Managing the Salary Cap
One of the discussions that we were engaging in this week concerning the potential 2013 salary cap issues and cap management got me to thinking more and more about how the Jets approach the salary cap. After responding a few times to some valid points by the readers of the site I thought my interpretation of the Jets cap management might make for an interesting article. Now I have no idea if any of the things I am going to say here are really what the Jets are thinking when it comes to contracts and cap planning, but this is what seems to go into the thought process.
First of all I want to make a distinction between cap management and poor personnel decisions. The two items don’t really go hand in hand. To say Santonio Holmes was a big disappointment in 2011 might be the understatement of the year. He gave the Jets more negatives than positives and became the poster child for a team that the fans grew to dislike as the year went on. Holmes received a $45 million dollar deal and we will get to the nuts and bolts of that contract in a little bit, but the decision to pay him $45 million is not an example of a poorly managed cap. I ran the numbers on Holmes before he signed and came up with a value close to what he received (I was a bit lower than the Jets but not by much) and it was in line with the market. Just the fact that he got a $45 million dollar deal is not an example of bad cap planning. Poor decision making, probably, but what he earned is the ballpark of what his comparables had earned.
When teams negotiate contracts there are a few key numbers that players are most interested in. I think what almost all players seek is a guarantee that they will earn their first three years of salary in a contract. There are multiple ways to give a play that guarantee, but in most cases the Jets seem to rely on heavy cash payments in the first three years that are fully guaranteed for skill, injury, and cap which means if the Jets cut the player he gets his three years worth of money. There are some who criticize the Jets for some of the guarantees they give the players. I’ve probably done that myself many times. But one of the things that I think the Jets consider is the fact that the player is, 90% of the time, going to earn those first three years no matter what. So whether they guarantee the total or not is meaningless since it’s virtually guaranteed anyway.
Now you might say why is the player going to see that money “90% of the time”? The answer is contract structure. While the Jets give cash guarantees others give virtual guarantees based on how a contract is paid out via the bonus structure. We’ll use Holmes as an example again. His three year earnings are $27.5 million of which $24 million contain some form of guarantee. That guarantee on its face seems extremely high. I estimated his guarantee would be around $18 million based on the prevailing market at the time. But there is a tradeoff in that firm guarantee from the team. The normal 3 year payout would be expected to be $28.5-$30 million and clearly Holmes did not reach that. Is that good cap management or not?
To illustrate lets take a look at two players with similar contracts- Roddy White and Roy Williams. First lets look at the cap hits for the players. Please note that White’s figures include some money from his rookie contract since his new deal was signed with 1 year remaining. There is a 6th year unaccounted for in the chart. Williams also signed an extension, but the new money did not come in until the first extension year.
At quick glance what deal looks best? I’d imagine most would say White since the cap charges are steady and he never hits double digits in a single season. Williams would probably come in second since it’s a backended deal. Holmes would have the worst deal because it carries high middle seasons. But remember those tradeoffs. Let’s look at the dead money for each of the players, in which I’ll include skill guaranteed salary as well as bonus money:
Now there is a stark contrast. With the higher salary guarantees Holmes concedes somewhat in that 3 year payout since he is guaranteed so much money from the team. The Jets take on most of the early cash risk in the contract. White and Williams take on more cash risk than their teams since their guarantee is not the same. How do you reconcile the risk factor? You need to balance it with a reward, which is this case is higher payouts in the first 3 years with prorated bonus money acting as a block against losing the non-guaranteed salary. When a player is cut their remaining signing bonus money all accelerates onto the cap. When that number is too high the team often finds it better to keep the player on the team than carry a huge dead money charge for someone playing on another team.
Keeping that in mind which deal is best managed? Pretty clearly Holmes. If Holmes completely flames out, which seems like it could be likely at this point, he is gone after the third season in which he is on the books. $2.5 million in dead money is nothing. If they needed to trade him they could do it in year 3 and transfer his guarantee to a new team. Roddy White? Had he busted he would have been on the team through year 4 because those are cap crippling dead money charges. That is exactly what happened in Dallas when they were forced to cut Williams this past season. He counted for $4.375 in dead money last season and another $8.75 million this year. He has been a cap killer for the Cowboys because of the poor deal structure and the fact that he was so bad they couldn’t justify paying him. In the Jets case its crisis averted because of management. In Dallas it’s a disaster because the risk management of the contract was horrendous.
What the Jets are doing is keeping an option open on each of their players with these contract structures. The Jets know there is a risk in every player. Why take on most of that cap risk like Dallas and Atlanta did by giving the player bonus money early in the contract? Sure it makes the cap hits look lower but when you have a Williams situation you are dead. Now picture that Holmes becomes Roddy White. What do the Jets have the flexibility to do? Add that 6th year, like White has, for whatever number he wants. Exercise your option by now paying a prorated bonus equal to Holmes’ 2013 guaranteed base and 2014-2015 roster bonuses and maintaining the current salaries. The new 2013 cap charge is $5.875 million with 2014 and 2015 remaining about where they are now. The dead money increased but with the risk minimized that doesn’t become much of a concern. Holmes ends up with a similar deal to the others except the Jets get to wait and see longer before putting that full amount into the player. It’s a risk minimizing strategy that ends up playing out about the same way in terms of cap charges if the player meets expectations.
