The 2021 NFL Free Agency period is nearly upon us. Misinformation is plentiful as agents, team reps, and the media all try to do what’s best for themselves in the ever-growing world of clout chasing.
A growing problem is a lack of writers taking the time to sit down and fully explain the nuances of an NFL contract in a simple-to-understand format. Lucky for you, I’m a nerd with tons of free time on my hands, and I have spent the last few offseasons educating myself on the subtle intricacies of the NFL contract.
I tried to make this easy to navigate. Below is a table of contents that should let you hop around the article, and read about the topics that interest you.
So scroll or click below for a choose-your-own adventure guide into the offseason…
- Dates to Know
- Salary Cap Basics
- Franchise/Transition Tags
- The Anatomy of a Contract
- Dead Money
- AAV vs Cap Hit
- Signing Bonuses
- Restructuring a Contract
- Compensatory Picks
- June 1st Designations
- The Anatomy of a Tweet
Dates to Know
- February 23rd – March 9th: During this time, teams can tag their players with either a Franchise Tag or Transition Tag. They have until March 9 at 4 p.m. EST to do so.
- March 15-17: This is the legal negotiating window before NFL Free Agency begins. Teams are allowed to negotiate with pending unrestricted free agents.
- March 17th: 4 p.m. EST is when the new league year begins, and NFL Free Agents can be officially signed to new teams. This is also an important deadline for bonuses and guaranteed money in contracts. Teams must also be under the salary cap prior to that time.
- April 5th: Any team with a new head coach can begin offseason workout programs.
- April 19th: Teams with returning head coaches become eligible to begin offseason workout programs.
- April 29th – May 1st: 2021 NFL Draft
Salary Cap Basics
- Current Projected Cap: $185 million per team
- Cap space is Based off of: The Top 51 players’ contracts
The salary cap seems daunting to understand, but it’s really just simple math at its very core. It’s a number set by the NFL, and an NFL team’s Top 51 most expensive contracts count against it. A team’s salary cap is comprised of the number set by the NFL each upcoming year in addition to their rollover from the previous year.
So in simple terms: Total NFL Salary Cap – Top 51 Contracts = Team Cap Space
Rollover is a whole other thing, and it’s a lot of details and stuff, but basically any unused cap from 2020 is rolled over into 2021. It’s a tad bit more complicated than that, and I will cover it in another article when the regular season begins.
The salary cap is based on the prior year’s revenue generated by the NFL across the board. The NFL generates revenue in a lot of ways: media deals, individual stadium revenue, advertisement sales, etc. A percentage of that revenue becomes the salary cap.
So, while we await the final revenue numbers from 2020 and the completion of a media right deal, the NFL has already set the “floor” at $180 million. The reason “floor” is in quotations is because teams can spend below that $180 million, so it’s not a spending floor (which is the minimum amount teams must spend each season). It’s just to let NFL general managers and team executives know that wherever the salary cap ends up, it won’t be less than $180 million.
Spotrac.com is currently projected the actual salary cap, excluding the media right deals, at $185 million. Hence the projected salary cap above listed at $185 million.
The NFL is currently in negotiations for a new a media deal, and with a pending 17-game schedule and more playoff games, it should be very lucrative. If this deal was to be finalized before the start of the league year, the owners could decide to take some money from it and put it towards the cap this year.
The Top 51 is the biggest thing people don’t know about the salary cap, but it’s easy to understand. We know teams can sign up to 90 players on the roster before making cuts to the final 53-man number. Whether you’re at 90 or at 53, only the most expensive 51 cap hits count towards the cap. When a player signs with a new team at any cap hit higher than that team’s current 51st-most expensive contract, it bumps that number down out of the Top 51.
