The Art of NFL Contracts Part 4: The Three Ways to Manipulate Cap Space
Over Parts 1-3 of the Art of NFL Contracts series, we have learned about contracts and the structures of NFL contracts.
Let's use this new-found knowledge of contracts and how they work to use by answering the question: How do teams seemingly have endless amounts of cap space?
The answer is: rebalance, re-sign, and restructure.
The Chiefs are using this method a lot currently with their contracts while quarterback Patrick Mahomes is on a rookie deal. The basic idea of rebalancing is that:
1. Players love signing bonuses because they get that money immediately.
2. Teams want to fit contracts under their salary cap even when they have little cap room.
The Chiefs tend to structure contracts similar to Sammy Watkins' deal, which we went over in detail in Part 2 of this series. In year one of these contracts, the cap hit will be the minimum base salary allowed due to the player's accrued seasons, the prorated signing bonus, and whatever other bonuses are given. This cap hit is usually very small in year one of the contract and allows teams, like the Chiefs, to fit contracts in their cap easily — even with limited cap space. The players don't mind teams using this strategy because they get their signing bonus money up-front and are guaranteed to see their money in year two.
When does this become dangerous? When a team signs a lot of players in a one- to two-year window, because near the end of these backloaded contracts, there are much larger cap hits and a team will have a harder time fitting multiple large contracts in their cap.
This way of structuring contracts is very useful if teams can keep the length of the contract short, as seen in Sammy Watkins' deal. With a low cap hit in year one, and a cuttable contract in year three, there is only one year where the team could be "stuck" with a player under a contract like Watkins’, which is year two.
In employing this strategy, many teams that have limited cap space can sign players to large deals.
This method of cap creation fans hear employed all the time by teams. Well, how does it work? With the knowledge of the basics of contracts, it's simple.
Using the above contract as an example, a team wants to restructure the contract of the player because the team deems it unlikely they will cut the player after the 2020 season. What the team will do is take out an amount of the 2020 base salary (which is $15 million). For this example, let's take $10 million out of the base salary. The team then turns this $10 million into a prorated bonus, which is then spread over both years. After the team has done this, the contract then looks like...
Restructuring this contract will save $5 million for the team in 2020, but cost them down the road in 2021 by increasing the player’s cap hit while making more dead money. The player is also uncuttable in 2020 now.
This is a basic example of this principle in action. NFL general managers get in the weeds more with restructures and the money involved. However, the principle of restructures follows this pattern in almost every case by turning base salary into a prorated bonus. One thing to note is that the base salary cannot fall below the minimum base salary of the player, so there is a limit to how much money can be used for restructures, and that limit is based on how much base salary the contract has.
Not all contract restructures are bad or signal that the team is in trouble in the future. Considering that the NFL allows teams to carry over cap space year-to-year, the cap space saved in 2020 can carry over and help in 2021, if the extra space isn't used. If the team plans accordingly, restructuring is an extremely useful tool to create meaningful cap space.
The Chiefs can add two years and $39 million to Travis Kelce’s contract but save $3.5 million against the cap this year.
While it seems like a ridiculous statement on paper, re-signing players is a method to combine rebalance and restructure into another way to save cap space.
Teams that want to keep a player but want to reduce the monetary strain of the player's old deal can add on years to the players' deal and spread out the money more. The way to do this will be using restructuring to turn a player's existing base salary into a signing bonus and spread that money over the extension years. Confusing? Here's what Kelce's current deal is and what a two-year extension on top of Kelce's current deal would look like...
Here, the base salary in the original contract in 2020 was converted into a signing bonus and spread out over the two new years on the contract in 2022 and 2023. Thanks to this, the cap hit went down in 2020 by $3.5 million and ensured Travis Kelce is happy in Kansas City for four more years at what will probably be the new market rate for tight ends, all while saving the Chiefs money against the cap in 2020.
These three methods, rebalance, restructure and re-sign, are ways of manipulating cap space that are employed heavily by teams every year in order to maximize how they use their cap space. In using these methods multiple times over the course of an offseason, a team will be able to do a lot of things with little cap room. General managers that employ these strategies and balance their cap space with these methods will always have the upper hand in the NFL.