Football Glossary: Contracts and Finances

Continuing with the football glossary, today's post is about a subject that's some might find rather boring. Today is all about contracts and finances of the NFL and I've put together a list of some common terms that are often bandied about along with some definitions.

Here is a list of the definitions I'll be covering in this post:

Franchise tag (including the difference between an Exclusive Rights Tag and a non-exclusive tag)
Base Salary
Signing Bonus
Roster Bonus
Workout Bonus
Likely to be Earned Incentives
Unlikely to be earned Incentives
Team incentives

Definitions

• Salary Cap The maximum amount of money that can be spent on rosters each year. Currently it's at $120 million.
• Salary Floor This is the minimum amount that must be spent on player salaries. This is factored as a percentage of the salary cap. There is both a league wide spending floor and, starting in 2013, a team floor. This team floor is actual cash spending, not salary cap numbers.

• Franchise tag The ability of a team to tag a player and prevent them from leaving via free agency. The value of the contract is the average of the top 5 paid players at your position.

There are two types of franchise tags.

• Exclusive Rights Tag prevents the player from negotiating with any team. A player tagged this way is paid the average of the top 5 salaries for the year in which he was tagged. A good example of this is Drew Brees. By exclusive rights tagging him the Saints have made sure that he can't negotiate with any other team.

• Non exclusive tag. In this one the player is allowed to negotiate with any team, but his current team has the right to match the offer. If they decline to match the offer then the player's new team owes the previous team two first round draft picks. On this type of tag the salary is the average of the top five player salaries from the previous year. This seems like a minor distinction but it's not--in the case of Drew Brees it's the difference in tag amounts of about $3 million.

The salary for a franchised player is fully guaranteed once they sign the contract. This is counted against the salary cap like any other salary. If a player has been previously tagged then they are owed either the top 5 or 120% of their previous contract, whichever is higher. If a player is tagged three times they get the top 5 or 144% of the previous contract.

Again, in the case of Drew Brees an important decision was reached. The third party arbitrator recently ruled that when a player is tagged by any team that counts towards his total. This means that Drew Brees' current tag is his second franchise tag (the previous one was with San Diego). If he doesn't reach a long term deal, and is franchised again next season he'll get a 44% pay raise.

• Restricted Free Agent Previously this was a player with less than 4 year accrued seasons in the NFL. A team could tag this player with a minimum salary, and in order to acquire this player another team would be required to give up draft picks. Since all drafted rookies now sign 4 year deals per the new CBA, RFAs are only going to come from the ranks of undrafted free agent rookies.

Salaries

There are several ways that players have contracts written up. I'll go over a few of them here.

• Base Salary: A player's salary not factoring in any bonuses or other incentives. Salaries are normally paid out every week during the regular season, though a player can write it into their contract to have some other form of payment schedule. Most base salaries are not guaranteed, so if a player is cut mid-season, then they are only owed the base salary up to the point they were cut. However it's becoming more common to see contracts with guaranteed salaries written into them. If a player is on the roster by a certain date, then their base salary is fully guaranteed even if they are cut mid-season. This is not a bonus, so the player doesn't get the money in a lump sum. It's still treated as a salary for payment scheduling and for salary cap reasons.

• Signing Bonus: The amount of money a player gets for signing the contract. This amount can be anything the two sides agree on (or nothing at all in some cases). Likewise the signing bonus can be paid out in one payment, or split up over the length of the contract, or split up over just a few years of the contract. The only restriction is that the signing bonus payments can't skip years. In other words a player can't get a signing bonus in years 1, 3, and 4 of a 7 year contract. He'd have to get them in years 1,2,3, and 4. For salary cap purposes a signing bonus is split up over the length of the contract. If a player signs a six year deal with a $30 million signing bonus, the signing bonus is counted as $5 million per year against the cap. If that player is cut before the end of the contract the rest of the bonus counts against the cap for that year.

