Cap Management Part IITweet
I got some good feedback via twitter, email, the discussion board, other forums, etc… on the piece on cap management today and I wanted to expand on a few of the issues that some people brought up and expand a little bit more on some of the points. And as always this is my interpretation of what they are doing in comparison to some other teams.
I think there are essentially three cap models right now that are prevalent in the league. There is the more traditional cap model, which is followed by most NFL teams, the cash flow model, and the Jets style model, which is a bit of a hybrid style of the two. You may even be able to throw a fourth in there which seems to be used out in San Francisco. I think teams should consider using what I call a portfolio model, but that’s a subject for a different day.
The traditional cap model is the one most are familiar with. This is the basic model in which large signing bonuses or option bonuses are paid to players up front in order to best maintain a steady progression of cap charges for the life of a player. The prorated bonus adds a layer of protection to the player due to the high dead money associated with the mid term years of the contract. Often that leads to renegotiations where more bonus money is paid out in order to reduce cap charges when things get tight. Andrew Brandt often uses the phrase on Twitter of “long term paid for a short term gain” when discussing those restructures, which is a pretty good way to describe it. Players in the NFL have a limited shelf life and adding dead money to the tail end of those contracts will at some point catch up with the team.
The cash flow model is one in which cash flows are generally approximated with the cap charges. The most extreme example is the Tampa Bay Buccaneers who give their players almost no prorated bonuses and instead guarantee large amounts of salary in the early years of the contract. At no point is there cap relief, but once two years pass by there is no reason to keep the player on the team if they don’t perform. Tampa moved away from it at the end of this season by giving Vincent Jackson and Carl Nicks bonuses at the end of the 2012 season to use up cap room and reduce their 2013 cap charges, but for the most part it is the model they use. I believe the Dolphins may also decide to follow the same model.
The 49’er model is one in which the team takes advantage of cap space and cap room to dump huge chunks of salary into a specific year by using these void buyback clauses that allow proven players like Pat Willis to have a year with a $17 million cap charge and $3 and $4 million dollar charges thereafter. They also fill their cap with incentive laden roster bonuses in which you only get paid if you are on the active roster. Depending on the level of star depends on how easy it is to earn those gameday bonuses. It makes it a bit harder to predict your cap year to year but it eliminates payments to guys who get injured or underperform. Think of it this way. If the Jets used those features on a Santonio Holmes maybe they would have saved $1 million dollars this year.
The Jets model is a bit of a hybrid of plan 1 and plan 2. What the Jets do is try to minimize the early contract cap charges, similar to what the prorated bonus plan does, but at the same time keep those possibilities open that the cash model gives teams in the backend of the contracts. The way the Jets do this is by using small bonuses up front in the deal and including large cash guarantees throughout the first three years of the contract. In essence the Jets get a free out year in the third year of the contract, provided that they can find a trade partner. See most contracts in the NFL can not be traded because of the dead money costs associated with them. For example if the New England Patriots needed to trade Vince Wilfork this past season, his third of a 5 year extension, his cap charge would be $10.8 million, a net loss of cap dollars for the team. By contrast if the Jets found a trade partner for Santonio Holmes the dead cap charge is only $3.75 million and the Jets create over $9 million in cap room.
This also provides a benefit that the cash model does not give in that it gives the Jets potential to minimize both cash and cap spending prior to a trade. For the Buccaneers they would have paid Jackson $26 million over two years, which is completely sunk. In Holmes case the Jets would pay $16.25 million. Cromartie was only $13,000,000. Those are steals for the expected levels of production. Look at the traditional cap system with a player like Roy Williams, who would be a comparable to Holmes at time of signing and ended up with the same value contract. The Cowboys paid him $26.61 million in the first two years to drive his cap costs down to $5.66 and $7.83 million. He was awful and the team was forced to carry $13.125 million in dead money when they released him. Because of Dallas cap troubles they carried that money in both 2011 and 2012. Even if they wanted to restructure they were in so deep that it would have led to a normal player being on the team at least another two years. The Jets could restructure a player like Holmes and only be forced to carry him one more year before a reasonable release. It’s a flexible system with a lot of leeway for the cap manager.
Of course this all comes at a cost. When you go this route you have to give something back to the player. See the signing bonus gives the player job security. 99% of the time a player like Williams will not be released because of a $13 million dollar type hit. It’s the problem the Panthers are going through now with guys like DeAngelo Williams, who will cost $9.6 million to trade or release. In order to get the players to agree to these contract structures the Jets are more or less forced to guarantee a portion of the third year. Yes there might be some options to negotiate down, such as with Holmes who has $3.5 million in non-guaranteed salary, but in general you are granting them the same protection the signing bonus gives by guaranteeing that third year payout. That’s why the team is pretty much using this strategy for Grade A players. Its only worth doing if you think the player has value to other teams. Its why I said that Holmes’ injury was devastating when it happened. If the wheels were going to fall off he had value as long as he caught a bunch of passes from a subpar QB even in a losing season. Now he really has none. Certainly not 11 million of value to another team.
