Dynasty and the NFL Salary Cap

I’m happy to return to the dynasty side of writing, and also looking at something from a different lens than my normal fare. In this piece, I’m going to walk through the NFL salary cap and how it should impact your dynasty strategy. Since I have a master’s degree in Sports Management, I’ll also drop some knowledge from my educational background. I don’t usually get to incorporate that side of me into my writing, so I’m happy to do that for a change.

In general, I find that most dynasty owners suffer from a lack of knowledge about player contracts and how the salary cap affects NFL team building. There’s so much that happens in the dynasty landscape that seems shocking to some but is entirely predictable with a thorough knowledge of these financial workings. Even though it’s not a pleasant topic, we also have to address the current coronavirus pandemic and how it’s going to affect the salary cap moving forward. Let’s start with the basics, though.

 

What is the NFL Salary Cap?

In the most basic terms, the NFL salary cap is a limit on the amount of money each NFL team can spend each season. The NFL cap is a hard cap, which means that teams cannot exceed the cap for any reason. This system is in contrast to other sports leagues, especially the NBA, which have exceptions or loopholes that temporarily allow them to go over the cap.

Since NFL teams must all comply with the cap at all times throughout the league year, they must plan out their salaries to avoid going over the cap. The 2020 salary cap will be $198.2 million, up from $188.2 million in 2019. Most teams have already expended the majority of their 2020 cap space, with the remainder allotted to their 2020 rookie draft class.

 

The Cap and NFL Player Contracts

Since the salary cap represents a hard limit on player salaries, NFL player contracts are typically not fully guaranteed, unlike those in NBA and MLB. A contract in the NFL contains four main components: signing bonus, guaranteed salary, non-guaranteed salary, and incentives or bonuses. Each part counts against the cap differently and gets paid on a different schedule. The total of all components represents the total cap hit of a player.

The signing bonus is a standard feature of any significant player contract. As the name suggests, the bonus is paid to the player immediately upon signing the contract. However, while the player receives the money right away, the bonus is counted against the cap equally across the entire agreement. This system allows the player to earn extra money upfront without all of it counting against the salary cap right away. While it sounds like a simple accounting principle, signing bonuses are the primary factor in a concept known as “dead cap,” which we’ll explore more later.

Guaranteed salary sounds simple, but even guaranteed salary is not always wholly guaranteed. There are three main types of guaranteed salary. The first type is: “guaranteed at signing,” which means that the player will receive that money no matter what, unless they commit an egregious violation of their contract. For example, first-round draft picks receive deals that are either entirely or mostly fully guaranteed at signing.

The second type of guaranteed salary is: “guaranteed for injury only.” Those guarantees protect the player if they suffer a severe injury and cannot play in the NFL anymore. A great example of this type is Alex Smith’s 2020 salary. Since he could not pass an NFL physical and play football by a specified date, his 2020 salary has become guaranteed and will count against the Redskins’ cap number for 2020. Additionally, first-round picks from 2017 and earlier have a fifth-year option in their contracts that falls into this category. Assuming a player remains healthy by a particular deadline, the team can escape paying that salary if they release that player.

The final type of guarantee is a guarantee that vests or locks in as of a specific date. Often, veterans have contracts with clauses that guarantee most or all of their salary if they’re on the roster on a particular date in March or April. This clause protects the player from being released later on in the offseason when finding a new team would be more challenging. These types of guarantees are why there are often a bunch of veterans released or restructured in late March to early April. Jerick McKinnon is an excellent example of a veteran who reworked his deal this offseason because of a vesting guarantee.

Non-guaranteed salary is the most basic type of salary in the NFL. It works exactly how it sounds. If a team cuts the player, they are not responsible for any of the non-guaranteed salary in a player’s contract. When the media reports contracts, they typically include the entire value. However, when looking at a contract for dynasty purposes, you can ignore the non-guaranteed salary. Think of it as a team option more than anything else.

Finally, there are incentives and bonuses. Incentives work how they do in standard workplace contracts. They usually require a player to play a certain percentage of snaps or to record certain statistical thresholds. They come in two categories: “Likely to be earned” (LTBE) and “Not likely to be earned” (NLTBE). The only difference is that LTBE incentives count against the current year’s salary cap, essentially assuming that the player will reach them.

On the other hand, NLTBE incentives roll over to the next year’s salary cap if earned. Typically, these incentives are minimal and only matter for fantasy players for backup quarterbacks’ contracts. Many of those contracts have rather large incentives if the backup becomes the starter during the season, so it’s something to watch, especially in superflex leagues.

Bonuses come in two main types: workout and roster. Players usually earn workout bonuses, as they simply require the player to appear at offseason programs. They typically come up as relevant during potential player holdouts. Roster bonuses are similar to vesting guaranteed salary. Often, a player will have a roster bonus due on a specific date if they are on the team’s roster at that time. If that roster bonus is massive, the team might choose to cut or restructure a player’s contract before that date. Typically, those dates are soon after the beginning of the league year, within the first five days. In the 2020 offseason, Todd Gurley was the most notable fantasy player affected, as the Rams cut him mere hours before they would’ve had to pay him a $10.5 million roster bonus.


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Dead Cap

As I alluded to above, the most important single number in a player’s contract is their dead cap figure for a particular year. There are two types of dead cap: the dead cap resulting from an outright release and the dead cap resulting from a trade. As I mentioned above, when a player signs a contract, their signing bonus is spread across the entire agreement. 

