Large Cap, Small Cap

Occasionally, people hear about the kind of contracts that football players sign. For example, some player signs a 70 million dollar, 7-year deal with, say, a 5 million dollar signing bonus. After gasping at the amount of money the players get and quibble over, people begin to wonder, why on earth did the team sign them for 7 years, especially, if they're like 28. How do they expect them to keep the player until they are 35? How do they know they'll be any good in 7 years?

The answer is simple. These deals are not meant to complete. When a player signs a 7 year deal, around year 4 or year 5, the deal is going to be far too expensive for the team to afford, and the player will either leave or he will rework out his contract.

Why sign a deal if there's no chance the player will ever complete it?

The answer is the salary cap and the funny rules associated with it. Each NFL team is given a salary cap, which is, these days, somewhere in the neighborhood of 60 million dollars. Each team has some 52 players it must pay with that amount of money.

NFL contracts, unlike baseball contracts, are not guaranteed. At any time, a team can fire a player, and the player is not paid the remainder of their contract. Thus, if a player signs a 7 year deal, he can be let go after year 1, and the team does not have to pay the remaining 6 years.

That sounds like a bad deal for the player, and it is. This is why players negotiate a signing bonus. This is money they see up front (or within the first two years). While the rest of the contract is not guaranteed, the signing bonus is guaranteed. If the player is fired (he can't
"quit", at least, not exactly), he still gets the bonus.

This bonus counts against the salary cap too, but usually the bonus is so large, that taking this hit is too onerous for a team. The NFL, therefore, allows you to prorate the bonus over the time of the contract. Thus, if you have a 7 year contract, with a 7 million dollar bonus, then it counts 1 million dollars each year on the salary cap, and that's even after the player has been fired. Thus, if a team fires a player, they are still accountable for their signing bonus.

Player's contracts are back loaded. Usually the last few years are extremely costly to the team. What's the point? Players don't really want to be in really long-term contracts. So, they make it extremely expensive at the end to force a team to either come up with a new contract, or to let them go to another team. Either way, in about year 4 or 5, the player negotiates a new contract, and gets a new signing bonus. They don't have to wait the full time before they get a new contract again. The contracts are therefore meant to pressure teams to renegotiate new contracts at the end.

For that matter, a team could, if they wanted, just claim to play the player a hundred million dollars in the last year of the contract. It doesn't matter. It won't be paid out.

The point is to stretch the contract for a lot of years to lessen the salary cap impact (dividing over more years), and yet give the player a way to leave the contract in a shorter time (by making the salary way too high for teams to afford at the end).

Other leagues either have no salary cap (like baseball) or have a soft salary cap (like basketball). Basketball, in principle, has a salary cap. However, players like Larry Bird, then Michael Jordan wanted to be paid a lot more than the salary cap would allow. When Jordan was at his height, he was paid some 30 million dollars a year, in salary. This would have killed any salary cap.

However, unlike the NFL, the NBA markets its stars, and wants its stars to stay at one team, so they made an exemption. Star players on a team could get as much as they wanted, without having to count against their cap. This was called the "Larry Bird" rule. Football, on the other hand, stresses equality, and so they take their salary caps more seriously. Of the three unions, the players union in football is the weakest, which is why players don't have guaranteed contracts.

A guaranteed contract basically says you get paid no matter what. You can sit out with injuries, and you still get paid. The NFL would simply cut you. That makes more sense to the average fan, but players have realized they are the show, and in baseball, have negotiated very strongly in their favor.

Right now, there's a dispute in the NFL. The players and owners are having negotiation problems that may leave the salary cap short, forcing teams to get rid of expensive, good players, to meet the cap. If no deal is made, the teams make the cuts by the weekend, and the year after next, there is no salary cap, and teams can pay as much as they want.

This was expected to come to a head yesterday, but there's a three day extension, and word is that a deal will be made. Most people feel the parity in the NFL is a good thing. It may produce worse quality football, since no team can hold onto great players for long periods of time (the 49ers were able to do this, and then some, into free agency, by playing salary cap tricks, but now they're in big trouble, being an awful, awful team). However, it means any team can go from worst to first, and that creates excitement for many teams, and makes the NFL the most profitable of the major sports in the US.

This is why people feel certain a deal will be worked out that preserves the current structure. Owners will buckle in, but the salary cap will still be there.

We'll see. The decision is expected to be reached by the weekend.