• Roster Bonus: This is a bonus paid to a player if they're still on the team's roster on a specific date (determined in the contract but I believe the standard dates are March 1st and June 1st). These are counted like signing bonuses for purposes of the cap. Teams will often put a player's "guaranteed" money in the form of roster bonuses, for example Peyton Manning who was owed a $28 million roster bonus last season, which is why he was released.

There are various types of incentives that a player can have in their contract. For salary cap purposes these are split into two categories. Likely to be Earned incentives are counted against the current year's salary cap. Unlikely to be earned are counted against the next year's salary cap.

• Workout bonuses: Paid to players who participate in workouts at the team's facilities. Another way to pay out "guaranteed" money. Counted as Likely to be Earned Incentives for the cap.

• Individual Incentives: Paid to players who hit certain metrics determined by the contract. Playing time, playoff appearances, tackles, rushes, etc. are all examples of incentives. These can be of either type, depending on the contract, but they're always based on the previous year's achievements (this means that a metric that's unlikely to be earned in one year of the contract might be likely to be earned in another, and vice versa)

• Team Incentives: Paid to players when the team hits a certain goal. Team incentives are always counted as unlikely to be earned incentives.

• Miscellaneous Bonuses: Any bonus not covered by the above. Maybe a player has a weight clause written into their contract, or a bonus for showing up at OTAs, etc. These are generally treated as likely to be earned incentives

Any bonuses paid out are split up over the remaining length of the contract for purposes of the salary cap. Guaranteed salaries are not split up over the length of the contract for salary cap purposes but are counted against that year.

Finally, the new CBA now requires minimum spending of the team and the league. This gets tricky, because there are two types of spending going on and they're treated differently. There's cash spending, which is actual out of pocket money being spent, and there is salary cap spending. For 2013 teams must spend a minimum of 89% of the salary cap in cash. This means that a team can't hide money in future years to avoid spending money on player salaries. The interesting loophole here is that any bonus money that is paid out counts towards the cash minimum even though it doesn't all count towards the salary cap. It's possible for a team to spend $150 million in actual salaries, while still remaining under the salary cap!

Some real life examples to help sort things out.

• Drew Brees was franchised tagged in San Diego. He's now been tagged again in New Orleans. This means his current salary is the average of the top 5 qb salaries. Peyton Manning's new deal helps bump up this number to just over $16 million. If he and the Saints can't come to a long term deal by 2013, and if he's tagged again he'll get 44% raise, making his 2013 salary just over $23 million.

• Peyton Manning signed a new deal with the Broncos for 5 years, $96 million. His deal was unusual in that it contained no signing bonus or any other bonus money. However it's a great example of how guaranteed salaries can work. His 2012 salary is fully guaranteed. If he's on the roster in 2013, then his 2013 and 2014 salaries are also fully guaranteed, which works out to about $60 million over the three years.

• Frank Gore held out in 2011 for a few days pushing for a new deal. The 49ers gave him a deal that seemed to be a great one for him with 4 years, $25.9 million and $13.5 million guaranteed. Dig a little deeper and the good news begins to unravel and we see that it was really a very team friendly deal. The contract was 4 years, but one of those years was the last year of his old deal, so it was really only a three year deal. His 2011 salary (base plus bonuses) was $4.9 million, so the contract is suddenly a 3 year $21 million deal. The press releases pointed out that the contract has $13.5 million in "guaranteed money", except only $8.5 million of that is signing bonuses. The other $5 million is roster bonuses.

• Patrick Willis has a contract that has an example of a team incentive for a player. His contract has a clause in it for 2014-2016 where he gets a bonus if the 49ers defense improves in any CBA approved metric. Since this is a team goal, it's counted as an unlikely to be earned incentive. Since it's an incredibly easy team goal, it's essentially a way for the 49ers to slip him an extra bonus, something that was important to do because of the funky rules around contracts when he extended his.