Salary cap terms and tricks to know ahead of NFL free agency

The NFL salary cap and contract landscape is murky, perhaps by design, which tends to cause confusion each offseason as the business behind football becomes the top storyline for a few months.

Unlike the NBA or MLB, which certainly have contract quirks of their own, NFL contracts are not fully guaranteed at signing. Thus, the high-level numbers that are often reported, such as total amount and average annual value, do a very poor job of painting the full picture.

First and foremost, a preliminary warning for these next few weeks: The initial report about a contract may not be accurately detailing the true base value of a contract (even ignoring the guarantee discussion for now). What do we mean by that?

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We’ve already been fooled once this offseason with the J.J. Watt sweepstakes. Watt’s contract with the Arizona Cardinals was first reported as a two-year, $31 million deal ($15.5 million per year). However, that was the “up to” amount, as in the deal is worth up to $31 million if Watt were to hit various benchmarks to earn incentives (we’ll get to incentives later). In reality, the base value of Watt’s deal was two years and $28 million ($14 million per year), with the ability for him to earn additional compensation based on his number of sacks. 

Let’s start at the top and work our way through the more notorious and important contract terms you’ll need to know this offseason. This is not an exhaustive list, and it does not cover various quirks that may arise, but if you have a solid understanding of the following information, you’ll have a leg up on 95% of football fans.

(All salary information and contract tables courtesy of Over The Cap.)

What does fully guaranteed mean? Total guaranteed?

Money in an NFL player contract can be guaranteed with three designations: guaranteed for “skill, cap and/or injury.” When you see the term “fully guaranteed,” this means the money is guaranteed for skill, cap and injury. 

• Guaranteed for skill: Even if the player’s skill reduces sharply and the team believes he is not performing near the level they desired when agreeing to the contract, the money is still guaranteed. 
• Guaranteed for cap: The team having a precarious salary cap situation doesn’t void the guarantee if that is the reason provided for the player’s release. Players released for cap purposes are often referred to as a “cap casualty,” in that the player is still producing, but it's not enough to justify a large cap hit. 
• Guaranteed for injury: If the player suffers a football injury that renders them incapable of passing a physical, the team still owes them injury-guaranteed money. 

“Total guarantees” encompasses two things that are not truly guaranteed: 

• First, money is often guaranteed for injury only. That means if the player is healthy when cut and released for “skill” or “cap” reasons, then that money does not get paid out. 
• Second, there can be money that becomes guaranteed or “vests” to a full guarantee at a later date, but the team can cut the player before that trigger date occurs.

A prime example of total guarantees being very misleading played out already this offseason. Miami Dolphins linebacker Kyle Van Noy signed a four-year, $51 million contract with $30 million in total guarantees in 2020, but that deal ultimately ended up as a one-year, $15 million deal. Van Noy’s entire 2021 base salary — $12.5 million — was guaranteed for injury only at signing and was set to become fully guaranteed the fifth day of the 2021 league year in March. That's why the Dolphins moved on before that date. Van Noy will now see none of that money.

This is the main reason why NFL contract reporting is so misleading, and it's why fans need to understand that even the players inking the biggest deals are not really signing for as much as they think. A phenomenal study conducted by Bryce Johnston and Nick Barton examined historical contract earnings and found among their sample that the players earned 68.1% of the “stated value” of their contracts on average. 

This is oversimplifying the study, but when you see the headline “Player X signs for five years, $100 million,” that player will actually see around two-thirds of that amount, $68.1 million in this example, on average. And of course, the smaller the deals get, usually the easier it is for a team to get out of them sooner having paid even less of a percentage of the total.

What components make up a contract?

Base salary

This is the most traditional form of payment — a biweekly salary just like many jobs (though a bit larger in amount). With 2021 likely set to have 17 regular-season games, players would receive a check every other week over a 34-week period. 

Base salary hits the salary cap all in the season of play and can be fully guaranteed, partially guaranteed or not guaranteed at all. When a player is traded, the obligation to pay salary transfers to the acquiring club. 

Below is a table from Article 26 of the NFL CBA with the minimum salaries based on a player’s number of credited seasons:

*All amounts in thousands; CS = credited seasons

These minimum salaries were probably the biggest “win” for the players in the latest round of CBA negotiations. As you can see in the 2021 column, the lowest base salary a player can have on a deal signed in 2021 is $660,000. 

Prorated Bonus (Signing Bonus & Option Bonus)

The most common form of prorated bonus is the signing bonus. This money is fully guaranteed at signing, meaning the player will receive the cash no matter what (it can be forfeited via suspension or otherwise, but no football reason will cause this money to be lost). 

Players receive a lump sum of cash, typically within the first calendar year or 18 months, depending on the size of the signing bonus. This money is referred to as “prorated” because from a salary cap perspective, the total sum can be spread out over the life of the contract in equal installments, up to a maximum of five years. Thus, a $20 million signing bonus on a five-year contract would create $4 million cap hits in each season. 

The term “dead money” often refers to the remaining prorated money on a contract. If a team cuts or trades a player with prorated money remaining, they will still have to account for that “dead money” charge. Here’s one relevant example with Seahawks quarterback Russell Wilson that may work against him being traded:

*Russell Wilson contract info via Over The Cap

$39 million represents three $13 million cap charges, as Wilson’s extension signed in 2019 had a $65 million signing bonus, creating cap hits of $13 million in each of the five seasons it covered. The record for a dead money charge was set by quarterback Carson Wentz, right after quarterback Jared Goff set a new mark with his trade to Detroit. Wentz will count $33.8 million against the Eagles’ salary cap in 2021, which is the third-biggest cap hit in the NFL for 2021 … for a team he won't be playing for. 

