FanPost

How to understand NFL contracts

Kirby Lee-USA TODAY Sports

[Editor's note: Promoted from the FanPosts.]

Hi all!

I saw someone on here asking for some clarity on NFL contracts. I’m no expert, but I can probably explain enough to answer some basic questions. So I threw together this fan post. Feel free to offer corrections in the comments!

Parts of this article were contributed by: QuakerCrazies, KingKong4

When teams sign players, the contracts are often reported at first at a high level: Vikings sign Kurt Cousins to a 3 yr / $87 m contract! But that high-level information really tells you nothing about the level of risk each party is taking on, or how likely it is that that full amount will ever be paid out. THAT is critical to understanding whether a contract is good or bad.

Most NFL contracts can consist of the following components:

  • Salary
  • Guarantees
  • Options
  • Signing Bonuses

Let’s talk about each of those, and then we’ll talk a bit more about the salary cap.

Salary

Salary is just the amount the player is paid for the year. All salary dollars go onto the cap for that year. So let's take a simple example:

4-year contract, $5 million salary each year. This is a contract for 4 years, $20 million, with a $5 million cap hit each year. Easy peasy.

But they could just as easily move the salaries around like this:

Year 1 - $1 million

Year 2 - $4 million

Year 3 - $8 million

Year 4 - $7 million

That’s still a 4y/$20m contract. It just distributes the salaries and the cap hit each year. Teams set numbers up like this often to deal with their cap situation. So, in the above example, year 1 is likely a low salary/cap hit because the team is tight on salary cap space for that season.

Guaranteed Money

Teams can guarantee money in a contract. It can result in some weird-looking language in the contract, but at the end of the day, guarantees are just about what level of security you are offering the player, and what level of risk the team is taking on. So, you could end up with this:

4-year contract, $5 million salary each year, $10 million guaranteed (first two years fully guaranteed)

Guarantees can be as simple or complex as they want, so you can get that weird stuff like "first year salary fully guaranteed, $2m of second year guaranteed, $6m guaranteed if player is on the roster on March 15, etc.". But at the end of the day, the larger the guaranteed money, the more the player likes it, and the more risk the team is assuming. Looking at guaranteed money is an easy way to gauge "team escapability," meaning, "If the team needed to get out of this contract, what’s the minimum amount they would end up having to pay?"

This is why people tell you to look at the guaranteed money in a contract, because that’s the best way to assess how risky a contract is for a team. In the above example (4/$20m, $10m guaranteed), it's a $20 million contract, which will get flashed all over the news. But the team can get out of that after only $10m if they need to. Whereas you look at Cousins’ new deal. It's only 3 years, but it's like $87m ALL guaranteed. Which means that if he stinks to high heaven or breaks his back in his first game, they still have to pay every penny of that $87m. (Actually, they probably have insurance that would pay some or all of that out if he had a serious injury, but that’s a separate topic.)

Options

Teams can make contract years "team options." Basically that means the team has the choice of whether to keep that player for that year, or let them go without owing them the money for that year. It’s a way for teams to keep control over talented players longer, but minimize the risk if the player goes downhill or something. Players often take these deals because they have confidence in their abilities and believe they will play well enough to get that extra money. (Personally, I think this is like candy from a baby for good GMs. You have a bunch of macho, aggressive, confident young men, it’s relatively easy to sell them on "Do you have confidence in yourself?")

I’m not sure if there are player option years in the NFL. I know they have them in MLB. But the idea is similar, it’s just a way for the team to potentially entice a player to sign a contract knowing they could possibly get more out of it in the long run, the team is just taking on the risk in this case. This would typically be used when you’re trying to lure a player to your team when you don’t have a ton of leverage. In MLB there can be mutual options too. (If both player and team agree, the next year of the contract goes into effect.)

So if you look at the Bradham deal again with all of this information:

It was touted as a 5-year, $40 million deal. But if you look at the info we’ve learned about the contract, the last three years are option years, and he is only guaranteed $14m. So, effectively, from a risk perspective, the Eagles can get out of this after 2 years and $14m, with no cap penalties, which is extremely low risk for them. Even moreso, they can get out after 1 year and $8m, although that would incur a $6m "dead cap hit". (We haven’t talked about that yet.)

Bonuses

There are a variety of bonuses available to GMs in constructing a contract. We won't go over all of them here. But broadly, bonuses are used to make a deal more favorable for the GM and/or more attractive for a player in two ways:

  1. Players want signing bonuses, because money now is better than money later.
  2. GMs can often restructure contracts by converting salary into bonus money, and we will see that this allows GMs to manipulate the cap.

We'll talk about two types of bonuses here: signing bonuses and roster bonuses.