However, when a player is released, the remaining amount of the signing bonus is immediately charged to that team’s cap for the current year. Any fully guaranteed salary or bonuses in the present or future years are also immediately charged to the cap. Therefore, early in a contract, most players have higher dead cap hits than their regular cap hit, as there is still so much of the signing bonus and guaranteed salary portions of the contract still to come. As a contract moves along, more of the salary is usually non-guaranteed, and the remaining signing bonus is less than the salary due. That’s why it’s most common to see players released in the last year of their deals, like Cam Newton and Andy Dalton were this offseason.

It is important to note that unlike other sports, dead cap and trading works slightly differently in the NFL. In other sports, the new team inherits the entire contract and simply absorbs the salary cap hit “as is,” but it doesn’t work that way in the NFL. When a player gets traded in the NFL, the new team takes on the remaining contract years, including all future salary and bonuses for future dates. However, the previous team is still responsible for the salary cap hit from the signing bonus, as they already paid that amount to the player in full. Additionally, since the former team no longer employs that player, they must immediately charge the remaining signing bonus that has yet to apply to their cap. Therefore, it’s not as easy to simply trade away bad contracts in the NFL, as it is in other sports leagues.

 

General Dynasty Strategy Based on the Salary Cap

After taking in all of that information, the question you might have is: how does this all apply to my dynasty leagues? 

There are two main ways to use contracts to help your dynasty strategy. First, in general, money talks. Players who receive sizable guarantees will receive opportunities on the field. For example, after the Jets gave Le’Veon Bell a massive contract before the 2019 season, he had significant guarantees for 2019 and 2020. Therefore, based on that capital invested, the Jets did in 2019 and will likely continue in 2020 to give Bell significant volume, whether he is effective or not.

The other main component of the salary cap in dynasty strategy is how dead cap can predict the future of NFL teams. In general, teams will not move on from players where the dead cap hit is higher than the actual cap hit. If you use a site such as Spotrac or OverTheCap, you can compare a player’s dead cap to their current salary. The difference between the two numbers is the cap savings. A positive number indicates that the team will save money by moving on from that player and that their role is not guaranteed. However, a negative number means that the player is locked in, although even in those cases, nothing is for sure.

One of the most notable examples in current dynasty formats is the Aaron Rodgers and Jordan Love situation. Currently, Rodgers’ cap hit is approximately $21 million, but his dead cap hit is $51 million. Therefore, Rodgers will be on the Packers for 2020, as the consequences of releasing him would be catastrophic. Even in 2021, Rodgers’ cap hit is $36 million, but his dead cap is $31 million. The Packers would save about $5 million by releasing Rodgers before 2021, but carrying $31 million for a player they don’t have is unlikely. 

However, in 2022, the situation changes. Rodgers’ cap hit rises again to over $39 million, but his dead cap is only $17.2 million. As the Packers would save $22 million by releasing Rodgers before 2022, the natural assumption is that they plan to release or trade Rodgers after 2021 and move forward with Love as their starter at that stage.

Even though dead cap is vital to NFL team building, some organizations do things that make little to no sense cap-wise. The Rams traded Brandin Cooks to the Texans, despite saving no money against the cap by making that deal. Speaking of those Texans, they took on David Johnson’s massive salary in the same transaction where they traded away DeAndre Hopkins, despite Hopkins having a $3 million dead cap hit. Also, in 2019, the Giants traded Odell Beckham Jr. to the Browns, one year after signing him to a massive extension. They ate a massive dead cap hit in that deal due to the prorated signing bonus that remained.

While it’s important to look at the cap numbers, it’s important to remember that these players are humans, and teams will sometimes go against the cap to achieve other goals. Also, some organizations are poorly-run, and we can’t trust that they’re going to behave logically. Therefore, while looking at the cap is important, evaluating the talent on the field and examining the stats remains the most reliable strategy in dynasty.

 

The Coronavirus Pandemic and the Salary Cap

Lastly, I want to talk about the unique effect that the current pandemic will have on the salary cap. The NFL salary cap is part of the collective bargaining agreement (CBA) between the NFL owners and the NFL Players Association. In each CBA, the owners and players agree on what percentage of revenue makes up the salary cap. The two sides recently extended their agreement until 2030, and in that agreement, players will receive approximately 48% of football revenue.

As revenue typically increases over time, the salary cap usually goes up year-over-year. However, with the predicted loss of revenue from the pandemic, the 2021 and possibly 2022 salary cap will almost certainly be lower, not higher than the 2020 number. Therefore, teams will have to take care in signing new long-term deals.

In my opinion, the main effect will be that mid-tier players, especially running backs, will not receive contract extensions. The studs will always get their money, but teams will have to make some hard choices outside of that top tier. Teams will, therefore, choose to go with cost-controlled rookies over those replaceable veterans. Aaron Jones and Chris Carson are two good examples of players that could miss out on extensions due to a lack of money. They’re both solid running backs, but not worth a massive contract, especially not with a salary cap decrease looming.


Thanks for reading this article. You can find me on Twitter at @DFF_Karp. I love to interact with anyone in the community, so reach out at any time! I take fantasy questions and help with all formats, so keep sending those questions my way.

jkarp

Columbia SPS Sports Management graduate. Director of content, writer, and ranker for @DFF_Redraft and writer for @DFF_Dynasty. #DFFArmy #FantasyFootball You can find me on Twitter @DFF_Karp.

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