FanPost

The sky is not falling, but...

I am a long time follower but first time poster on Niners Nation. So first of all:

Hello

I have noticed that quite a few first time posters tell the story of how they became a 49er fan. I won't regale you with my own origin story.

I am not Spiderman.

I have seen on this website and other media Niner fans predicting the salary cap problems the Seahawks will have signing their players to long term deals and yes it will likely cause them difficulties down the line. But one thing is certain, they won't have any salary cap problems this year, they won't have any salary cap problems next year.

I am far more worried about our team.

We have all heard the nonsense from the media about the Niners super bowl window closing. I don't believe that, and the one thing I know for certain our front office does not subscribe to that whatsoever. This year and last we have drafted players with great upside, injured players at great value, everything we have done is focused on having continued success in the years to come, rather than trading up for one or two "blue chip" players to win now and no later.

I love this future focus because having the quote best team does not guarantee you success. You have to have some degree of fortune in order to win the Super bowl in any given year. Key injuries can end your chances, and when you get to the play offs, form plays as big a part of the result as the quality of your players. In tight playoff games a tipped ball, a bad call, the bounce of a fumbled ball, one lapse of concentration can put all your hard work to waste. You can be the unquestioned best team in the league and still not win the Lombardi. (07 Patriots anyone)

The key is to be continually competitive and in the playoffs, our drafting strategy coupled with the signing of Colin Kaepernick will ensure this happens. Having a very good chance to win year in, year out will yield more success than having the best chance for one or maybe two years.

But in order for this strategy to be effective we must also align our finances for the future. This is where I worry. According to Over the Cap (an excellent website, I thoroughly recommend it) we have $6,129,368 in estimated cap space for this year. Once we cut the roster to 53 we can expect that to fall by about $4M for dead money hits, remaining players on the roster, practice squad and PUP/NFI, leaving roughly $2M. Not a problem you might say.

However this figure is false, it is an accounting trick. The reality is that we are $10M+ over the cap. This is because there is a difference between the legal form of a contract and its true economic substance. When reviewing a NFL contract it is important to look at the cash flows and take a view of what the team's probable view of the contract is.

Take Phil Dawson's contract for example:

2014

2015

Cash flow

3M

3.134M

Cap number

2M

4.134M

The payment to Phil Dawson is $1M base salary and $2M signing bonus all of which is fully guaranteed. The true cost of having Phil Dawson play for us this year is $3M, but we show only a cost of $2M this year and $1M extra cost next year. The economic reality is that we have taken a loan of $1M from 2015 and paid it to ourselves this year.

We did the same thing last year when we converted $6.56M of the $8M salary Justin Smith was due to earn in 2013 into a signing bonus borrowing from 2014 and 2015. Our 2014 salary cap is effectively reduced by $2.187M by this action and will again in 2015.

Let me say that I have no problem with having signing bonuses or dead money. Signing bonuses are an important inducement to get players to sign extensions and are a necessary part of the business of operating in the NFL. You simply have to exercise judgement. Take two examples:

If you sign a player that you expect, all other things being equal, to be a part of the roster for the whole of their contract than the signing bonus is simply a loan of future salary, which if the player quits part of that signing bonus can be recovered for the unserved time. When this is the case the cap number reflects the true value of the player. For example Anthony Davis had a signing bonus of $7.5M and is signed to 2019. I fully expect him to serve out the contract. His cap figures represent his true cost.

Look at Antoine Bethea's contract:

2014

2015

2016

2017

Cash flow

6.75M

3.5M

5M

5.75M

Cap number

3M

4.75M

6.25M

7M

Difference

-3.75M

1.25M

1.25M

1.25M

Let me say in advance, I really like the Bethea contract. It brings in a very good veteran player at a position of need to lend experience to a secondary that has lost Brown, Rogers and Hitner. As Antoine is a vet he demanded guaranteed money up front so his year 1 money is guaranteed. As you can see the money paid in year 2 falls to just 3.5M, which is a bargain for a player like Bethea which effectively demands you keep him on the roster. So the first two years the 49ers are likely going to use him and his average cash cost will be just over $5M per year. The salary figures for year 3 and 4 are not guaranteed, this is the point where the front office with a tight cap will have to ask are we going to be able to pay $5M to an aging veteran. The reality of this deal is that it is a two year deal with an option to extend in year 3 and then in year 4.

