The NFL’s League-Wide Salary Cap Reduction
Just like the 2020 regular season before it, the 2021 NFL offseason is going to present challenges to each of the NFL’s 32 teams. For the first time since 2011, the NFL’s league-wide salary cap will be lower than it was in the previous season. [2] The salary cap is an artificial limit on collective player spending per team. [3] It is calculated on a yearly basis and is dependent upon the league’s total revenue generated during the prior season. [4] The 2021 salary cap is decreasing because of lowered league-wide revenues in 2020 as a result of the COVID-19 pandemic. Prior to 2021, the salary cap had increased on average by about 7% each year. [5] The league-wide 2020 salary cap figure was $198 Million per team. [6] On March 10th, the NFL announced that the 2021 salary cap figure is $182.5 million per team. [7]
Although the NFL imposes a league-wide salary cap, the effective salary cap varies from team-to-team. This is because teams are required to carry over unused cap dollars from the prior season into the current season. [8] For example, the Cleveland Browns had $30.4 million in unused salary cap dollars in 2020. [9] Therefore, the effective salary cap for the 2021 Cleveland Browns will be adjusted to $212.9 Million ($30.4 million + $182.5 million).
In order to comply with the salary cap, each team’s active cap spending and dead money charges must be less than the league-wide salary cap after taking cap carryover into account. Active cap spending is money being paid to the 51 highest paid players on the team’s roster. [10] Dead money is the salary cap charge that remains on a team’s payroll even after the player is released or traded. [11]
The Effects of the 2021 Salary Cap Reduction on NFL Teams
How Teams Over the Cap can Create Salary Cap Space
10 of the NFL’s 32 teams enter the 2021 offseason over the $182.5 million salary cap after taking cap carry over into account. [12] Although each team was informed that the cap would be decreasing during last offseason, many teams plan their player-spending in three-year periods. [13] The reduction will be disadvantageous for teams who had been planning for the salary cap to continue to rise when making player-related financial decisions prior to the start of the pandemic. For example, at the time of this writing, the New Orleans Saints are $31 million over the salary cap. [14] Teams like the Saints will be forced to release players from their contracts in order to reduce their active cap spending in compliance with the 2021 salary cap.
Teams hurting for 2021 cap space may also restructure a player’s contract. A contract restructure converts a player’s 2021 salary into prorated signing bonus money. [15] The newly created signing bonus money prorates over the remaining length of the contract. For example, the New Orleans Saints restructured the contract of Demario Davis on March 6th. [16] He was owed $6.3 million in salary and $4.5 million in previously prorated signing bonus money. This accounted for a $10.8 million cap hit.
The Saints converted $5.2 million of the $6.3 million salary into signing bonus money. [17] That $5.2 million will now prorate over each year of the contract. Davis’ salary in 2021 will now be $1.1 million, the NFL’s veteran minimum. Davis’ 2021 cap hit is now equal to the $1.1 million salary plus $5.8 million in prorated signing bonus money. The $5.8 million in prorated signing bonus money includes the newly created $1.3 million. In sum, Davis’s 2021 cap hit is now $6.9 million. The Saints saved $3.9 million in 2021 salary cap space by restructuring Davis’ contract.
Davis benefited from the restructure because his non-guaranteed salary became fully guaranteed signing bonus money. The team experiences short term-gain in exchange for long-term pain. Releasing Davis from his contract in 2022 or 2023 will now create more dead money than it would have prior to the restructure because of the increased amount of prorated money.
How Well-Prepared Teams Will Benefit from the Reduced Cap
Teams that enter the 2021 offseason with excess cap space will have a greater advantage than usual. They will have more financial flexibility to sign players released from their contracts from other teams. For example, the Arizona Cardinals entered the offseason with roughly $19.4 million in salary cap space. [18] This allowed them to sign marquee free agent JJ Watt, who will account for $4.9 million against their 2021 cap and $15.9 million against their 2022 cap. [19] The structure of Watt’s contract suggests that the Cardinals are planning for the league-wide salary cap to rise again in 2022.
Teams that have been savvy in managing their salary cap over the past several seasons will be better equipped to overcome the reduced cap in 2021. One of these teams is the Tampa Bay Buccaneers. The Bucs have been diligent about not including prorated signing bonuses in their player’s contracts or utilizing contract restructures. As a result, the team has the flexibility to release several aging players from their contracts in 2021 without incurring any dead money. This applies to veterans Donovan Smith, Ryan Jensen, and William Gholston. If the Bucs released all three players, they would clear $29.75 million in 2021 cap space and leave $0 in dead money. [20] This does not mean that the team will release all three players. However, the flexibility to do so will make it much easier to re-sign any of their key free agents such as Shaqil Barrett, Chris Godwin, and Lavonte David.