Signing Bonuses

Teams can offer signing bonuses to players. Signing bonuses are part of what makes cap management tricky. Signing bonuses are fully guaranteed, and the cap hit is spread across the life of the contract. That’s the key impact. So, example:

4-year contract, $5 million salary each year, $10 million bonus

Year 1 - $5m salary, $7.5m cap hit ($5m salary + $2.5 mil from bonus)

Year 2 - $5m salary, $7.5m cap hit ($5m salary + $2.5 mil from bonus)

Year 3 - $5m salary, $7.5m cap hit ($5m salary + $2.5 mil from bonus)

Year 4 - $5m salary, $7.5m cap hit ($5m salary + $2.5 mil from bonus)

By the way, this wouldn’t be a very typical structure. Usually the numbers vary through the life of the contract. If the team is trying to clear space like we are due to being close to the cap, the numbers typically start low and increase. If a team has ample cap space and anticipates being in trouble later, it might start high and decrease.

If you look at Bradham’s new contract, his cap hit for next season is a paltry $2m. That was done because we are tight against the cap.

There are also such things as roster bonuses, incentive bonuses, etc., but these rarely have an impact on assessing the overall value of a contract at a glance. Still, let's talk a bit about roster bonuses in particular (credit to QuakerCrazies for the info):

Roster Bonuses

Apart from signing bonuses, roster bonuses are the primarily type of bonus you will see in contract discussions. You can think of a roster bonus as another type of guarantee: guaranteeing $x of one year's salary on a certain date. So, using our generic 4-year/$20m contract from above, it might be something like this:

Year 1: $5m base salary

Year 2: $5m base salary

Year 3: $2m base salary, $3m roster bonus on 3/18

Year 4: $2m base salary, $3m roster bonus on 3/18

This means exactly what it sounds like; in years 3 & 4 the player would get a $3m bonus on 3/18 if he is still on the roster. These bonuses are put into contracts to force the team to make a decision early on in the FA period, so that the player has a better chance to sign with a new team if he gets cut, as compared to getting cut during preseason when a lot fewer teams are looking to sign someone AND teams have much less money to spend.

I will also mention that roster bonuses are RARELY mentioned by the media, so you're unlikely to ever see them in articles about new contracts. It only comes up occasionally during the offseason when players are potentially on the list of cap casualties, as it did recently when Vinny Curry was cut - he was due a roster bonus if the Eagles had kept him past that Friday. You often can see the roster bonuses on contract detail sites like Spotrac.

Salary Cap

OK, so, the salary cap is a complicated beast, so I’m not going to go into too much detail, just the basics you need to understand a contract.

We already discussed that salary for a season counts against that season’s cap.

We also discussed that bonus money is divided by the number of years in the contract, and the resulting number applies to the cap in each season of the contract.

Those two things are the main ways GMs manage the cap through contracts. So, it should be pretty clear when looking at a contract now what the cap implications are, as long as you know the signing bonus, the year-by-year salaries, and the # of years in the contract.

The cap really gets tricky when you LOSE players, because where they are in the life of their contracts determines what happens to the salary cap.

If a player plays out a contract and becomes a free agent, there are no salary cap ramifications.

If a player is released before their contract ends, there are implications to the salary cap. We mentioned before that signing bonuses are paid upon the player signing the contract, but that the cap hit of a bonus is spread over the life of the contract. When a player is released or traded, this remains true. The team is no longer responsible for the future salary of the player. But, that salary cap hit of the signing bonus remains in effect even after the player has left the team. This is what’s known as "dead cap money". Basically, by releasing someone early, you are handicapping yourself by decreasing the amount of money you have available under the cap.

So, let’s look at an example from before:

Year 1 - $5m salary, $7.5m cap hit ($5m salary + $2.5 mil from bonus) – fully guaranteed

Year 2 - $5m salary, $7.5m cap hit ($5m salary + $2.5 mil from bonus) – fully guaranteed

Year 3 - $5m salary, $7.5m cap hit ($5m salary + $2.5 mil from bonus)

Year 4 - $5m salary, $7.5m cap hit ($5m salary + $2.5 mil from bonus)

If this player plays out his contract, no problem. He has a $7.5 cap hit each of his four years, and when it’s done, he’s a FA.

But let’s say we want to cut him after Year 3. His fourth year he is owed $5 m in salary with a $7.5 cap hit. Now, if we cut him, we do NOT pay him the $5m salary, because that money is NOT GUARANTEED per his contract, and therefore that $5m will not count against the cap, either. HOWEVER, the $2.5 m cap hit from his bonus STILL goes against the cap (because this money has already been paid to the player). Even though he will no longer be on the team, he will still count $2.5 m against the cap. That’s the penalty the team suffers for releasing him before his contract was up.

So to look at the Eagles, everyone thinks Curry is getting released. Well, Curry has a $6m dead cap hit this season. So, by releasing Curry, their available cap space will get dinged by $6m, which is mostly offset by the fact that you will be saving $3m this season because his salary is $9m. But the dead cap is an enormous factor in releasing players.

To make matters worse, this is STILL true when you trade a player. So, while the new team would pick up Vinnie’s salary and contract going forward, he will still have a $6m dead cap hit if we trade him. But at least with a trade you’re getting something back.

Spotrac is a GREAT site for looking up individual contracts and seeing their dead cap hits, etc. For example here is info about Fletcher Cox' contract. The NFLPA has a more official list that is updated daily.

OK, I think that’s about enough for now. Let me know if you have any clarifications or questions and I’ll try to update!