Salary Cap – Myths, Misconceptions, FAQs (Part One)

Programming note: Due to illness, I haven’t been able to complete the analysis for BGA: Jets v Colts yet, but this will follow in a day or two. My apologies for the hold-up.

There seems to be rather a long list of misconceptions about the salary cap (and specifically the uncapped year / final eight rules) floating around, so I’m going to do my best to try and highlight some of them here. No doubt this will give rise to more questions than answers, so I will be doing a follow up in a few days. Leave your questions in the comments or e-mail them to bentdouble@gmail.com and I will do my best to answer everything to the best of my knowledge.

I’ll cover as much as I can, after the jump…

Note: A big thanks to Jason from the unofficial Jets cap site for helping me to verify much of the information in this post.

Uncapped Year

This is now looking inevitable. There will be no salary cap in 2010 and if a new CBA is not signed in time, there will be a lockout in 2011. Negotiations have been called off until later in the year.

The uncapped year isn’t as simple as “there is no cap” though. There are still some restrictions on spending. Also, teams have to account for the fact that, in all likelihood, the salary cap will return, so they can’t commit to too many long term deals. In the current economic climate, not many teams are expected to spend a great deal more than they would in any normal year. One underrated aspect of the uncapped year is that there is no lower limit on team spending, so some small market teams will spend less than in the past. For example, this season’s cap was at $123m, but teams were obliged to have a total cap figure of at least $107m. This could be a good opportunity for some teams to save cash, either because they need to, or so that they can compete financially when the cap returns. For this reason, I anticipate plenty of good players will be cut.

Many people are reporting that a lot of teams will cut players, because the dead money cap hit will not matter when there is no salary cap limit to stay under. That is certainly true to an extent, but it isn’t necessarily the once-in-a-lifetime opportunity some have made it out to be. What they are not reporting is the fact that (a) signing bonuses are not accelerated in an uncapped year, so some of that dead money could count against the cap in 2011 (b) sometimes the cap hit if you just waited until the following year to cut them isn’t very high anyway and (c) the team may still owe the player money which will be payable sooner if the player is cut.

Case Study: Vernon Gholston

Most of the media has been reporting the Vernon Gholston situation like this:

They can make use of the uncapped year by cutting him and therefore the big cap hit (over $10m) will arise in the uncapped year and this will help them get his salary off the books

What they are missing is that:
- The Jets are on the hook for $5.9m anyway and cutting him will not prevent them from having to pay it. Surely, if they’re paying him anyway, the Jets would prefer to get some contribution from him, even if he doesn’t advance past reserve lineman/special teamer status.
- Cutting him at the end of 2010 will still enable them to have the dead money fall into the uncapped year, so they could at least retain him for the year and see if he shows signs of improvement and they will have lost nothing. This also allows them to be more certain about the salary cap situation in 2011.
- The cap hit is about $4m lower if he never exceeds more than 45% of snaps in any of his first four years. If he doesn’t do this, the extra cost associated with cutting him in 2011 will only be about $3.5m, so it’s not like by cutting him sooner they are saving themselves that much cap space in the future.
- They are not taking into account the fact that a small part of his cap hit will carry over to 2011, so the saving is even less than they think. However, in Gholston’s case, most of his money was in the form of guaranteed salaries, not bonuses, so the cap hit in 2011 will be minimal.

The Final Eight Rules

As most of you are aware, there are restrictions in place to prevent the top teams from the previous season from signing all of the top unrestricted free agents (UFAs). However, there has been a lot of misinformation floating about on this subject as well.
- It’s really only the final four teams that are in any way restricted. There are exceptions available so that the Divisional Round losers can sign one big UFA and as many smaller UFAs as they like. When the media started making a big deal about this, it was a week too early and only really became an issue for the Jets when they advanced to the AFC Title Game.
- How much of an effect this will have is debatable, especially when (1) it only applies to UFAs whose contracts have expired, not those who have been cut or waived, of which I think there will be plenty for the reasons stated earlier (2) it does not apply to signing restricted free agents (RFAs), who can be signed with no restrictions as long as you give up the requisite draft pick compensation (3) we believe (although this is uncertain) that they can sign UFAs from the other final four teams (Vikings, Saints, Colts) with no restrictions (4) they can still sign a UFA for each of their own UFAs that is signed by another team, which – although the cap numbers in year one must match – may not be as restricting as you would think (5) there are fewer UFAs and more RFAs than in a capped year, because anyone with less than six years service whose contract expires is an RFA, rather than four years service in a capped year and (6) you can re-sign your own free agents without any restrictions, which might be the smartest way a team like the Jets can spend its money, especially since the uncapped year affords teams an opportunity to lock up talent into the future, but minimize cap hits in future years.
- In the increasingly unlikely event that there is a cap in 2010, the final eight rules won’t even apply.