The Effects of the 2021 Salary Cap Reduction on Players
Less Players Received the Franchise Tag
Four fewer players received the franchise tag in 2021 than in 2020. [21] The franchise tag is a mechanism that was negotiated into the 1993 NFL CBA by the NFL owners. [22] It was their self-created remedy to the NFL Players Association being awarded free agency by the United States court system after years of legal battles. [23] Each team may apply the franchise tag to one player whose contract will expire at the start of the next league year. It amounts to a one-year contract that pays the player the average of the five highest paid players at their position over the past five years; or a 20% increase on the player’s salary from the year before – whichever is greater. [24] If the team does not apply the franchise tag to the player whose contract with the team has expired, the player becomes a free agent.
In order to apply the franchise tag, the team must be able to create enough salary cap space to fit the player under the adjusted salary cap. This proved extremely difficult for several teams. For example, Detroit’s standout wide receiver Kenny Golladay, Baltimore’s recently acquired Yannick Ngakoue, and Pittsburgh’s premier pass rusher Bud Dupree were not franchise tagged. Had the league-wide salary cap continued on its normal trajectory, each of these players would have been prime franchise tag candidates. These players will now be in high demand on the open market. Added competition for their services will make it much more difficult for their previous teams to re-sign them. These players (and their agents) are surely rejoiced to be hitting the open market – a rarity for premier players in their prime in today’s NFL because of the restraints that the franchise tag creates.
The Best Players will still “Get Paid”
Players at the top of their position markets will still receive lucrative contracts despite the descending salary cap. On March 8th Dak Prescott and the Dallas Cowboys reached an agreement on a long-term contract. [25] Prescott played last season under the franchise tag, which paid him $31.4 Million. [26] Placing the franchise tag on Prescott a second time would have costed the Cowboys roughly $37 million in 2021 salary cap space. However, the team entered the offseason with only $22 million in cap space prior to making any releases or restructures. [27]
In this instance, the reduced cap may have helped Prescott in negotiations. A $37 million cap charge in 2021 would have handicapped the Cowboys 2021 offseason because they would have been forced to release players or restructure contracts to fit Prescott’s $37 Million franchise tag under their adjusted salary cap. This increased Prescott’s leverage because his representation was able to offer the Cowboys a lowered first-year cap hit in exchange for more prorated signing bonus money. This was exactly the result. The details of Prescott’s contract reveal a $22.2 million 2021 cap hit - $9 million in salary and $13.2 million in prorated signing bonus. [28] In exchange, Prescott received a league-record $66 million signing bonus, which prorates over five years. [29]
The signing bonus is a win for Prescott because it’s fully guaranteed money that he will receive within the first year of signing. The hefty signing bonus benefits the Cowboys in the short-term because it allowed them to keep the 2021 cap hit $15 million lower than the franchise tag. Look for premier players who did not receive the franchise tag to negotiate similarly structured deals if they have strong interest in returning to their teams. Otherwise, it will be a bidding war on the open market where 16 of the NFL’s 32 teams have at least $20 million in 2021 salary cap space. [30]
More Veteran Players will be Released
The 2021 offseason has already exacerbated this yearly ritual of veteran players on expensive contracts being released and replaced with younger, cheaper players. In the time between Super Bowl Sunday and March 11, 2021, 74 NFL players were released; those moves saved teams a combined $353 million in cap space. [31] Within the same time period in 2020, 28 NFL players were released; those moves saved teams a combined $122 million in 2020 salary cap space. [32]
The Kansas City Chiefs are an example of why veterans are being released at higher rate than ever before. They entered the offseason $22 million over the 2021 salary cap. [33] On March 11th the team announced the release of both starting offensive tackles – Erik Fisher and Mitchell Schwartz. [34] The move saved the team roughly $18 million in cap space. [35] However, both had been key contributors to the Chiefs’ success over the previous eight seasons. In a normal offseason, it is hard to fathom that either player (let alone both) would be released by the Chiefs. However, just like the 2020 season before it, the 2021 offseason has been, and will continue to be, far from normal.
References:
[2] Shapiro, M. (2021, March 10). Report: NFL salary cap drops to $182.5 million for 2021. Retrieved March 12, 2021, from https://www.si.com/nfl/2021/03/10/salary-cap-drop-182-million-2021-season
[3] Brandt, A. (2021, March 02). Business of football: UNDERSTANDING salary CAP, dead money. Retrieved March 12, 2021, from https://www.si.com/nfl/2021/03/02/business-of-football-understanding-the-salary-cap-dead-money
[4] Id
[5] Joel Corry Mar 3. (2021, March 04). Agent's take: The economic realities of a LOWER 2021 salary cap, why we'll see more Surprising cap casualties. Retrieved March 12, 2021, from https://www.cbssports.com/nfl/news/agents-take-the-economic-realities-of-a-lower-2021-salary-cap-why-well-see-more-surprising-cap-casualties/
[6] Id.