Still not clear? I will try to make it even simpler. The Titans currently have 52 players under contract. So, right now only 51 of those count against the cap. Let’s look at an imaginary scenario using a hypothetical round number to show what this means:
- Titans’ Imaginary Cap Space: $50 million
- Titans sign Carl Lawson
- Carl Lawson’s 2021 Cap Hit: $10 million
- Titans Fake Cap Space after Lawson: $40 million
- Number 51 contract: Tucker McCann
- Tucker McCann’s Cap Hit: $1 million
- Net Top 51 Imaginary Titans Cap Space: $41 million
So while Carl Lawson does carry a cap hit of $10 million for 2021, not all of it will count towards our salary cap space, because another contract falls off.
So when a player is signed use this equation:
New Player Cap Hit – 51st ranked Current Player Cap Hit = Actual Cap Hit
As stated above, teams have until March 17th at 4 p.m. EST to get their salary cap in order.
- Dates to use tag: February 23rd – March 9th
- Types of Tags: Exclusive Franchise Tag, Non-exclusive Franchise Tag, Transition Tag
- Who is eligible: Any unrestricted free agent can be tagged by his own team.
- Can you be tagged two years in a row?: Yes
- How many players can be tagged by a team every year?: One
Now that we have some basics of the tags out of the way, we can discuss how the tags work.
I don’t want to get too bogged down in how tags are calculated because you can just let a site like OverTheCap.com do that for you. The franchise tags are essentially always going to be very pricey, one-year deals, but the different types of tags matter to the team.
Non-exclusive Franchise Tag: This is the most common one that teams use. This allows the player and his agent to shop around for a better deal. If the player finds a better deal than the tag, the original team has a chance to match it. If the team chooses to not match it, the new team must give up two first-round draft picks.
Exclusive Franchise Tags: This means exactly what it sounds. The team holds an exclusive contract on the player, and the player is stuck with that team unless he is traded.
Transition Tag: The Transition Tag is a cheaper version of the non-exclusive franchise tag. The player is allowed to try and find a deal thats better, and the original team has a chance to match that deal. However, unlike the non-exclusive franchise tag, if the original team chooses not to match the new deal, the original team gets no draft pick compensation.
Other Rules to Know
- A team can rescind a tag at any time as long as the player hasn’t signed it.
- Both the team and the player have a deadline of July 16th to work out a multi-year deal that would replace the franchise tag.
Example: Derrick Henry last year.
- If a player is tagged two years in a row, this will always result in a 20% raise of the previous tag.
- Players don’t have to sign their tags. That’s right; a player can opt to just sit out and not get paid. They have 10 weeks into the regular season to sign it, or they can’t ever join the team that season. They can still get tagged the following year.
The Anatomy of a Contract
I think NFL Media on Twitter in general does a major disservice to fans when it comes to announcing contracts. They give you the bare minimum and use a bunch of words and number that don’t really matter because they want to be first.
I get it, it’s just that it can cause a panic or people to misunderstand the value of the contract. We will break down a few tweets later in this article as a kind of review, but for now, let’s take a contract and examine the various parts:
- Years – Pretty obvious, but the length of a contract in terms of NFL seasons
- Overall Money – Just the total sum of the full-length of the contract
- AAV: Average Annual Value, AKA overall money divided by years.
- Base Salary – The salary for the player that doesn’t include incentives or bonuses
- Signing Bonus – An amount a player receives upfront from the team. In terms of cap hit, the signing bonus amount is typically dispersed equally over the years of the contract
- Guaranteed Money – What the team has agreed the player is owed no matter what, but sometimes with a caveat
- Incentives – There are two different types of incentives, but typically they are statistical or award-based goals a player needs to meet in order to be paid a certain amount of money.
- Dead Money – Not the same as the cap hit, but it’s the amount a team has to carry if they cut a player before the end of his contract.
- Cap Hit – The amount of the contract that counts towards the current year’s salary cap.
The best example is to break down a current deal. Let’s choose Ryan Tannehill’s contract. Ryan Tannehill signed a 4-year, $118,000,000 contract with the Tennessee Titans, including a $20,000,000 signing bonus, $91,000,000 guaranteed, and an average annual salary of $29,500,000.
