The NFL salary cap is one of the most confusing things in all of sports. The actual NFL salary cap rules aren't that complicated, or at least they don't seem to be, but the application and discussion of them as they are applied by teams is enough to put anyone to sleep. In this age when everyone is so concerned about the economics of sports, the salary cap is discussed at least as much as statistics or the play on the field. There's not much we can do about that, but at least if we understand the basic NFL salary cap rules we can understand a bit of what people are talking about.
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Unlike some of the other leagues, the NFL has a hard cap. That means that teams must be under the cap at all times, and they face stiff penalties including the nullification of contracts and heavy fines if they exceed the cap at any time. The amount of the cap is set each year, and is a portion of the revenues of the league. The cap was first set in 1994, and it was $34.6 million. It has been increased every year since, and is now at $116 million. That amount represents 63 percent of the defined gross revenues of the league over the course of the year divided by the 32 teams in the league.
There is also a salary floor - a minimum amount that teams must spend. That currently is at $98.8 million, which is 85.2 percent of the cap. That floor will be increased by 1.2 percent each year until it reaches 90 percent in 2012.
Signing bonuses and other guaranteed payments add a complication to signing bonuses. As long as a player stays with the same team over the course of a contract the guaranteed payments are prorated evenly over the course of the contract. If the player retires, is traded, or is released, though, then things get complicated. If the change happens before June 1 then the entire remaining bonus must be applied to the current season's cap. If it happens after June 1 then the impact on the current season is unchanged, but the rest of the bonus is applied to the next year's contract. That's why June 1 is such a key date for player moves.
Incentive payments - contract rewards players earn by reaching statistical milestones - are also a problem. They are split into two categories - likely to be earned (LTBE) and not likely to be earned (NLTBE) - and treated differently. The LTBE bonuses are counted against the current salary cap, while the NLTBE bonuses are not. In the next year, adjustments are made to the upcoming cap for the LTBE bonuses that were not earned and the NLTBE bonuses that were.
The salary cap is calculated using the 51 highest salaries on each team's 53-man roster. That might seem significant because it means a team has two free players, but since they almost certainly will be at the minimum salaries it is not a significant savings, and it does little to provide flexibility for teams. Instead, teams have to be more creative to come up with ways to make things work. In partnership with the NFL Players Association the league has come up with one such way. A veteran who is willing to sign for the veteran minimum salary of $810,000 and have no bonuses in their contract only counts $425,000 against the salary cap. Several teams have used this approach, but none better than the Patriots who have used this loophole for Tedy Bruschi, Randy Moss, Junior Seau, among others.
Managing the salary cap has become more and more of a science every year. Though teams had a casual approach to it when the cap was originally implemented because it was new and unfamiliar, they now employ several people charged with understanding and manipulating the cap to maximum advantage. The math of the cap is at least as important as any other factor in player decisions these days.
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The salary cap in the NFL has its problems, but it certainly works better than many other leagues' approaches. It has kept costs under control, and has allowed any team that manages their resources well to be competitive regardless of their market size. Despite the success, it seems likely that the salary cap will undergo significant change at the end of the current collective bargaining agreement because the NFL Player's Association is not happy with their current share. As with all labor struggles in sports, this one has the real potential to get ugly.