Case Study: Julius Peppers

I have selected Peppers because he is the biggest UFA on the market this year. Many of the other guys that may or may not be on the Jets radar don’t even come under these rules (examples: Adalius Thomas is under contract and therefore will be freely available if cut or offered up for trade and Elvis Dumervil is a restricted free agent). Some of the media is reporting that the Jets cannot sign Peppers because of their final four status, whereas others are saying that he is on their radar. So – leaving aside the pros and cons of whether they should target him – is it possible?

Let’s revisit the rules. The Jets can only sign a UFA to replace a UFA of their own that has been signed by another team and the cap number in the first year of the new signing’s contract must not exceed the cap number in the first year of the outgoing player’s contract.

Step one: The outgoing player. This must be an unrestricted free agent, so they can’t release someone like Rhodes or Gholston and match the new signing’s contract with theirs. The Jets currently have several unrestricted free agents, including guys like Marques Douglas, Tony Richardson, Jay Feely and Wayne Hunter, some (if not all) of whom they may prefer to bring back (remember, this is NOT subject to restrictions) and guys like Larry Izzo and Ryan Fowler, who may not even get signed. However, they can also renounce the rights to Lito Sheppard and not offer an RFA tender to any of their RFAs (including Braylon, Leon, Brad and Eric Smith, Clowney, Clemens). If that happens, the player concerned will also become a UFA and they can be replaced with a UFA signing.

Step two: The contract of the departing player. Since the Jets cannot sign a UFA until one of their own has been signed by another team, this may cause a delay. However, there is nothing to stop them from negotiating in the meantime. It should be noted that you cannot accumulate the cap numbers of outgoing UFAs to make a bigger number for matching with a UFA signing – it is a one-for-one calculation. Let’s say, for arguments sake, the Jets renounce their rights to Lito Sheppard and he signs a contract with a team with a cap number in year one of $3m. The contract of the UFA that the Jets use to replace Sheppard (note: does not have to play the same position) cannot have a cap number of more than $3m. Bear in mind though, that 2010 is an uncapped year, so a lot of teams will (a) overpay and (b) frontload, which might mean that the cap number in year one is bigger than you’d expect.

Step three: Matching. Okay, so the Jets want to sign Peppers to a long term deal with a cap number of less than $3m in the first year. Is it possible? The first thing we can rule out is a long term deal which is backloaded so that the cap number in the first year is low. In 2010, salaries cannot increase by more than 30% a year and this specifically includes option bonuses, so they couldn’t just put a huge bonus into year two to circumvent the rule. If Peppers was willing to accept a more reasonable deal the Jets could, theoretically, make a long contract with a modest signing bonus. For example, a six year deal with a $6m signing bonus and maximum salary increases each year would see him receiving $8m in the first year and $10m in the last year, but an average of approximately $5m per year over the middle four years. I don’t think that will be nearly enough to get Peppers, who will probably end up with a contract twice as big, but it does illustrate how the Jets still could be in a position to sign a pretty big UFA, if one became available.

So, on the face of it, it looks impossible for the Jets to sign Peppers as a UFA. However, Jason from nyjetscap.com told me the other day that he believes it may be possible get around the 30% rule by having a Completion Bonus instead of an option bonus. If this is a possibility, you can bet than Mike Tannenbaum is aware of it – which might explain the stories about the Jets being interested in Peppers (rather than it being a smokescreen or just in case the CBA was signed after all, as some have speculated).

One last question remains: If they can’t sign him, then can the Jets trade for him (or any other free agent)? Unfortunately, it appears that the answer is no. The final four teams are not permitted to trade for a player that they would otherwise be unable to sign as a free agent. This does not apply to players under contract (example: Asomugha), where trades are not restricted, but it does prevent them from being able to avoid the matching rules by trading for a guy that gets an RFA or Franchise Tag. Of course, if those guys are tagged, the Jets can sign them to an offer sheet and surrender the requisite picks if the other team decides not to match (which makes it a lot like a trade from the Jets perspective, but removes the option of them including players in the deal). In Peppers’ case, he would have to be franchised and the Jets would lose two first round picks if they signed him. Considering his age, I’d imagine this to be unlikely, although two late round picks are worth less than one early pick, so while the Jets are contenders, they might have a different mindset about value.

I don’t pretend to know all of the rules inside out, so there may be some inaccuracies above. However, I have tried to be as thorough as possible in an effort to highlight issues nobody seems to be discussing and if anyone spots any errors, I will correct the entry accordingly and I will also mention any corrections in part two.