That’s a mouthful, so let’s break it down:
- Years: 4
- Overall Money: $118,000,000
- Base Salary: 2020: $17.5m, 2021: $24.5m, 2022: $29m, 2023: $27m
- So the total of his base salaries is $98M
- AAV: $29,500,000
- Signing Bonus: $20,000,000. Paid upfront and split into four equal cap hits of $5 million
- Guaranteed Money: A possible $91 million. This is a tricky one, so let’s get even more granular:
- Tannehill was fully guaranteed at signing $62 million dollars. That’s his Signing Bonus + 2020/2021 Base Salaries.
- On 3/21/2021, his 2022 base salary becomes guaranteed if he is still on the roster (this is a typical clause in an NFL contract)
- So, $62 million + $29 million = $91 million guaranteed, if he is still with the Titans as of 3/21/2021.
- Incentives – None, but that’s okay, we can talk more about incentives in-depth later.
There’s still a lot to clear up, but those are the basics of a contract to help better understand what comes next. As you can tell, I left off the Dead Cap/Cap Hit portions of the contract, because they deserve their own sections…
We are still going to be using Ryan Tannehill’s contract as the example for this discussion. The most important takeaway is that you only need to worry about a player’s dead cap if they are on the verge of being or actually are cut or traded.
Dead cap is a sunk cost. I mentioned the signing bonus being spread out over the full length of a contract. Those cap hits come back if when they haven’t been paid yet, because they were part of the player’s guaranteed money.
So essentially, whatever remains of the fully guaranteed money in the player’s contract when a team cuts or trades him all combines to count against the current year’s salary cap for the team.
Look at it this way. You buy a car and get a loan with the bank. You agree that you are fully guaranteeing 60 payments at 0% in the amount of $51,000. You make payments for about three years and decide to trade in the vehicle. You still owe $20,400 to the bank because it was fully guaranteed.
Well, whatever you owe is carried over into the next loan. Let’s say you leave it on the side of the road. Well, you still owe the bank the money you left fully guaranteed, in the amount of $20,400.
That’s exactly how dead money works in most cases. If you feel like you got a grasp on dead money, you can move ahead to the next section by clicking here. If you want a little more in-depth explanation, continue reading.
In Tannehill’s contract, he’s guaranteed $62 million dollars. That mean’s no matter what, this team has to shoulder the burden of $62 million dollars. What happens when his 2022 base salary becomes fully guaranteed on 3/21/2021? It gets added to the dead cap amount for 2021.
So how do you get rid of the dead cap? You pay the player what he’s owed. So let’s lay out what this looks like:
- Starting Dead Cap: $62,000,000 (fully guaranteed amount at signing)
- What the Titans paid Tannehill in 2020: $17.5M base salary, $5M signing bonus = $22.5M total
- 2021 Starting Dead Cap: $62M – $22.5M = $39.5M
- 2022 Salary Guarantees 3/21/21: $29M
- 2021 Dead Cap after 3/21/21: $29.5M + $29M = $58.5M
- What the Titans will pay Tannehill in 2021: $24.5M base salary, $5M signing bonus = $29.5M total
- 2022 Dead Cap: $58.5 million – $29.5 million = $29 million
- What the Titans will pay Tannehill in 2022: $29M base salary, $5M signing bonus = $34M total
- 2023 Dead Cap: $5M
You’re probably asking, why is there still $5 million in dead cap? Well, that’s because of how the team chose to disperse the signing bonus. So if the Titans decide to cut Ryan Tannehill after the 2022 season, they’d carry a cap hit of $5M into 2023 even though he’s not on the team.
Basically, that will be pocket change when 2023 rolls around, but essentially that’s the cheapest way to get out of Ryan Tannehill’s contract. He’s pretty much guaranteed through 2022 because of what his dead cap would do to the Titans’ salary cap if they were to cut bait.
