How to Calculate an NFL Team's Salary Cap

Brian Spurlock-USA TODAY Sports

Part four in an ongoing series meant to demystify the Collective Bargaining Agreement between the NFL and the NFLPA in preparation for Free Agency and the 2014 NFL Draft.

This week we are going to delve into some common salary cap terms, rules for accounting, and how the Chargers have determined their current cap space.

Previously in CBA 101: Free Agents | The Draft and Rookie Contracts | Intro and Definitions

Common Terms

Salary Cap This is the league-specified maximum amount of money a team can spend on players in a given League Year.
Cap Hit Simply put, this is how much a player subtracts from the salary cap in the current year. This number is calculated from salary, signing bonus (usually amortized), and contingent bonuses (roster, workout, public appearance, etc.)
Dead Money This is money subtracted from the cap for players no longer on a team. This can come from a number of factors including amortized signing bonuses and guaranteed contracts.
Cap Rollover This is the amount not allocated from the previous years salary cap. This can augment the current year cap above the league specified amount.
Cap Adjustment The increase or decrease in a teams salary cap based off of an independent audit of the prior year accounting of salary cap and league-wide cash spending. If a team made an error in the calculation of their Cap Space, they will bear an adjustment in the following year.
Cap Space The amount remaining under the salary cap that can be allocated to further contracts.

With this information, the calculation of Cap Space becomes simple:

Cap Space = Salary Cap + Cap Rollover ± Cap Adjustment − Total Cap Hits − Dead Money

Cap Hits

The most tricky part of understanding cap hits is the fact that Signing, Option and Extension Bonuses can be spread out over the length of a contract. The rest is best explained with examples:

Example 1: Kellen Clemens

Clemens recently signed a 2-yr, $3 Million contract with $645k guaranteed. The guaranteed money is his signing bonus in this example. The guarantee means that he gets this money regardless of making the team, retiring or any other scenario for which one would normally not be paid. The remainder of the contract amount comes from yearly salary and a year 2 roster bonus for making the team. His salary cap hits over the next two years break down like this:

Year Base Signing Bonus Other Bonus Cap Hit Dead Money
2014 855,000 322,500 - 1,177,500 645,000
2015 1,250,000 322,500 250,000 1,822,500 322,500

Clemens will potentially make $1.5 Million both years, but the way the contract is structured, his cap hit is less this year than it will be next year. This comes from receiving $855k in salary and $645k in bonus this year, and $1.25 Million in salary and $250k in roster bonus next year. Of note is the fact that if Clemens is cut before this season, he will only count against the cap by the amount of his guaranteed signing bonus. If he is let go next year, it will be half of it due to proration.

Example 2: Donald Butler

Butler is a complicated example because it involves a contract extension, an extension bonus and an option bonus. He was set to be an UFA for the LY14, but the Chargers offered him an extension before the beginning of the league year. Butler signed a 7-year contract for $51.8 Million, with $11.15 Million guaranteed. Further complicating the contract is the fact that it is essentially a 3-year contract with an option for the latter 4-years. Before the 3rd year, the Chargers will need to decide whether to pick up the option. If they do, he will be paid another $12 Million as an extension bonus. The remainder of the $51.8 Million is yearly salaries.

Year Base Extension Bonus Option Bonus Cap Hit Dead Money
2014 750,000 2,230,000 - 2,980,000 11,150,000
2015 3,250,000 2,230,000 - 5,480,000 8,920,000
2016 4,650,000 2,230,000 2,400,000 9,280,000 6,690,000
2017 4,000,000 2,230,000 2,400,000 8,630,000 14,060,000
2018 4,650,000 2,230,000 2,400,000 9,280,000 9,430,000
2019 5,350,000 - 2,400,000 7,750,000 4,800,000
2020 6,000,000 - 2,400,000 8,400,000 2,400,000

If the Chargers were to choose not to extend Butler, he would still be under contract for 2016, he would not be paid the bonus, but the last two years of his extension bonus would accelerate to the 2016 cap. Likewise, if he were cut after picking up the option, the option bonus for remaining years would accelerate to the cap for whatever year he was cut.

Example 3: Eddie Royal

Royal recently restructured his contract to free up cap space for this year. Going into the year, his cap hit looked as follows.

Year Base Signing Bonus Other Bonus Cap Hit Dead Money
2014 4,500,000 1,500,000 - 6,000,000 3,000,000

To free up cap for this season, he agreed to reduce his salary to $1.75 Million in exchange for a $1.75 Million restructure bonus. He also had his salary guaranteed for the season.

Year Base Signing Bonus Other Bonus Cap Hit Dead Money
2014 1,750,000 1,500,000 1,750,000 5,000,000 5,000,000

Other Cap Hits

Tenders

If a team has tendered a contract to a free agent that they have not yet signed, that money still counts against the cap.

Practice Squad

After the end of preseason, when teams add their maximum of 8 players to their respective practice squads, the weekly pay to those players will count against the cap. PS players will make $6300 a game this season and the total hit against the cap for all players and all games totals to $856,800.

Injured Reserve/Physically Unable to Play

Injured players with either of these designations, who are also making their veteran minimum on a non-guaranteed basis, are subject to a lower minimum salary whilst they are injured. Other cases earn the same whether they are on the active roster or not.

Injury Settlements

Players that opt to not stay on a team's IR list can negotiate for an injury settlement. This absolves the team of the responsibility to pay them for the rest of the season, but also allows the player the opportunity to become a free agent and play elsewhere. Any partial salary earned on IR and the settlement are subject to the cap.

Incentives

There are a number of incentive classes, but the most notable would be performance. Players can earn additional pay from meeting certain thresholds, usually for statistics during games. If an incentive is determined to be "likely to be earned", it must be included under the cap. This subjective designation is determined by the NFL and the NFLPA.

Minimum Salary Benefit

Veterans with 4 or more seasons, making the minimum salary for their service, and with bonuses not greater than $65,000 (for this LY), are subject to the Minimum Salary Benefit. Such Qualifying Players only count against the cap by the contract amount for a Veteran with 2 Credited Seasons. This allows veterans that don't command large contracts to remain in the league, without becoming too expensive for teams due to their minimum salaries.

Chargers Example: Richard Marshall is set to earn $855,00 for this season, which is the minimum for a Veteran with 7-9 years of service. Because he signed a Qualifying Contract, he only counts against the cap for $570,000, which is a minimum for a Veteran with 2 years service.

Top 51 Cap

The salary cap figure doesn't change throughout the season, but the way by which a team determines if they are under the cap does. During the offseason, a team only counts its Top 51 most valuable contracts when determining if they are under the Cap. During this period, the team is also not limited by the number of players they may have under contract. So a team can sign a number of low value prospects without affecting the Top 51 number too much, but they cannot sign a large number of high value free agents and cut them before the season.

Rosters need to be trimmed to 75 players, by August 27th, and then to 53 players, by August 31st. After these cuts, players can be resigned to PS contracts. The full value of all contracts counts against the cap with the start of the season.

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