts into a structure where they have $5.1 million in year one, $25.2 million in year two, and $23.7 million in year three.

  • $5.1 million - the cap relief in 2017 from cutting or trading Tony Romo early on.

The last point to be made is why the Cowboys will not wait to resolve Tony Romo’s situation.

At the moment, the Cowboys are several million dollars over the 2017 cap. In this December analysis by our former colleague KD Drummond, he lays out how the Cowboys can quickly gain cap space by re-structuring contracts. Moving on from Tony Romo will add $5.1 million to this pool, and have the advantage of not pushing obligations down the road.

The key point here is that each team must be under the cap by the beginning of the new league year. In 2017, this date is March 9. This is also the first day teams can begin to sign free agents from other teams.

If Dallas has not cut or traded Tony Romo by this date, it must continue to carry his 2017 cap number of $24,700,000 until it does so. But if Dallas moves on from Romo, it will immediately free up $5.1 million that it can use to sign other players.

There is no need to make Tony Romo as post-June 1 cut (or trade). The reason often cited is that it frees up more than $5.1 million in 2017, while pushing off some of the dead money until 2018. But there are two problems with this idea. First, if Dallas took this option it would have to keep all $24.7 million on its books until after June 1. This ties up money that could be used for free agents during the period when they are available. Second, as discussed above, Dallas doesn’t need more cap space in 2017 if it can write contracts that push off the cap hit until year two or three or beyond, when the bulk of the Tony Romo money will become available.