We are spreading the signing bonus of $5M over the four years of the paper contract when the likely scenario is that Bethea gets cut after two years. If this is the case then:

2014

2015

2016

Cash flow

6.75M

3.5M

0

Cap number

3M

4.75M

2.5M

Difference

-3.75M

1.25M

2.5M

We are again effectively loaning ourselves $2.5M from 2016 boosting our roster this year at the expense of the future. Now, we can all agree that it is better to have money today rather than next year, but the fact is we have bills to pay next year and the natural tendency is; if you have money in your pocket, you spend it, especially when we are so close to winning it all. Arranging deals that have this de facto future loan element are fine only so long as you understand that there is a future price to pay and you should try to keep this amount back in unspent cap to roll over to next year to cover it.

But what really worries me is the Anquan Bolden contract where for a two year deal we are using fictitious void years to put off the true cost this year into future years, again borrowing from the future. This is the kind of financial stupidity that the Dallas Cowboys use over and over again to lower their effective salary cap each and every year, thereby guaranteeing their continued mediocrity for years to come. We can not follow this example.

If we do have cap problems, we are in real trouble. Look at our roster it is incredible. Great players at great value. There is no fat to trim. In finance we have a concept of "overtrading" where a company expands making profitable deals, but because they do not have enough cash coming in to cover their costs they can go out of business. This is not just a theoretical possibility, I've seen it happen. In the NFL with its hard cap this is the reality of day to day business.

A quick look at this years roster I can see the following future loans we are benefiting from this year to the detriment of the future:

Loan

2015

2016

2017

2018

Justin Smith

2.19M

2.19M

Navarro Bowman

2.62M

0.65M

0.65M

0.65M

0.65M

Antoine Bethea

2.5M

2.5M

Anquan Boldin

3.64M

0.91M

2.73M

Phil Dawson

1M

1M

Carlos Rodgers

1.49M

1.49M

Total

13.43M

6.24M

5.88M

0.65M

0.65M

Let's assume that next years cap goes up by $12M, a large amount but within current expectations, this gives us a 2015 cap figure of $145M. Our current projected 2015 51 man roster cap figure is $144.49M leaving $0.5M to sign our 2015 rookie class assuming we sign no-one else. Please note the $144.49M figure does not include any contract extensions for Crabtree, Iupati, Dorsey, Culliver or Gore. This meagre cap space prevents us from using the draft and redshirt injured player policy we have been using, which I for one love. If 30%+ of these players develop into the players we hope, then this is a fantastic investment. To not do this, is like disbanding R & D to boost this years profits at the cost of the future well being of the organization.

No problem you might say, we can restructure contracts for cap space. But you only do that by pushing money into future years (i.e. loans) increasing this issue in future years. Also increasing the levels of potential dead money hits from cutting players weakens our ability to maintain a strong roster. We are in the foothills of the slippery slope. We need to be pumping the brake and pumping it hard.

We as a fan base have been here before. We spent big in the nineties for success now, and in fairness it did land us one super bowl win. But the cost of that was our finances got increasingly squeezed, we had to shed good players, our standards, discipline and morale fell which led to:

A decade of darkness.

Do I ultimately foresee some calamity? No, I do not, but the threat is VERY, VERY REAL. There is bountiful praise of both Jim Harbaugh and Trent Baalke on this site, and justifiably so. But Paraag Marathe does not get enough credit for the way he has handled the general finances of the 49ers. I am confident that he will navigate these financial shallows keeping us competitive in the coming years. I write this article to highlight the scale of the challenge facing us and to give us all the perspective as fans to not expect any further big extensions this year, and restricting ourselves to limited extensions next year. Because sometimes the most useful thing you can do is to say no.

No, we can not afford this.



This is a FanPost and does not necessarily reflect the views of Niners Nation's writers or editors. It does reflect the views of this particular fan though, which is as important as the views of Niners Nation's writers or editors.