BGA: 2012 Salary Cap Update 2.0 – Peyton Manning Edition

Previously on BGA…

When I last did a salary cap update, I talked about the amount of flexibility the Jets had to create space to make one or two low or mid-level moves to upgrade the team without having to release many (if any) key contributors. Since then, not much has changed.

The Jets did restructure D’Brickashaw Ferguson’s contract, deferring the maximum amount of money possible without changing the amounts due to him into future years. Also, they retained Wayne Hunter, guaranteeing him $2.5m, although they still have the ability to restructure his deal so that his cap hit for the year is reduced by $1m. The decision to tender Aaron Maybin at the original round level is also relevant, because that will use up about $1m of additional cap space, assuming he plays out the year on the one-year tender.

One other thing that might change is the salary cap threshold itself. All our previous projections were on the basis of $120,500,000 – based on last year’s cap of $120,375,000 but rounded up to make things easier to represent with round numbers. Previous reports were that the cap was only expected to rise slightly, if at all, but recent reports suggest the union and NFL are working together to reclassify how they’ve accounted for non-salary benefits in order to increase the allocation to be spread between teams for salary this year. Obviously the union wants a higher cap, but it’s in the league’s interest too, because it shows they gave the players a good deal. I wouldn’t expect a major rise and from the sounds of it, there may still not be a rise, but either way, I expect we’ll find out tomorrow. I’m going to stick with $120,500,000 but even an incremental rise from there will be valuable for the Jets and their cap flexibility.

One other thing I’d like to note is that multiple sources are reporting that teams have three $1.5m exemptions to enable them to retain veteran players. This is incorrect and it is three $500,000 exemptions that they have, and then that money will be added back to their cap commitments in 2014-2017. This is the oft-referenced option to “borrow” $1.5m from future cap years (with most teams already having used three $1m exemptions to “borrow” $3m last year), so be wary of anyone who (a) double-counts that and (b) uses $4.5m instead of $1.5m.

So, for a detailed outlook on the Jets’ cap situation, go back and look at that link and bear the above information in mind. Today, we’re focusing entirely on one man…and another, slightly younger man.

How Can the Jets Pay Peyton?

By popular demand (and inspired by a lot of the misinformation flying around at the moment), I’m going to, for once, set aside the on-field and medical reasons for signing or not signing Peyton Manning and look into how it might work financially.

A lot of people are asking how the Jets can possibly sign Manning to a deal that might be upwards of $20m per year when they only have current estimated cap space of just under $8m (without even accounting for Maybin, Pouha and the rookies). The answer is twofold. First of all, they can create additional space and secondly, they can structure the contract so that the current year cap hit isn’t that high. Obviously that means future cap hits will be high, but they have some scope to deal with that with some veteran contracts off the books after this year and the cap set to rise in 2014.

The key is Mark Sanchez. If the Jets were to cut him, they’d create over $9m of cap room. Some people are saying that there would also be $5m of dead money, but the $9m takes that into account (his $14m cap hit comes off the books and the dead money is $5m). The situation is the same if he was traded and I was surprised to hear that Adam Schefter was suggesting his value could be as high as a first rounder or two second rounders, although the timing could be a problem and might give the other team the leverage to talk the price down in order to get a quick “sale”. In any case, that $9m should give them easily enough cap room to make a reasonable offer for Manning’s services.

In the comments, I was asked what sort of contract I thought Manning would command and I came up with this masterpiece (if I do say so myself) for a possible opening offer from the Jets:

4 years – 75m

Year one – 10m signing bonus, 10m incentives, 2.5m salary (CAP HIT 5m)
Year two – 7.5m salary, 5m incentives (CAP HIT 25m assuming he met the incentive in year one)
Year three – Salary 12.5m, 5m incentives (CAP HIT 20m)
Year four – Salary 17.5m, 5m roster bonus (CAP HIT 25m)

If he got injured in the first year, they could release him in year two with 7.5m of dead money and his 7.5m salary coming off the books. If he got injured in the second year and missed the incentives, they’d get a 5m cap credit to offset the 5m of dead money if they cut him in year three. A cap hit of 25m in 2013 seems rough, but with Sanchez and Pace coming off the books, there’s some scope, plus they could restructure to reduce it by 4-5m or extend the deal if he does well in the first year.

The reason his initial cap hit is so low is because (a) the signing bonus is spread over four years and (b) the incentives you are using would be NLTBE (not likely to be earned). NLTBE incentives don’t count against the cap unless you earn them, in which case, the cap hit bites the following year. Since Manning didn’t play in 2011, any incentive parameter they set (eg 25 TD passes) would be NLTBE because he did not meet it in the previous year. You would not be allowed to set these ridiculously low (ie 1,000 passing yards for the season), because the league would see through that, but as long as they were reasonable, but Manning still felt confident of attaining them, then this could work for both parties.

If Manning’s demands escalated to upwards of $20m per year, you could scale the above contract upwards accordingly, with the 2012 cap hit able to rise to $9 before you’d have to start cutting and restructuring others to create more room. If he did accept a deal like the one detailed above, you’ve created over $4m of additional cap room. That’s more than the year one cap hit on Santonio Holmes’ contract, so they could theoretically add another $10m per year player and still have the same amount of cap room they did before cutting Sanchez, not that this would be advisable with all the money they’re already loading into future years.

The advantage of the above deal is that if Manning gets a career ending injury at any point, the Jets can get out of the deal without killing their cap too badly. In reality, the Jets would probably use the rolling bonuses they applied to Ferguson’s contract rather than NLTBE incentives after the first year.

What About Keeping Sanchez?

The next question becomes whether they could create the same cap room without letting Sanchez go. The easy answer is no, which is why Mario Williams is not really an option for this team. However, almost anything is possible with the salary cap and the Jets could release several veterans to create the same amount of room. That would not be advisable though, with the lack of depth they already have in some areas.

Unless Sanchez is prepared to take a really big pay cut for a couple of year or the Jets are able to trade guys like Bart Scott and Santonio Holmes, I don’t see this as a viable option.

One issue that might be giving the Jets added pause is the fact that if they choose to go ahead with Sanchez, they’re probably going to have to restructure his contract to create cap space to fit other needs around him. The problem with that is that is basically means he will have a huge cap hit no matter what in 2013, so they will be committing to him for the next two years, so this isn’t a “let’s give him one more year and then let him go” scenario.

Conclusions

If they release Mark Sanchez, I believe that gives the Jets the flexibility to offer Manning a reasonable market-level deal that he would be likely to accept if keen to play here. Any talk that this would cause them to gut their team or miss out on other moves is not necessarily accurate because it’s theoretically possible for them to add Manning and still have an amount of cap space left over from the Sanchez saving that would be similar to the amount they’d have created by retaining him and restructuring his deal.

It would definitely tighten things up in future years, but it’s possible that they can replace Manning with Sanchez and still make all the moves they were planning to make during the offseason and comply with the 2012 cap.

Only then do we come back to the arguments which I set aside earlier about his health and what it would do for the team to sign him. I guess that’s what the comments section is for…