Understanding the Salary Cap

Last week, the list of NFL teams and how much room they have left under the salary cap for the 2008 NFL season leaked out. At the top of the list of 32 teams with the most cap room still available was the Chiefs, listed at $31.9 million.

This set off all the conspiracy theorist in the media and even some among the fans that the Chiefs were going cheap. The Hunt Family was trying to save money because of the commitments to the rehab of Arrowhead Stadium. And of course, there was the ever popular blame it on the guy who is supposedly responsible for everything that goes wrong, Carl Peterson.

Unfortunately, the folks in the media do not really understand the salary cap. Never have. Never will. I can’t say that I’ve got my arms wrapped around it, but I work every day to understand what it all means and the effect it has on the most important thing: what happens on the field. So let’s deal with the facts here and see if we can explain what’s going on and show that having this room under the cap is not necessarily a bad thing.

First, here are numbers you can count on:

 

 

Those are the facts, take them to the bank.

The earlier number of $31.9 million was accurate at the time, but that was just for the top 51 contracts on the roster. Once the final cutdown came, the cap number is then the 53 players on the active roster, the practice squad, the injured-reserve list, the PUP list and the Non-Football Injury lists.

In all likelihood when the NFL settles its books for the first week, the Chiefs will still have more cap room than any other team in the league. It will probably stay that way all season.

How can the Chiefs have more money under the cap this year than the base figure? Because of how the system works with bonuses, those paid and those that go unpaid. This can get complicated, so let me try to make it as simple as possible. Players have clauses in their contracts where they receive bonuses based on performance. If they perform and receive their bonus, that money gets counted against that year’s cap total. If they don’t perform and achieve the bonus, that unpaid money is credited to the next year’s cap total. Teams also create bonuses with some players that they know will never be achieved. Thus, it takes some of the surplus money under the cap in one year and pushes it into the next year.

The Chiefs were one of the teams that pioneered this method of salary cap maneuvering going back to the last contract signed by the late Derrick Thomas. They’ve been able to push $3 to $4 million a year into the next season and that’s now grown in the last few years to $11.6 million in extra money.

There are only two out of the 32 teams in the NFL this year that have a salary cap number of $116 million: Arizona and Cincinnati.

There are six teams that do not have the full $116 million: Detroit $110.6 million; New York Giants, $112.9 million; Houston, $113.8 million; Pittsburgh, $114.1 million; San Diego, $115.4 million and Atlanta, $115.6 million.

That leaves 24 teams that have more than the $116 million. Minnesota has the most with $134.4 million. The Chiefs total of $127.6 million is the seventh highest.

So what happens with that extra cap space? The Chiefs will consider contract extensions for young players who go out in ‘08 and play well. At the top of that list will be LB Derrick Johnson. Others like DE Tamba Hali and FS Jarrad Page could be part of the discussion. Depending on how he performs, the Chiefs could talk new contract with QB Brodie Croyle. At the end of the ‘08 season four current starters will need new contracts: Page, RG Adrian Jones, C Rudy Niswanger and LB Pat Thomas. Croyle can void the final year (2009) on his contract if he plays in 85 percent of the offensive plays this year.

There’s another number that factors into discussion of player compensation and that’s cash dollars. Right now, the Chiefs are projecting that in 2008 they will pay players in excess of $110 million. That will rank them right in the middle of the league when it comes to money paid out in 2008. If you are a Chiefs fan you’ve heard Peterson talk many times about cash and cap dollars. They are very different numbers. Eventually, those cash dollars are factored into the salary cap, but that’s just an accounting process throughout the league, not a banking process. The cash dollars come out of the Chiefs/Hunt bank account. It’s another example that the Chiefs didn’t go cheap.

We’ve seen the Chiefs juggle the cap numbers in the past when they had an older team and signed those players to big-money new deals. Those multiple signing bonuses were pro-rated for cap purposes and many times the Chiefs had to massage contracts to get all their players and numbers under the NFL cap maximum.

Things are different now because they have such a young team, one that’s relatively free of big-money contracts. Right now they’ve basically got five big-dollar players under the cap: RB Larry Johnson, TE Tony Gonzalez, CB Patrick Surtain and first-round draft choices DT Glenn Dorsey and LT Branden Albert. Dorsey and Albert have big pay checks because rather than a signing bonus, they took their money in guaranteed base salaries. Thus, there’s no pro-ration of the signing bonus down the road.

Also understand this: the way the Chiefs have put together their cap for this year, they are setting themselves up for the future, with an uncapped season ahead for the league in 2010 and possibly a new agreement with the players. No matter what happens, the Chiefs right now are positioning themselves to be able to play whatever player compensation field they are given. We will talk more about that in the near future.

Players who perform will be rewarded, eating up the cap surplus. Some of the money will go into bonuses that will push dollars into next season

The Chiefs are where they should be given their team and their place right now in the NFL. It has nothing to do with going cheap, saving money because of construction and so forth. It’s the natural by-product of what happens when you clean the decks and go with younger players.