General Manager Rich McKay (left) has to fit all of Tony Dungy's players under a salary cap
by Rich McKay, General Manager
When most people discuss the Salary Cap that exists today in the National Football League, they have a tendency to either overestimate its complexity or provide inaccurate information concerning a particular player's Salary Cap impact. This occurs because they are unclear on the rules governing the Salary Cap or because they confuse the actual cash value of a contract with its "cap" value.
In this article, I will attempt to give you some basic rules to help you understand how our Salary Cap generally operates and, further, to make some sense out of contracts you read or hear about in terms of how they affect a team's Salary Cap.
In its most basic terms, the NFL Salary Cap is the maximum amount of money that each team is allowed to spend on player salaries during the year; a salary being defined as a "pro-rata" amount of signing bonus, actual annual salary, annual roster or reporting bonuses and any incentives that are deemed likely to be earned.
The total Salary Cap amount for each team is determined by taking a percentage of the League's Defined Gross Revenues (DGR) as that term is defined in the NFL's Collective Bargaining Agreement. Once the amount of DGR is determined for a given year, a fixed percentage is applied to that total DGR, in the case of 2000 that percentage being sixty-three percent (63%). The result is then decreased by an amount reserved for benefits payable to players, which is approximately $7,000,000 per team for 2000.
After applying the deduction for player benefits, the base Salary Cap for each team is arrived at by dividing that total by the number of teams in the League, or thirty-one (31). In the year 2000, the base Salary Cap for each team is $62,170,000. Finally, each individual team's base Salary Cap may be further adjusted up or down by any significant over or under payments of projected player incentives each club in fact experienced the previous season.
Once a team's Salary Cap has been determined for the year, each player's contract must be given a "cap" value that will count against his club's Salary Cap for that season. When attempting to value a player's contract, always remember that its "cap" value is different than its actual cash value.
For Salary Cap purposes, the value of a player contract is determined in accordance with the definition of salary noted above. In other words, the Salary Cap value of an individual player contract for a given season is computed simply by summing the pro-rata amount of signing bonus (this amount equaling the total signing bonus divided by the number of contract years), the player's annual salary for that year and any bonuses or likely-to-be-earned incentives for that year.
The annual "cap" value of a player's contract does not approximate in any way, shape or form what the player may actually earn on an annual basis since the cap value represents a pro-rata value of one (1) particular year as opposed to the real cash value of the contract. When you hear of a contract's average, this refers to the average cash that player is to earn each year, which has nothing to do with the contract's annual Salary Cap value.
To determine the actual life-of-the-contract cash amount and, therefore, the average per year, simply sum the entire signing bonus with all annual salaries together with all other bonuses and likely to be earned incentives and divide the total by the number of contract years. This is how players are said to be making "X" million dollars per year.
After thoroughly confusing you with the language and math above, let me provide three (3) simple examples:
| Player "A" Receives the Following Contract: | Player "B" Receives the Following Contract: | ||
| Signing Bonus: | $2,000,000 | Signing Bonus: | $2,000,000 |
| 2000 Salary: | $500,000 | 2000 Salary: | $500,000 |
| 2001 Salary: | $1,500,000 | 2001 Salary: | $1,500,000 |
| 2002 Salary: | $2,500,000 | ||
| 2003 Salary: | $3,500,000 | ||
| Total Contract: | $4,000,000 | Total Contract: | $10,000,000 |
| Average Per Year | $2,000,000 | Average Per Year | $2,500,000 |
| 2000 Salary Cap # | $1,500,000 | 2000 Salary Cap # | $1,000,000 |
| 2001 Salary Cap # | $2,500,000 | 2001 Salary Cap # | $2,000,000 |
| 2002 Salary Cap # | $3,000,000 | ||
| 2003 Salary Cap # | $4,000,000 | ||
| Player "C" Receives the Following Contract: | |
| Signing Bonus: | $10,000,000 |
| 2000 Salary: | $1,000,000 |
| 2001 Salary: | $2,000,000 |
| 2002 Salary: | $3,000,000 |
| 2003 Salary: | $4,000,000 |
| 2004 Salary: | $5,000,000 |
| Total Contract: | $25,000,000 |
| Average Per Year | $5,000,000 |
| 2000 Salary Cap # | $3,000,000 |
| 2001 Salary Cap # | $4,000,000 |
| *2002 Salary Cap # | $5,000,000 |
| 2003 Salary Cap # | $6,000,000 |
| *2004 Salary Cap # | $7,000,000 |
Calculation of Salary Cap Count for Each Player
(Signing Bonus / Number of Years in Contract) + Year (#) Salary = Salary Cap #
*2000 Player A: ($2,000,000 / 2 years) + $500,000 = $1,500,000 Player B: ($2,000,000 / 4 years) + $500,000 = $1,000,000 Player C: ($10,000,000 / 5 years) + $1,000,000 = $3,000,000
**2001 Player A: ($2,000,000 / 2 years) + $1,500,000 = $2,500,000 Player B: ($2,000,000 / 4 years) + $1,500,000 = $2,000,000 Player C: ($10,000,000 / 5 years) + $2,000,000 = $4,000,000
*2002 Player B: ($2,000,000 / 4 years) + $2,500,000 = $3,000,000 Player C: ($10,000,000 / 5 years) + $3,000,000 = $5,000,000
2003 Player B: ($2,000,000 / 4 years) + $3,500,000 = $4,000,000 Player C: ($10,000,000 / 5 years) + $4,000,000 = $6,000,000
*2004 Player C: ($10,000,000 / 5 years) + $5,000,000 = $7,000,000
Please understand that the Salary Cap is a hard Salary Cap in existence 365 days of the year. At no time may a team, as of the close of business on any day, exceed its given Salary Cap.
However, you must keep in mind that in the off-season, all the way up to the day before the first game, only the top fifty-one (51) player salaries, in terms of "cap" value, count against an individual team's Salary Cap. This is done so that teams may sign up to eighty (80) players in anticipation of Training Camp and yet not violate the Salary Cap. As of the day of the first regular season game, the "Top 51" rule goes away and thereafter that season the salaries of all players on a team's roster, even including those that are injured players as well as those of practice roster players, will count fully against a team's Salary Cap.
I hope these basic principles will help you better understand the term "Salary Cap" when you read or hear about it in the media. Remember, it's really not that complicated even if it is often misunderstood. In a later article I'll try to take you through how we approach managing the Salary Cap.
