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The 49ers did not overpay for Torrey Smith

Trent Baalke and Paraag Marathe use rolling guarantees to reduce their future salary cap liability. We break down how it works in Torrey Smith's new contract.

Evan Habeeb-USA TODAY Sports

The San Francisco 49ers did not overpay for Torrey Smith. And it's all because of rolling guarantees. And those rolling guarantees are one example of how the 49ers are viewed as one of the teams that best handles the NFL salary cap. Jason Fitzgerald of Over The Cap had this to say when asked who handles the cap best:

If I had to narrow my choices down to two teams I would select the 49ers and the Patriots. The 49ers I appreciate because everything is done on their terms. Almost every player on that team, even the stars, has large amounts of money tied into being healthy and productive which is not common in the NFL. For instance last year Navorro Bowman missed out on $750,000 in salary because he was hurt.

The salary cap is a funny thing. There's guaranteed money and there's "guaranteed" money. Most fans are used to the idea of a guaranteed signing bonus and salary. This was the way the salary cap operated pretty much since it's inception. Follow me through a basic NFL deal.

Player A signs a five year deal for 25 million US American dollars. None of that looney and tooney CFL stuff. Five million of that 25 mil is a guaranteed signing bonus. The cap implications of the deal are simple: 20 million in salary, and 5 million in guaranteed signing bonus, breaks down to a cap hit of 5 million per year. How? Take 4 million per year in salary and add 1 million per year in a prorated signing bonus.

One of the quirks of the NFL salary cap is that a guaranteed signing bonus is split, or prorated, over the first 5 years of a deal. This is why most long term deals don't go more than 5 years. It's also why, in our hypothetical, the 5 million signing bonus is spread out at 1 million per year.

That was 1992 math. We're now 23 years beyond the implementation of the salary cap and accounting methods have evolved. One of the evolutions Trent Baalke and Paraag Marathe employ with great success is the rolling guarantee.

NFL contracts are unlike other sports contracts in that they are usually not fully guaranteed. A player gets a signing bonus, and potentially some of his base salary fully guarnateed, but a sizable chunk of the money is not fully guaranteed. Sizable chunks will be fully guaranteed for injury, but it is usually not guaranteed against a release for skill or cap reasons.

A rolling guarantee occurs when all or some of a player's base salary in a given year becomes fully guaranteed on a specific date in the future. If the player is on the team's roster on that particular date, his salary for the next year (or whatever time frame) becomes fully guaranteed if he is released.

Torrey Smith is only the most recent example of this. He signed a 5-year, $40 million contract. Of that, $8.75 million is fully guaranteed. That includes his $8 million signing bonus, and his $750,000 base salary for 2015. Beyond that, he has injury guarantees broken down as follows:

2016: $4.5 million base salary
2017: $6.5 million base salary
2018: $2.25 million of his $6.5 million salary

Those injury guarantees become fully guaranteed on April 1 of the given league year.

The term "rolling guarantee" applies specifically to base salary, but this notion can be applied to other aspects of Smith's contract. Smith's contract includes $500,000 in roster bonuses each year. The bonuses are divided up into 16 payments based on Smith being active during the season. For every game he is active, he earns $31,250. Roster bonuses can also be a one-time payment if the player is on the roster on a given date, but the 49ers effectively use the rolling base salary guarantees in that manner.

This is something the 49ers have done with numerous contracts on their roster. This protects the team when an injury happens. NaVorro Bowman had $750,000 in roster bonuses last year, and the 49ers paid none of it due to his injury. We would much prefer to see Bowman playing, but the team did at least save some money due to his injury.

There are also workout bonuses. Smith receives $750,000 in a workout bonus this year, and $1 million each of the next four years. This is paid for taking part in some percentage of the team's offseason workout program. This can occasionally help protect against a holdout down the road, although obviously that did not matter with Vernon Davis.

The bottom line is this: Torrey Smith was effectively signed to a 3-year deal. Based on his roster and workout bonuses, the 49ers can cut Torrey Smith after three years and only take a $3.2 million cap hit, while saving $6.4 million in cap space. They would not take a hit for his 1 million in roster bonuses and 2 million in workout bonuses. And of course, the 49ers would not be on the hook for his salary, as he would not be on the roster.

While many people are saying that $22 million is too much for a potentially complementary receiver, they neglect the nuance and brilliance of the Baalke/Maarathe contract. The 49ers are not only able to say "we gave Smith 22 million guaranteed", they are also able to reduce their dead money liability if they cut Smith after a few years. And that is clearly a win for the franchise.