Signing bonuses are the most common form of fully guaranteed money. A signing bonus is paid in a lump sum in full to the player. However, the team is able to split out the cap hit evenly over a certain amount of years of the contract.
Take into account Tannehill’s contract. He got a $20M signing bonus. The Titans are able to spread that out evenly over the life of the contract and instead of taking a $20M hit in 2020, they take a hit of $5M in each of 2020, 2021, 2022, and 2023.
That $5M cap hit is of course in addition to any incentives or bonuses and the base salary. This is why a lot of people think the Titans could turn portions of Tannehill’s base salaries into signing bonuses to lesson a cap hit, because converting those salaries into bonuses allows the team to spread the hit evenly over the three remaining years.
Just remember, doing that converts a portion of the base salary into fully guaranteed money because it is paid upfront to the player.
AAV vs Cap Hit
Confusing AAV and cap hit is absolutely the most common error and mistake that is perpetuated on Twitter. I have tried the last two off seasons to explain it and it doesn’t seem to stick.
AAV is how much a player is paid per year. It’s simple math. Take the total amount of the contract and divide it by the years. Simple right?
AAV =/= Cap Hit.
Let me show you. Ryan Tannehill has a 4-year, $118M contract. $118,000,000/4 years = $29.5M AAV. However, his cap hits are different. Here are his cap hits with his base salary and signing bonus in parenthesis:
- 2020: $22.5M ($17.5M + $5M)
- 2021: $29.5M ($24.5M + $5M)
- 2022: $34M ($29M + $5M)
- 2023: $32M ($27M + $5M)
You should never truly look at a tweet or article where it says a player is going to command $XXM a year and flip out immediately, because until you see the bonuses and guarantees, you don’t really have any idea about the cap hit (unless it’s a one-year contract, of course).
AAV is only good for agents and players themselves to try and get paid more money. A.J. Brown can look at DeAndre Hopkins getting paid $27.25M AAV and try to get close to that.
Again, cap hit is totally separate. Cap hit is what the player actually gets paid that year plus any signing bonuses that could be from the current or previous season(s):
Base salary + certain incentives + signing bonus = cap hit
As we saw above, it’s different from the AAV. Rest assured, with your Tennessee Titans, any contract will almost always have a much lower first-year cap hit compared to the AAV.
Cap hit is the most important thing, in my opinion, when it comes to looking at contracts. Before we head to incentives, let me say again:
CAP HIT =/= AAV
The thing to know about incentives: not all incentives are created equally. There are actually two types of incentives to familiarize yourself with: LTBE and NLTBE.
LTBE: This stands for “Likely To Be Earned.” These are incentives that are classified as something that will likely happen and thus will count against the salary cap.
NLTBE: You probably figured this out already, but this stands for “Not Likely To Be Earned.” This means this incentive probably doesn’t have a good chance of being paid to the player and won’t count against the cap.
If you’re good with that generalized view you can head to the next sections by clicking here. If you are brave enough to dive deep into how the NFL arrives to the conclusion of what is and isn’t LTBE, read on.
Both types of incentives are based on what the player was able to accomplish on the field in the previous season. If they accomplished the incentive, it’s LTBE. If they didn’t, it’s NLTBE.
In a completely hypothetical scenario, let’s say the Titans signed a new two-year deal with Derrick Henry this year, and let’s say they put in his contract that every year he makes the Pro Bowl, he gets a $500K bonus, and every year he rushes for 1,000 yards, he gets another $500K bonus. Well, as we all know, Henry hit both of those marks last year, so those incentives would be classified as LTBE and count against the cap in 2021.
Let’s say a disaster happens, and Henry doesn’t make the Pro Bowl and only gets 987 yards in 2021. Well, being it was a two-year deal, those incentives would revert to NLTBE for 2022 and not count against the cap.