[7] Patra, K. (2021, March 10). NFL sets 2021 salary cap At $182.5 Million. Retrieved March 12, 2021, fromhttps://www.nfl.com/news/nfl-2021-salary-cap-182-5-million
[8] Brandt, A. (2021, March 02). Business of football: UNDERSTANDING salary CAP, dead money. Retrieved March 12, 2021, from https://www.si.com/nfl/2021/03/02/business-of-football-understanding-the-salary-cap-dead-money
[9] Ruiter, D. (2021, February 19). Browns carry Over $30.4 million in unused cap space to 2021, most in NFL. Retrieved March 12, 2021, from https://www.radio.com/923thefan/sports/cleveland-browns/browns-carry-over-most-unused-cap-space-from-2020-to-2021
[10] Fitzgerald, J., & Natarajan, V. (2016). Crunching numbers: An inside look at the salary cap and negotiating player contracts.
[11] Id.
[12] Overthecap.com. (n.d.). NFL salary cap space. Retrieved March 12, 2021, from https://overthecap.com/salary-cap-space/
[13] Joel Corry Mar 3. (2021, March 04). Agent's take: The economic realities of a LOWER 2021 salary cap, why we'll see more Surprising cap casualties. Retrieved March 12, 2021, from https://www.cbssports.com/nfl/news/agents-take-the-economic-realities-of-a-lower-2021-salary-cap-why-well-see-more-surprising-cap-casualties/
[14] Overthecap.com. (n.d.). NFL salary cap space. Retrieved March 12, 2021, from https://overthecap.com/salary-cap-space/
[15] Fitzgerald, J., & Natarajan, V. (2016). Crunching numbers: An inside look at the salary cap and negotiating player contracts.
[16] Rose, B. (2021, March 06). Saints restructure Cam Jordan and DEMARIO Davis Contracts. Retrieved March 12, 2021, from https://www.si.com/nfl/saints/news/saints-restructure-the-contracts-of-cameron-jordan-and-demario-davis
[17] Id.
[18] Overthecap.com. (n.d.). NFL salary cap space. Retrieved March 12, 2021, from https://overthecap.com/salary-cap-space/
[19] Urban, D. (2021, March 02). Watt just Happened: J.J. watt agrees to sign With Cardinals. Retrieved March 12, 2021, from https://www.azcardinals.com/news/watt-just-happened-j-j-watt-agrees-to-sign-with-cardinals
[20] Overthecap.com. (n.d.). Tampa Bay Buccaneers salary cap. Retrieved March 12, 2021, from https://overthecap.com/salary-cap/tampa-bay-buccaneers/
[21] Benjamin, C. (2021, March 10). NFL franchise tag TRACKER: Full list of players who RECEIVED TAGS ahead of 2021 free agency. Retrieved March 12, 2021, from https://www.cbssports.com/nfl/news/nfl-franchise-tag-tracker-full-list-of-players-to-receive-tags-ahead-of-2021-free-agency/
[22] Feldman, J. (2018, February 23). From 'the elway rule' to 'the franchise tag'. Retrieved March 12, 2021, from https://www.si.com/nfl/2018/02/23/nfl-franchise-tag-rule-explanation-history-origin-themmqb-newsletter
[23] Id.
[24] Corry Feb 25, J. (2020, February 25). Agent's take: Franchise tag and transition tag salaries for each position, plus more to know on both tags. Retrieved March 12, 2021, from https://www.cbssports.com/nfl/news/agents-take-franchise-tag-and-transition-tag-salaries-for-each-position-plus-more-to-know-on-both-tags/
[25] Shook, N. (2021, March 09). Dak Prescott, cowboys agree TO 4-year, $160m contract. Retrieved March 12, 2021, from https://www.nfl.com/news/dak-prescott-cowboys-agree-to-new-contract
[26] Benjamin, C. (2021, March 10). NFL franchise tag TRACKER: Full list of players who RECEIVED TAGS ahead of 2021 free agency. Retrieved March 12, 2021, from https://www.cbssports.com/nfl/news/nfl-franchise-tag-tracker-full-list-of-players-to-receive-tags-ahead-of-2021-free-agency/
[27] Overthecap.com. (n.d.). NFL salary cap space. Retrieved March 12, 2021, from https://overthecap.com/salary-cap-space/
[28] Overthecap.com. (n.d.). Dak Prescott contract details. Retrieved March 12, 2021, from https://overthecap.com/player/dak-prescott/4848/
[29] NFL Signing Bonus Rankings. (n.d.). Retrieved March 12, 2021, from https://www.spotrac.com/rankings/nfl/signing-bonus/limit-25/
[30] Overthecap.com. (n.d.). NFL salary cap space. Retrieved March 12, 2021, from https://overthecap.com/salary-cap-space/
[31] NFL 2020 roster Cuts Tracker. (n.d.). Retrieved March 12, 2021, from https://www.spotrac.com/nfl/roster-cuts/2020-02-03/2020-03-11/
[32] Id.
[33] Overthecap.com. (n.d.). NFL salary cap space. Retrieved March 12, 2021, from https://overthecap.com/salary-cap-space/
[34] Brisco, J. (2021, March 11). Kansas city CHIEFS Release TACKLES Eric Fisher and Mitchell Schwartz. Retrieved March 12, 2021, from https://www.si.com/nfl/chiefs/news/kansas-city-chiefs-release-tackles-eric-fisher-and-mitchell-schwartz
[35] Id.