The Salary Cap Explained

The salary cap in itself is quite a simple concept and is the maximum amount of money that can be spent on player salaries by an NFL team over the course of a season…

The salary cap in itself is quite a simple concept and is the maximum amount of money that can be spent on player salaries by an NFL team over the course of a season. For the 2019 year, the salary cap was set at $188.2m, and this is expected to increase to close to $200m for the 2020 year.

However, the way a player’s contract affects the salary cap each year is not simply based on the amount of cash the team pays the player that year. Rather, the financial structure of the contract would determine the “cap hit” that is allocated against the salary cap for that particular season. Teams will attempt to structure the contracts of their players to ensure they can pay their superstars whilst still remaining within the cap. The contract can be structured to allocate larger or smaller cap hits to each year depending on the needs of the team. 

When Aaron Donald signed his mega-contract with the Rams in 2018 it was announced as a six-year, $135m contract extension with $87m guaranteed. The deal was an extension as Donald had one year remaining on his previous deal, making the total contract period seven years. But this does not mean that Aaron Donald counts $19.3m, 1/7th of $135m, against the cap for each year of his contract.

An NFL contract in its simplest form is made up of a base salary and a signing bonus, but can also incorporate roster bonuses, and escalators/incentives. 

The signing bonus is an amount paid to the player at the point of signing the contract as a lump sum payment. In Aaron Donald’s case, he received a $40m signing bonus. This amount, although paid at the point the contract is signed, is pro-rated over the course of the contract for salary cap purposes, for up to a maximum of five years. This means that Aaron Donald’s cap hit for the first five years of his deal includes 1/5th of his $40m signing bonus, being $8m. 

The base salary is paid to the player throughout the course of the regular season. As the regular season (at the time of writing) takes place over 17 weeks, the base salary is paid over these 17 weeks, making a player’s cheque 1/17th of his base salary. For the 2020 season, Aaron Donald has a base salary of $17m, which makes his weekly game cheque a cool crisp $1m. Base salaries are often not guaranteed but can be in the large contracts for superstar players such as Donald. Donald’s 2018 and 2019 base salaries of $892k and $9.108m respectively were fully guaranteed at the point of signing.  

To work out the cap hit for a player for a particular contract year you combine the base salary with the pro-rated amount for the signing bonus. As mentioned previously, Donald has a $17m base salary for 2020. Combined with the $8m pro-rated amount from his $40m signing bonus, this gives Aaron Donald a cap hit of $25m for 2020.  For 2018, Donald only had a base salary of $892k, which meant he had a cap hit of $8.892m. 

You may also have heard the term “dead cap” mentioned when a player is rumoured to be cut or traded. The dead cap amount is the amount of cap hit that stays on the team’s salary cap when a player is released or traded, and is usually calculated from the remaining guaranteed amounts that have not been incurred from a cap perspective. Looking at Aaron Donald’s contract as an example again, if Donald were to be released this offseason (definitely NOT HAPPENING) he would count $41m against the Rams cap for 2020, even though he would no longer play for the team. This is because he has three years of his pro-rated signing bonus still to be incurred, a total of $24m, as well as his base salary of $17m, which became fully guaranteed last season. The 2020 base salary becoming fully guaranteed is due to a particular contract term that guaranteed Donald’s 2020 salary if he was on the roster on the 15th March 2019, designed to give the player more long term security.

However, if Donald were to be traded this offseason (which, again, is definitely NOT HAPPENING), he would only cost $24m in dead cap against the cap in 2020. This is because the team trading for Donald would take on the base salary for 2020, leaving only the balance of the signing bonus to be left on the Rams cap.  

It is also a possibility for a team to restructure a player’s contract, with the player’s approval of course. This is a way of changing the structure of the players contract to amend the cap hit for that year, although this will have ramifications for other years on the deal. The most common way of restructuring is to convert base salary into signing bonus, which would then be pro-rated across future years. With a base salary of $17m in 2020, it is possible that the Rams ask Aaron Donald to restructure his contract, changing some of that $17m into signing bonus and spreading it over future years. However, Donald already has a $27.9 cap hit for the 2021 season, so the Rams would likely be hesitant to increase this even more by restructuring his base salary from 2020. 

The details of the contract structures contained in this article were taken from both spotrac.com and overthecap.com