So it puts the Jets at a crossroads where they can go the more traditional route on this players, as they did with D’Brickashaw Ferguson this past season. What is good is that they can go further in on a player like Holmes by guaranteeing him bonus money and not having it make him stick around significantly longer, since his prorated money is already so low. I’d recommend that the Jets do it with Sanchez and create around $6 million in room and just defer the cost of cutting him until later. While I would not be in favor of it for Holmes if they Jets wanted to do it they could easily create close to $5 million in room. Maybe Ill throw up a new article that collects some ideas from the past month or so, but if the Jets wanted to redo the Sanchez, Harris, Holmes, and Mangold deals (Mangold is a given if they have not done so already) they could create around $20 million in additional cap space in 2013. If you trade Cromartie now you are looking at $28 million in additional cap space. Now you are talking mega cap spending possibilities for the team as this is $28 million on top of the room created by releasing Jason Smith, Calvin Pace, Bart Scott, etc….Of course that is going to hurt a little in 2014 and much more in 2015, but do you think the Steelers or Giants could create that kind of space with the traditional cap system they use? No chance. That’s why I consider this a pretty progressive system that I will enjoy watching play out in 2013. It it works I wouldn’t expect most people to really pick up on the fact that the wheels were set in motion in 2011, but we know that is the case.
Now the other shortcoming and negative of the system the Jets use is something that a57se posting on The Jets Blog pointed out in comparing the Patriots roster with that of the Jets using the numbers from my website. This top heavy structure eliminates the players making between 600K or so and $2 million in cap charges. It’s a tradeoff you have to accept when you are going to try to stockpile what you consider top tier players as the backbone of the team. To me this has been one of the real shortcomings of the Jets and it showed on the field this year as players went down with injury and nobody could really step in for them.
If the Jets continue with their cap philosophy there are areas which need to be changed. Once you get the roster in place to do what the Jets are doing your draft philosophy has to change to mesh with your cap philosophy. The Jets clearly does not. When the Jets built this top heavy roster they did it via the draft and using draft picks for players like Cromartie. Once you move into the cap realms where the depth is going to be depleted, which the Jets should have had an inkling of in 2010 and certainly in 2011, your draft philosophy has to mimic that of the Green Bay Packers or even what the Jets were doing in 2006.
First of all you have to realize that your cap strategy is going to preclude you from bring in competent veterans that you can count on in the event of injury or to help on special teams. To make up for that you have to find mid grade NFL talent which you are only going to find in the draft. You can dream all you want that players like Chaz Schilens and Jason Hill will contribute in some manner, but there is a reason why they are on minimum salary deals and draw almost no interest from the NFL. Young talent is what you need and the more chances you take the more odds are that you will find the replacements for those veterans.
Number 1 is you cant trade draft picks away for any reasons. No Tim Tebows. No Stephen Hills. You cant do it. They are wastes. I understand holding onto your first round pick, especially in the new slotting systems, but beyond that you need to stockpile. Trade down as often as you can to get those multiple 3rd, 4th, and 5th round picks. The odds are better of finding a gem the more picks you have. Secondly you have to draft safer positional players that will have a role no matter what. That means drafting secondary help, linebackers, athletic defensive ends, etc…These are the players that will fill in on special teams and try to carve out a niche for themselves. You cant draft the way the Jets did in 2010 with 4 picks that included a project guard and fullback. Without knowing a thing about either player my takeaway was that Vlad would be a weak link type needing upgrading and that if Conner lasted more than two years with the Jets it would be an amazing victory for him. It was just based on historical data for the positions, adjusted for the Jets own tendencies.
Those players serve almost no purpose on a 53 man if they cant start. You cant draft that way when you have the cap system in place that the Jets have. The two philosophies have to balance and the Jets clearly don’t. If the Jets had a roster filled with even mediocre prospects from the 2010-2012 drafts nobody would notice the cap issues. It’s a problem because the Jets have a limited talent pool so limited cap space and a barren roster looks bleak. That could have and should have been avoided with a different draft philosophy.
In closing that was longer than I expected it to be but hopefully if you made it this far it gave a little more clarity to what I was trying to explain about the flexibility that the Jets have with their roster that most teams do not.