On the flip side, if Corey Davis signs a one-year deal with the Titans, and it’s a one-year, $14 million dollar contract, and he has built-in incentives of $1 million if he reaches 1,000 receiving yards, well, only $13M would count against the cap, because Davis did not get 1,000 yards last year. Thus, the incentives are NLTBE.
Then of course, if Davis were to reach 1,000 yards in 2021, and the Titans sign him again in 2022 and include a 1,000-yard incentive again, that incentive would be LTBE and count against the 2022 cap.
Restructuring a Contract
This is going to get a little dicey, kind of like the dead money section. So, I am going to start with a general overview and then dive into some finer details that will be relevant to the Titans over the next couple of years.
Restructuring or renegotiating a contract is exactly how it sounds in simple terms. You’re either moving money around to alleviate cap hit, or asking a player to possibly take less because of previous year’s performance or to try and build a roster around said player.
For our purposes though, let’s stick with a simple restructure. This is performed by typically knocking the base salary down to the league veteran minimum, and then converting the difference into a signing bonus, thus alleviating cap hit for the current year.
There is a hiccup in all of this that I recently came to know about through another web site. If you care about the hiccup, read on, and if not, you can click here to head down to the compensatory picks section.
Still with me? Okay, well don’t say I didn’t warn you… Just this week, I was reading up on the Steelers’ contract situations over at BehindTheSteelCurtain.com, and came across this article that dropped an interesting nugget about restructures I wasn’t aware of until now:
Since [Cameron] Heyward was under the new CBA, his salary moving forward operates under the assumption of an added 17th game. Therefore his totals do not change whether the NFL stays at 16 games or add the extra game in 2021. But for Tuitt, he is set to earn extra money based on his salary by playing an extra game. Were he to reduce his salary into a signing bonus, he is set to take a financial hit.
Tuitt’s base salary for 2021 is currently $9 million, so he would get almost an extra $530k for an extra game. If he restructures to a minimum base salary and takes the signing bonus, he’s set to lose that money as he would not be eligible for the additional game pay. Players who are on a league-minimum salary are not eligible to gain the extra game check because the league decided to raise the league minimum contract numbers in order to compensate for the 17th game.
What it says in general is that restructuring contracts that were agreed upon before the new 2020 CBA could prove difficult as it could cost players a considerable amount of money.
So what does all of that mean? Well let’s say the Titans were to restructure Malcolm Butler’s contract. He may want to have a higher base salary than he would’ve had under the old CBA. He may also look to try and get whatever the difference is in that extra game amount into a signing bonus.
So this is an interesting development that may make it harder to get Butler to restructure knowing he could leave a lot of money on the table. On top of all of this, we aren’t even sure if there will be a 17th game (there will be), so that could hold up negotiations as well.
Compensatory picks are pretty simple. First thing you need to know is that our friends over at overthecap.com explain how compensatory picks are calculated in an easy-to-understand manner. You can also do the smart thing and just use their compensatory pick chart to let them do all the thinking for you.
The idea behind comp picks is to reward teams for drafting and developing players well. When those players go on to new teams without being replaced by big free-agent signings, the team that drafted those players is rewarded with additional draft capital.
Basically, any team that loses more free agents than they sign (in terms of total contract value) will receive one or more compensatory picks based on the difference in the following year’s draft.
Most important thing to know: Only players with expiring contracts count. Cut players do not.
Essentially, the Titans are projected to wind up with an extra third-round pick this year because they never signed a player who’s value cancelled out Jack Conklin’s contract with the Browns. Henry’s and Tannehill’s deals didn’t count towards offsetting this because Tannehill was signed before the new league year began and Henry was tagged.
The formula is super complicated, and to be honest, further explaining would just be me quoting the articles I linked above or in the resources section below. Ultimately, it’s best to just let someone else do all of the work when it comes to projecting comp picks.
June First Designations
The final big section before we get to the end with tweet breakdowns is about trading and releasing a player with a “Pre-June 1st” or “Post-June 1st” designation.
