The Art of NFL Contracts Part 1: The Basics

Demystifying the NFL's contract system as important members of the Kansas City Chiefs come up for new contracts.
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In many ways, NFL contracts are an enigma. The vocabulary used when talking about NFL contracts is alien to many fans and that leads to misunderstandings when it comes to NFL contracts. Misunderstandings on how much money a player gets, how teams stay under the cap, and the specifics of contracts are common across the whole NFL fandom.

The Chiefs are entering a time where these specifics are shaping the future of the franchise. Patrick Mahomes and Chris Jones are both due massive new deals in the coming year, and the way these contracts are structured will affect the Chiefs for the next half-decade. Understanding how these new contracts work when they are signed will let fans know what to expect from the Chiefs going into the future.

In this multi-part series on NFL contracts, I’ll give the primer on everything fans should know about NFL contracts.

In order to first understand NFL contracts, a basic understanding of the terms and systems that go into NFL contracts is needed. With just an understanding of these basic parts, a fan already can start determining the quality of deals players sign.

Base salary is the foundation for contracts for every NFL player. Players earn their base salary by just being on the team’s roster during the year. Players are given their base salary pay in 17 installments (for the 16-game schedule), one per week during the season. Base salary can be non-guaranteed or guaranteed depending on various clauses and conditions. Base salary is the bulk of the money that players lose when they get cut, as any current year or future year base salaries are lost when a player is cut unless they are guaranteed.

One thing that is somewhat unknown is that not all guaranteed money is the same. There are three types of guaranteed money that teams can use when constructing a contract.

The best-known form of guaranteed money is guaranteed for injury. Injury guarantees come into effect if a player is released but is unable to partake in football activities or pass a physical. If a player is released and this condition is met, the player is entitled to money that is protected against injury. If a player has guaranteed money for injury and they are healthy, then the money guaranteed for injury is lost when the player is cut.

Outside of guaranteed for injury, there are two other types of guarantees. These two types are skill guarantees and cap guarantees. A skill guarantee will protect a player from being released due to the player not having the requisite skill needed, according to the team. A cap guarantee will protect a player from being released so the team can get under the cap, sign a free agent, or re-sign another player. These two guarantees are rarely ever exercised on their own. The combination of cap and skill guarantees with injury guarantees forms a full guarantee. Full guarantees are used in almost every NFL contract and the player is entitled the money from full guarantees when they sign the contract.

A signing bonus, true to its name, is an upfront guaranteed payment the player receives when they sign their contract. Unlike normal guaranteed money, a player gets the signing bonus money usually within the first year after signing the contract, and the signing bonus is fully guaranteed. While the player gets the lump sum up front, the team can spread the signing bonus on their cap space into smaller payments over the length of the contract up to a maximum of five years. The spread out payment of this signing bonus is called the prorated bonus. When a player is cut, the team must pay the remainder of the spread-out signing bonus at once, and this payment is applied to the team's cap space.

A roster bonus is money for being on the roster at a certain date or being on the active roster during the year.

The most common form of roster bonuses is a player being on the roster at a certain date specified in the contract. In these roster bonuses, teams will usually specify a date that the player will earn the bonus with a clause that reads like, “Player will receive $2 million roster bonus on the second day of the 2021 league year.” These types of bonuses are to force the hand of the team to make a decision on keeping the player or releasing them. 

Another type of roster bonus is conditional payment for if the player is on the active roster or on the 53-man roster during the season. This type of roster bonus is known as a "per-game roster bonus" and the player is paid 1/16th of that bonus each time they are active. A recent, high profile example of per-game roster bonuses is that Richard Sherman negotiated per-game roster bonuses for every year of his deal that, in total, pay $5 million over his three-year deal if he plays all 48 games.

Workout bonuses are compensation for attending an agreed-upon percentage of offseason workouts. If the player fulfills this, they get the flat amount agreed upon in the contract. The new CBA gives players with four or more accrued seasons five guaranteed absences for workouts without losing their offseason workout bonus. 

NFL contracts can have incentives that can give the player money if the player hits certain thresholds set in the contract. There are two types of incentives: Likely to be earned (LTBE) and Not likely to be earned (NLTBE). Incentives are classified as LTBE or NLTBE based on what the player did in the previous season in relation to the incentive. If a player would have earned the incentive in the previous year, the incentive is considered LTBE and the opposite is true for NLTBE. LTBE incentives count against the current year’s cap space for the team while NLTBE incentives are charged against the following year’s cap space. Some examples of incentives would be making the Pro Bowl, catching a certain amount of receptions, or based on playing time.

There are other basic principles in NFL contracts, mainly manifesting in other types of guaranteed money.

To further ensure a player’s financial security, teams can offer other guarantees than the signing bonus. The primary way that this occurs is a team will guarantee a player’s base salary, partially or fully, in certain years. The way this provides security for the player is that this guaranteed salary might make the player “uncuttable” in those years, meaning they will be assured they see the full money from that year.

Another type of guarantee is an option bonus, which is like a signing bonus but is triggered at a later date. Option bonuses aren’t always guaranteed, but the main way option bonuses are used is to give the player guaranteed money later in their deal. These option bonuses can be spread out over five years at the start of the option, much like signing bonuses.

The occurrence of dead cap is when a team cuts a player and the team then pays out all guaranteed money owed to the player. This money is then charged against the current year’s salary cap space for the team in question, effectively spending it. In the case of a prorated signing bonus, the spread out cap hits are all added up and charged all on the current year’s cap hit. Dead cap hits are the best way for players to protect themselves from being cut, as a high enough dead cap hit will be a deterrent for teams to move on from the player in many cases.

Teams use a combination of all contract tools at their disposal in order to get a player to agree on a contract. A general manager could offer a player a large signing bonus so they get a lot of money up-front or a general manager could offer guaranteed base salaries later in the deal to provide the player long-term security. General managers have to navigate this give-and-take along with other decisions about cutting players in order to balance the books and give the team the best roster it can have. The basics of an NFL contract lay the foundation for how general managers across the NFL shape their team and cap space, a feat that is ever-changing.

Click here to read The Art of NFL Contracts Part 2: The Examples.