In 1994, the owners' and players' associations of the National Football League approved a new collective-bargaining agreement. This agreement included a salary cap designed to keep player salaries from increasing at the rate they were at the time. The salary cap is essentially a set amount of money that each of the NFL's 31 teams is allowed to spend on player salaries for any given year. For the upcoming 2001 season, that amount is approximately $67.4-million, or 63% of the League's defined gross revenues (DGR) from last year divided by the 31 NFL teams.
At first glance, that amount of money may seem a lot. When you factor in an average of 57 players on an NFL roster during the season, that amounts to a salary of around $1.18-million per player. Again, a lot of money -- however, each team usually has a few big-money players, like a star quarterback or running back. Let's suppose a team has two star players, each with a salary of $8-million per year. This cuts the cap room to $51.4-million for 55 players, cutting the average salary of the remaining players by $245,000 each.
Because salaries have continued to grow at a rate outpacing the salary cap, teams have found ways to circumvent the cap. Signing bonuses don't count toward a team's cap for a given year. A player who receives a signing bonus gets more money for that year than his recorded "salary," leaving more room in the cap for the other players.
Say, for example, a player wants a seven-year, $60-million contract. Let's say that the owner decides to give that player an $11-million signing bonus, which is all paid out in the first year but gets factored into the cap as prorated over the course of the seven-year contract ($11-million / 7 years = $1.57-million per year). Most NFL contracts are "back-ended" -- most of the base salary is located in the last two or three years of the contract. If we suppose that our player's contract is structured so that he has a base salary of $2-million the first year, with higher base salaries in the final two years of the contract, the $13-million (base salary + signing bonus) paid out in the first year appears as $3.57-million to the cap! The advantage of signing bonuses for the owner is that he now has more money to spend under the cap. This is how the Washington Redskins ran up a total payroll of $92.41-million in the 2000 season when the cap was $67-million. The advantage for the player is that all signing-bonus money is guaranteed to be paid, whereas an NFL contract is not guaranteed.
There are drawbacks to signing bonuses for the owner, however. Because the bonus is guaranteed to the player, if the player is released, traded or waived, all of the bonus money that was being prorated throughout the length of the contract is accelerated to the present year. So, if our team released its star player after the third year of his contract (before June 1) for whatever reason, the entire remainder of the bonus, almost $6.3-million, will have to count toward the cap the next year (if the team releases the player after June 1, only the yearly $1.57-million will count the next year, and the remainder will count the subsequent year).
Some teams have gotten themselves in trouble using signing bonuses, running up huge portions of cap room taken up by players who haven't played for them in several years. With so much less money to spend than their rival teams, they have little chance of fielding a very competitive team for that year, as the best free agents usually go where the money is.
Here are some interesting links: