The NFL Salary Cap (a not so brief intro)

This is an introduction to the salary cap.  There will probably be more diaries to follow that drill down into specific minutia of the rules or that look at a player's contract in more specific detail.  I'll start by saying that the salary cap is similar to income taxes.  There are a couple pretty basic rules, but then there are pages and pages of exceptions.  

On the surface the salary cap is pretty simple: There is a maximum total salary for each team every season.  This number is determined based on league revenue (mostly from television) and goes up annually.  It will be roughly $116 million in 2008.  However, not all money earned is created equally and that is where the fun begins.  A player's compensation can be broken up into two main categories (which can then be subdivided): base salary and bonuses/incentives.

Base salary> - it is what it says it is, the salary that is the basis for each player's game check.  A player's base salary counts in its entirety for the year it is earned.  The only thing tricky here is that players who are added to the roster in mid season have their salaries prorated based on how much of the season they are on the roster.  (I believe that a veteran player who is on the team for week1 has their entire salary guaranteed for the year and it counts fully against the cap even if they are cut)  

There is also a veteran minimum exception to the base salary accounting.  Any veteran with 4 or more accrued seasons who is signed to a one year deal for the minimum salary (and has bonuses of less than $40,000) will have a cap value equal to a player with 2 years accrued experience.  In layman's terms, that means that a 8 year player signed for the vet minimum of $720K would only count $435K against the cap.  This gives fringe veterans a chance to compete with their cheaper, younger competition; perhaps John Engelberger or Ebenezer Ekuban this year (I am not sure if these contracts are allowed to be incentive laden or if that violates the spirit.)

Bonuses/Incentives - This is a broad category that covers any kind of lump sum compensation given to a player.  It includes performance based incentives (ie. scoring X TD's in a year), roster bonuses and incentives (ie. being on the roster on June 15 or being on the active roster for X games), reporting bonuses, workout bonuses, etc.  However there is one key distinction that divides bonuses into two groups.

Most casual fans are familiar with signing bonuses that are given to players at the beginning of the contract.  For salary cap purposes, these bonuses are prorated over the entire length of the contract.  If a player is given a $2 million signing bonus for a 4 year contract it would count $500,000 against the salary cap for each of the 4 years of the contract.  In addition to traditional signing bonuses, any bonus that is guaranteed is considered a signing bonus for salary cap purposes.  (This is the often the hardest part of determining cap values, figuring out if a roster bonus was guaranteed or not)

With salary cap proration comes the concept of acceleration, which occurs when a player leaves the team (via trade, release, retirement, etc).  At that point, the un-prorated portions of all bonuses accelerate to the current year.  In the above example, if the player is released in the reloading season before the second year of the contract, the last $750,000 of the signing bonus would accelerate to year two.  Of course there is an exception to this rule.  If the transaction is after June 1, the acceleration is split over two years with the current year maintaining its normal proration and the rest being counted against the next year.  In our example if the player is cut after June 1, he counts $250,000 against the cap in year two and $500,000 against the cap in year three.  And to add to the confusion, teams now have the ability to designate transactions as post-June 1 even if they actually occur before June 1.

Bonuses that are not guaranteed cannot be prorated and are counted all at once against the cap.  However, this is not always in the year that they are earned.  That is because there are two different classes: Likely to be Earned (LTBE) and Not Likely to be Earned (NLTBE).  Anything that is considered LTBE counts against the salary cap in the current year, whether the bonus is achieved or not.  Anything that is considered NLTBE counts against the salary cap the following year and only if it is achieved.  If any LTBE bonuses are not achieved, the team receives a cap credit for the next year.  Reporting and workout bonuses are LTBE, as are roster bonuses (for the most part).  As a rule of thumb for veterans, something is considered LTBE if the player achieved the milestone the previous year whereas there is a chart that is used for rookies based on when (or if) they were drafted.

There are additional intricacies that I have either glossed over or am unaware of, but this is the quick (ha) summary.  If there is anything that is unclear or if you see a mistake or know the answer to something I am unsure of, please let me know.  If there is more information you would like about a specific rule or about a specific player's situation, leave a comment and I will do my best to answer here or in a future diary.

I'll close with a practical example from the Broncos roster who happens to be a frequent target of criticism on this board, Mr. Ian Gold.  In 2005, Gold signed a 5 year contract with a $5.75 million signing bonus.  In 2006, Denver paid a $2 million option bonus to extend the contract by one year (essentially a secondary signing bonus).  Below is his salary structure by year. (sorry for the terrible formatting)

[editor's note, by MattR]: I forgot about 500,000 roster bonuses from 2008-2010

2005:     540,000 base salary
           1,150,000 proration of 5.75 million over 5 years (2005-2009)
    ------------------------------------------------
           1,690,000 TOTAL CAP COST   ($6.29 million actually earned)

2006:     670,000 base salary
           1,150,000 proration of 5.75 million over 5 years
             400,000 proration of 2.00 million over 5 years (2006-2010)
           2,500,000 roster bonus (non-guaranteed, LTBE)
             100,000 workout bonus (non-guaranteed, LTBE)
    ------------------------------------------------
           4,820,000 TOTAL CAP COST   ($5.27 million actually earned)

2007:   2,300,000 base salary
           1,150,000 proration of 5.75 million over 5 years
             400,000 proration of 2.00 million over 5 years
             100,000 workout bonus (non-guaranteed, LTBE)
    ------------------------------------------------
           3,950,000 TOTAL CAP COST   ($2.4 million actually earned)

2008:   2,750,000 base salary
           1,150,000 proration of 5.75 million over 5 years
             400,000 proration of 2.00 million over 5 years
             100,000 workout bonus (non-guaranteed, LTBE)
             500,000 roster bonus (non-guaranteed, LTBE)
    ------------------------------------------------
           4,900,000 TOTAL CAP COST   ($3.35 million scheduled to be earned)

2009:   3,400,000 base salary
            1,150,000 proration of 5.75 million over 5 years
             400,000 proration of 2.00 million over 5 years
             100,000 workout bonus (non-guaranteed, LTBE)
             500,000 roster bonus (non-guaranteed, LTBE)
    ------------------------------------------------
           5,550,000 TOTAL CAP COST  ($4.0 million scheduled to be earned)

2010:   4,590,000 base salary
             400,000 proration of 2.00 million over 5 years
             100,000 workout bonus (non-guaranteed, LTBE)
             500,000 roster bonus (non-guaranteed, LTBE)
    ------------------------------------------------
           5,590,000 TOTAL CAP COST   ($5.19 million scheduled to be earned)

(Note:  I this case, I am assuming that the workout bonuses from 2006 and 2007 continue for the rest of the contract.  These types of things are generally impossible to track down).

Some useful links:

A salary cap FAQ

USA Today Database of salaries/salary cap values for completed year's

NFL Player's Association player search to get current and future base salary info

RotoWorld roster of the Denver Broncos  Each player's page has contract info

Ian Whetstone's salary cap page - a compilation of data put together by a fan  His stuff is pretty good, although a bit out of date.  He was definitely a source I relied on when calculating the Broncos' cap numbers.

The actual Collective Bargaining Agreement  If you want to get adventurous and download Article 24 to get all the salary cap rules.