The salary cap was designed to limit the amount of money a team can spend on player salaries. But teams quickly recognized that the best way to stay under the cap was by working around it. One way of doing this is by backloading contracts and pushing the big salaries into future years, with the expectation that a rising cap in future years will create more room under the cap.
These types of backloaded contracts are what we consider “cap-friendly” contracts, and Todd Archer of ESPN proposed just such a contract for Dak Prescott earlier this week. There are tons of largely ridiculous Prescott contract proposals out there, so why did this one pique our interest? Because Archer backloaded his contract proposal with voidable years.
The proposed [contract] would be a six-year deal that voids to four years.
How is this going to work, you might ask, if Prescott’s people have already shot down the Cowboys’ five-year contract proposal and continue to insist on a four-year deal? Archer explains:
Both sides can then claim a win. The Cowboys can get their salary-cap flexibility in the first two seasons of the deal when teams will be paying somewhat of a price because of the coronavirus pandemic (the NFL’s salary cap is projected to be down, at roughly $180 million for the next year), and Prescott can be back on the market in 2025.
A perfect solution? Probably not, but there has to be some compromise in a situation that has played out going on its third offseason.
Archer is right, it is an elegant proposal that gives both sides what they want: cap flexibility for the Cowboys, and an out for Prescott after four years.
In order to get a player to sign a backloaded contract, teams will pay the player a big signing bonus; money the player gets immediately upon signing the contract and is guaranteed against injury. That’s good for the player, and good for the team, because the benefit of the signing bonus is that in terms of the salary cap, the signing bonus money is prorated over the length of the contract.
CBA, Article 16, Section 6, Paragraph 5: Proration: The total amount of any signing bonus shall be prorated over the term of the Player Contract (on a straight-line basis, unless subject to acceleration or some other treatment as provided in this Agreement), with a maximum proration of five years, in determining Team Salary and Salary.
Archer proposes a $50 million signing bonus that for cap purposes would be spread over the five years of the contract. From a cap perspective, Prescott’s potential six-year contract would look as follows:
Prescott gets his $50 million signing bonus immediately, but the full amount of the signing bonus doesn’t count against the cap immediately. Instead, it is prorated over five years. In this example, that adds $10 million to Prescott’s cap amount for each of the first five years of his contract.
To get a cap-friendly contract, the Cowboys also lower Prescott’s base salary to $20 million in each of the first two years, and then increase it to $32.5 million in the outer years.
Keep in mind that the cap charge is just funny money used for accounting purposes. The “real money” to the player is $70 million in 2021 ($50 million signing bonus and $20 million base salary), $20 million in 2022, and $32.5 million each 2023-24. That’s $155 million over four years, or $36.5 per year for four years. That’s may not be enough to get Prescott to sign, but more on that later.
The cap charge (the red figures in the graph above) starts out at $30 million in 2021 and 2022, but then climbs to $42.5 in 2023 and 2024.
Considering a second tag would cost the Cowboys $37.7 million in 2021 (and a third tag in 2022 would be 44% higher, a prohibitive $54.3 million), Archer’s contract would be quite the deal for the Cowboys, at least from a cap perspective.
The Cowboys can create even more cap flexibility by restructuring Prescott’s contract in 2022, and again Archer has done the math.
In 2022, Prescott counts $30 million against the cap, with a $20 million base salary and a $10 million prorated cap charge from the signing bonus paid out in 2021. But the Cowboys want to create more cap space, so they restructure the contract by converting $18 million of Prescott’s 2022 base salary into a signing bonus, which they can now once again prorate over the remaining years of the contract, as the following graph shows:
If the Cowboys and Prescott were to part ways after 2024 (the whole idea behind the voidable years in 2025 and 2026) the remaining cap hit would be the light blue and yellow bars in table above: 10 + 3.6 + 3.6 = $17.2 million to be accounted for in 2025.
That may seem like a lot, but the Cowboys are already familiar with numbers of that magnitude. When they made Tony Romo a June 1 release in 2017, Romo counted for $10.7 million in dead cap money in 2017 and $8.9 million in 2018. And that came after taking a cap hit of $20.8 million in 2016 for having Romo sit behind Prescott.
Under salary cap rules, you can push money back. But you can’t push it away entirely, at some point it needs to be accounted for.
The other thing about pushing money into the outer years is that it becomes increasingly more expensive to trade a player. Let’s say the Cowboys find a willing trading partner for Prescott three years into his contract. In such a scenario, the trade would save the Cowboys from having to pay Prescott’s 2024 $32.5 million base salary, but the entire unamortized signing bonuses for 2024-2026 would accelerate into 2024 for a cool cap hit of $30.8 million. Without the restructure, the unamortized signing bonus would have been “just” $20 million in such a hypothetical trade scenario.
At the end of the day, Archer’s proposed contract structure makes sense in that it gives Prescott the four-year deal he is asking for, and gives the Cowboys the flexibility of doing some funky cap stuff.
As to the contract amount, Archer may be a bit too low. Prescott is going to look at the contract Deshaun Watson signed last year and tell Jerry Jones that you can’t have a franchise QB for the Dallas Cowboys making less than some guy throwing the ball for some ho-hum city down south.
Watson signed a four-year, $156 million contract last year with $110.7 million guaranteed. Up that to, say, an even $160 million (or $40 million per year) with upwards of $115 million guaranteed, and Prescott’s agent will let the Cowboys do whatever funky cap stuff they want.
The Cowboys will of course counter and point out that Watson had two years left on his contract at the time he signed his extension, and Watson’s contract is really a six-year deal worth $177.5 over six years, an average annual value of $29.6 million.
The two sides will then haggle a little more, throw more numbers at each other, and ultimately agree to a contract that will keep Prescott in Dallas for at least four more years.
After those four years, Archer writes, Prescott will have been the starting QB in Dallas for nine seasons.
From a team perspective, that is more than enough time to see if a quarterback can deliver a Super Bowl.
If it hasn’t happened by then, it may be time to start over anyway.