Option bonuses are treated the same as signing bonuses, except they have a trigger date later in the contract — meaning they kick in the year after signing or later. They are therefore not necessarily fully guaranteed at signing, as a team could theoretically decline a non-guaranteed option when that date arrives.

Wentz’s deal had an option bonus for 2020, which played a role in his massive dead cap charge. Nevertheless, the signing bonus and option bonus structure is one approach we expect to see more of this offseason with the larger contracts handed out. Cleveland Browns edge defender Myles Garrett signed an extension last offseason that had a signing bonus for 2020 and then option bonuses for 2021 and 2022. 

Why do we expect to see it more?

By deferring a portion of the total prorated bonus money to 2022, teams can keep their player’s 2021 cap hit down. Of course, the marquee players who agree to this structure will demand that the 2022 option bonus is fully guaranteed at signing — which was the case with Garrett’s 2021 option bonus.

Roster Bonus (Lump Sum & Per Game)

There are also bonuses that typically do not prorate and instead hit the salary cap all in one season. These are lump-sum roster bonuses. The most famous recent lump-sum roster bonus was in Jimmy Garoppolo’s deal signed in 2018. 

San Francisco had a lot of cap space and a roster that wasn’t quite ready to compete, so unlike the traditional “backloading” of an NFL contract, they front-loaded Garoppolo’s deal with a huge lumpsum roster bonus in 2018 (deal pictured below, roster bonus bolded/italicized):

*Jimmy Garoppolo contract info via Over The Cap

These roster bonuses in the first year will be earned, but roster bonuses in later years are often not guaranteed. Players and teams will often view the date that the future-year roster bonuses are owed as a trigger date: Will you pay this bonus in March, or will you cut me before it becomes due? The players obviously want to earn the bonuses, but the consolation prize can be that they get to hit the free agent market right away in March, and the team can’t carry them on the roster later into the offseason when money dries up across the league.

Per-game roster bonuses are earned when a player is on the 53-man roster on a given Sunday, or sometimes they have to be on the 46-48 man active roster, meaning they aren’t a healthy scratch or on injured reserve, etc.

Using Garoppolo’s per-game roster bonuses as an example, he does not earn $800,000 per game. If he played all sixteen regular-season games, then he would earn $800,000. Hypothetically, if his per-game roster bonuses were earned only if he was on the active roster, then he would've earned just $300,000 in per-game roster bonuses in 2020 after playing in just six games.

Incentives: “Likely to be earned” / “Not likely to be earned”

We briefly mentioned incentives at the beginning of the article in reference to J.J. Watt’s new contract with the Arizona Cardinals. If Watt gets a certain number of sacks, he will earn additional compensation. The most common incentives are statistical ones like Watt’s, if a player makes a Pro Bowl, if the team makes the playoffs, etc.

First, what determines “likely to be earned” versus “not likely to be earned?” Answer: whatever happened the season prior. For example, Watt had five sacks in 2020. If the sack incentive for 2021 was, “Watt will earn $1 million if he has four or more sacks,” then this would be considered likely to be earned. If it said, “Watt will earn $1 million if he has 6 sacks or more,” then this would be considered not likely to be earned.

The “likely to be earned” versus “not likely to be earned” distinction is incredibly important this offseason, in particular, and here’s why:

For salary cap purposes, a “likely to be earned” incentive will be accounted for on the cap right all season long. Meaning, the $1 million for Watt getting four-plus sacks would be reflected in his 2021 cap hit. If the incentive is not likely to be earned, the money will not be reflected in his 2021 cap hit. Instead, there is an “annual adjustment” at the end of each season that takes into account a team’s incentives and adjusts their cap for 2022. This offseason, expect a whole lot of “not likely to be earned” incentives. Why? Because the player can still earn this cash, but the team won’t have to account for that cap hit until 2022. 

There are other components to a contract, but this covers the most important ones. Beyond creating new contracts, there are also ways for teams to clear cap room with pre-existing deals. 

How to clear cap space

Beyond the obvious cap-clearing move of releasing a player or asking them to take a pay cut, teams have various other mechanisms through which they can create cap space. 

Restructure

A term that you may have already seen a bunch this offseason as teams work to free up cap space is “restructuring” a deal. A true restructure is quite simple but is often misunderstood. We’ll use Chicago Bears safety Eddie Jackson as an example because ESPN’s Jeremy Fowler has reported that a restructure is expected. 

*Eddie Jackson contract info via Over The Cap

Jackson has an $8.95 million base salary for 2021. As we covered, base salary hits the salary cap all in that season. When the Bears restructure Jackson’s contract, they will “convert” the base salary into a signing bonus. If they do a maximum restructure, Jackson’s base salary will be dropped from $8.95 million down to $990,000. The remaining $7.96 million ($8,950,000 – $990,000) will be paid as a signing bonus and thus will be split up into equal payments over the four remaining years of Jackson’s contract.

Jackson will receive the $7.96 million in cash as an upfront payment, but for salary cap purposes, there will now be four $1.99 million prorated bonus charges every year from 2021 to 2024. 

Jackson’s 2021 cap hit will go from $11.45 million to: