How do you determine a player's cap hit?
As you might now, a player's salary and his cap hit are often times not the same. A player receives a salary by the terms of his contract. For example if a player has a salary of $680,000, he will be paid that on a weekly basis during the course of the regular season. I believe he will be paid $40,000 a week (total salary divided by 17 weeks). But a player's cap hit also has other figures inputted in it. The player's salary is commonly known as his base salary. Typically the base salary is the actual money a player will see in a given year. But also included in a player's cap hit are bonuses. Bonuses come in many forms. The most common is the signing bonus. A player receives his signing bonus when he signs his contract, and one can think of it like any other bonus as something that a player can immediately pocket and take home to the bank. Other forms of bonuses are roster, workout, option, and incentives, just to name a few. Roster bonuses are similar to signing bonuses, but come with the stipulation that if a player is still on a team's roster by a certain date, the player will be paid X amount of money. A workout bonus is received by a player if he participates in off-season workouts. The amount and extent of the workouts is designated specifically by the individual terms of the contract, and can vary from player to player and team to team. Option bonuses can be various, but can be a bonus paid to a player to void his contract or to add more years to his contract. Incentives are bonuses that are paid when a player performs specific acts, usually which are statistical achievements.
All this adds into a player's cap hit. But instead of adding the entirety of a signing bonus to a single cap year, the total signing bonus is prorated over the length of a player's contract.
Let's imagine we have a player named Ed Zample and he signed a contract with the Falcons. The terms of the contract are that Ed signed a five year contract with a signing bonus of $5 million and the total worth of the contract if $13 million. Here are the base salaries in Ed's contract:
* Year 1: $500,000
* Year 2: $1,000,000
* Year 3: $1,500,000
* Year 4: $2,000,000
* Year 5: $2,500,000
This is common in the NFL. It is called a backloaded contract. Ed will receive $7.5 million in base salary, but instead of prorating that evenly over the course of the contract ($1.5 million per year), teams typically design it so that the lowest cap hit occurs initially and it increases annually.
Also included in Ed's contract is a $500,000 roster bonus that occurs in Year 5. Because Ed received a signing bonus of $5 million, it will be prorated as $1 million in each year of his contract. To determine his cap hit, simply add Ed's base salary to the prorated portion of his singing bonus each year, and also add any other bonuses that are part of the contract. Because of this Ed's cap hits will be as follows:
* Year 1: $1,500,000 (base salary + signing bonus)
* Year 2: $2,000,000 (base salary + signing bonus)
* Year 3: $2,500,000 (base salary + signing bonus)
* Year 4: $3,000,000 (base salary + signing bonus)
* Year 5: $4,000,000 (base salary + signing bonus + roster bonus)
What happens if a player is cut?
So you want to know what are the cap ramifications for the Falcons if Ed is cut? Well this is when the cap gets complicated. Depending on the time of year when Ed is cut the ramifications to the Falcons' cap changes. During most of the year, if Ed is cut the remaining portion of his prorated signing bonus is added to the cap and is called "dead money." For example, let's say Ed is cut following the end of his third season during the off-season. Ed still has two years (Year 4 and 5) left on his contract and there is still $2 million of his original $5 million bonus left prorated. Adding in the $500,000 roster bonus still left to be paid in Year 5, calculates that cutting Ed will leave the Falcons with $2.5 million in "dead money." But this saves the Falcons $500,000 in cap space as the $2.5 million is less than the $3 million Ed was originally set to be paid. As long as there was a signing bonus in the original contract, then there will be some dead money left over when a player is cut. Whether it is before the season, during, or after the season, the remaining portion the prorated bonus is accelerated to the current year.
There is an instance during the calendar year where the Falcons could receive a break on the amount of dead money taken in the current year. This occurs after the month of June. If a player is cut after June 1, then the team can receive a break in the dead money. Instead of the entirety of the remaining prorated bonus accelerating to the current year, if a player is cut on June 2 or after then only the first of the accelerated portion accelerates to the current year. And the remaining portion will be delayed as dead money for the following year. For example, if Ed was cut in June after his second season with the Falcons then he would have three years left on his contract (so only $3 million left in prorated bonus + $500,000 roster bonus). But because of the break the Falcons get, cutting Ed would only leave $1 million of dead money for Year 3. But in Year 4, there would be the remaining $2.5 million ($3.5 million - $1 million) counting against the Falcons cap as dead money. This applies if Ed is cut during training camp or during the regular season.