This really only affects the NFL team that is cutting or releasing the player and its dead money hit. So basically, a team can place a designation when cutting or trade a player on how to allocate the player’s remaining guaranteed (AKA dead) money.
Choosing this designation not only affects how the dead money is allocated, but when it’s allocated. Let’s break it down:
Pre-June 1st Designations: Any dead money left becomes a cap hit for the current year.
Post-June 1st Designations: Any dead money left becomes a cap hit spread out over the next two years.
Let’s revisit the Malcolm Butler contract. Right now, all that is left that is fully guaranteed is his signing bonus. The Titans owe him $2M this year, and $2M next year in “unpaid” guaranteed money (it was actually paid upfront as a signing bonus, but because the Titans chose to spread the cap hits evenly over the length of the contract, it is considered dead money).
If the Titans cut or trade Butler with a Pre-June 1st designation, they would have to absorb all $4M remaining as a cap hit in 2021.
However, if the Titans cut or trade him with a Post-June 1st designation, they could split the $4M cap hit evenly over 2021 and 2022.
You may be asking yourself how can a team can cut or trade a player before June 1st but give him a Post-June 1st designation. Well, I’m glad you asked, because a team can actually categorize up to two players every year as Post-June 1st designations before June. But there is some fine print to this rule.
The fine print: If you do this, you do not reap the benefits of the newly created cap space until June 1st. Why is this bad? Remember, a team has to be under the salary cap to sign a player, so this technically would put off negotiations for certain free agents, and teams could risk losing out on top-tier talent if they are relying on this money.
In Malcolm Butler’s case, the $10M in cap savings that would come from the Titans releasing him would not be available to spend until June 1st.
Very tricky, NFL. Very tricky.
The Anatomy of a Tweet
Let’s grab a couple of tweets to help review.
Look in the replies of this tweet. People crying and going nuts saying that J.J. Watt isn’t worth this much. So why do I have a problem with that? Because AAV =/= cap hit! We don’t know the years, the incentives involved, the signing bonus involved, nothing. Nothing to see here, folks!
The problem with this tweet? Ian has sensationalized this contract. He doesn’t mention the signing bonus, the incentives, nothing. People are going to gloss over the six years and see the $84 million, but the AAV is actually lower than Kevin Byard’s.
Is it too expensive? Yeah probably, but we don’t know really anything from this tweet. So be smarter and don’t fall into Ian’s engagement trap.
This is the standard contract tweet. A tweet like this deceptively gives you a lot of numbers and makes you feel like you have all of the information, but ultimately, this deal has me refreshing spotrac.com like a mad man looking for the base salaries by season to start calculating the cap hits.
Ian includes “guaranteed” but then “fully guaranteed” money in the tweet. This is usually a red flag that there is a deadline or incentive that must be met. In Tanehill’s case, it’s a base salary that fully guarantees if he’s on the roster on 3/21/2021, as noted above.
You can see in the mentions that people are doing some internet hand-wringing over his $29.5M AAV. He ended up being the 11th-highest paid quarterback for the 2020 season, and let’s not forget he is a top-5 quarterback in the NFL.
Well, that’s it from me. I hope you found this educational, and easy to understand. I learn something new every offseason. You can always ask a question over @FWordsPod about contracts and what the actual value is. However, you can also use the resources below, because they are my go-to for most information.
Just remember: Cap hit is not AAV. Don’t freak out. Wait for the real contract numbers to come out. And finally a two-fer: it’s not your freaking money and the salary cap is a myth.
- Preferred Salary Cap/Contract web site: Spotrac.com
- Compensatory Draft Pick Chart
- Franchise/Transition Tag Amounts (Projected)
- Franchise/Transition Tag rules
- Twitter Accounts: @spotrac, @Jason_OTC, @corryjoel
Cap Hit =/= AAV. Have questions, comments? Drop them below!