For whatever reason when things get tight in the NFL cap on paper, and a team, such as the Jets, does a move like that it’s looked at negatively. In some cases it might be. Had Dallas needed to do that with Williams, already carrying high charges due to the bonus structures, it’s a negative. You are just adding more and more onto a deal. But when you take a player like D’brickashaw Ferguson, a younger talented player with minimal prorated money, and front him the money in the form of a bonus its not a negative. Its simply bringing his contract in line with the way most teams, like Atlanta did with White, structure a deal when its signed. Its not a panic move as some portray in the press.
Sometimes I think perception when it comes to the cap is far greater than reality. Sites like mine or reporters such as John Clayton that report a number makes things seem as if they are unplanned for. There is a NFL team out there today which is being commended for being so far under the cap and being a great team. How did they get all that room? They cut a ton of players, accounting for about $15 million in dead cap but providing the team an overall savings in cap space. They converted nearly $11 million in salary and cap charges to a prorated bonus, saving the team about $7 million this year that will be accounted for in future years. They carried over nearly $7 million in cap space. They planned on the retirement of a player. That team is the New England Patriots.
It is all about planning in the NFL. They moved players that didn’t fit in the future plans. They advanced money to those who did. They had players on the roster as the 2012 season grew near that had no chance of making the team. But because those moves came far in advance of a cap deadline and the team is successful due to certain personnel moves nobody notices or cares.
The Jets tried all offseason to trade Bart Scott. They know he does not have a future with the team. The only reason he is still on the team is because the Jets guaranteed his base salary this season. People look back on the guaranteeing of salary as a bad move. It wasn’t. Unlike almost every fan of the team who insisted Bart Scott was great despite the statistics the Jets felt otherwise. They saw he wasn’t the same player and they needed him to take a pay cut. He was still valuable to the team in a role and the Jets created an additional $2.4 million in cap room over two years by reworking the deal. Not a dime of dead money was added to the contract since they were willing to guarantee whatever was left on the two years they expected him to still play a role. Scott ended up being worse than the team thought, but the plan was clear to create cap room now without damaging what the team knew would be their walkaway year in 2013.
The point is that in 2009 the Jets never planned on Bart Scott seeing 2013. They even made early moves in the contract to minimize the damage to the cap in that escape year. To look at the 2013 cap sheet on my site and be upset about Bart Scott’s salary or the fact that he won’t be here next season is about as absurd as a Patriot fan being upset last September about the cap charges associated with Albert Haynesworth or Chad Ochocinco in 2012.
Well managed teams plan for every contingency. As Rex Ryan was being hired as head coach there was article upon article upon article being written about the Jets being somewhere between 17 million and 30 million above the salary cap. Mike Lombardi, then of the National Football Post, seemed to write about it daily, infuriating Jets fans to no end. Mike Florio, of Pro Football Talk, did the same. But the Jets were set. They had two contracts, similar to many of the deals they have now, that contained large roster bonuses and limited prorated money down the line for normal cap relief. They had Chris Baker who they never had any intention of keeping. They knew it was likely that Brett Favre and his huge cap hit would be gone, but they had the flexibility to keep him on the team if need be because of the way they planned. Favre took himself off the cap in early February by retiring and the Jets used that cap space to pursue Bart Scott, trade for Braylon Edwards, and sign Brandon Moore to a new contract. Plus they had the room to deal with drafting a QB high in the NFL draft. Bleak outlook from September thru January but never once was it a real concern because it was all planned for by the Jets front office.
There is a reason why there are certain players on the Jets such as Wayne Hunter and Eric Smith have no bonus money in their contracts. Each year is a referendum on the player. There is a reason why players like Nick Mangold and Antonio Cromartie have limited dead money charges and big roster bonuses. Its built in flexibility. If the situation arises the team exercises their option, prepays the money and extends the deal. If it doesn’t they just let things play out. You manage to best avoid having to make drastic moves that negatively impact the team. If Holmes fights with his teammates again this season and catches all of 50 passes and the Jets are forced to extend the virtual length of his deal for cap purposes that’s negative. If Sione Pouha has a great year and the Jets have to cut him for relief it’s a negative. But if Holmes catches 70 passes this season for 1300 yards and they convert some of that money to a bonus or Pouha significantly regresses and is released are either of those negatives? The answer is no, because the Jets planned for each occurrence with the way they negotiated the deals.
Does that mean the Jets are perfect? No. I’m sure there are plenty of deals they would like to have back. Sanchez’ extension was a bit perplexing both from a cap standpoint and personnel standpoint especially after the Tebow trade. Acting faster on Mike DeVito maybe would have saved the team a few more dollars this year. Being a market setter of sorts for players like Scott, Pace and Harris is probably not good. Maybe they got lucky with the uncapped season and the ability to move some of the players who were not contributing to the team without cap implications. But the Jets strategy has worked, at least since 2007. There has never a player that I can recall the Jets not being able to get that would have made sense. Remember the Jets did flirt with the idea of Peyton Manning and they were also prepared to invest 24 million a year or so in two cornerbacks in 2011. Maybe this is the year it happens, but thus far the cap has been managed well enough to where it has never been a real concern.