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Explaining how the NFL works, Part 18: The compensatory formula

Let’s examine the process of some of the inner workings in the NFL and how teams manage the situations.

San Francisco 49ers v Kansas City Chiefs Photo by Michael Zagaris/Getty Images

Whether it’s when the NFL is in the full swing of its regular season or if it’s during the downtime of the early summer, there still is constant news and happenings with the league that has made itself relevant 365 days a year. When various things are discussed, sometimes there are terminologies and procedures where fans might have a general understanding of things. Even the most die-hard fans may have certain areas they don’t understand exactly what various things mean and wish to have a better understanding.

Over the next few weeks, I will take some time to do my best in thoroughly explaining some of the various inner workings of things in the NFL. These are not on-field items but more from an administrative standpoint. Whether it be understanding the waiver wire, the Reserve/Injured List, or the breakdown of the practice squad, we’ll take a look at some of the various terms that are thrown around and utilized in descriptions of things in the NFL but may not be fully understood.

Next up is attempting to explain the compensatory formula in only one article.

Rationale and history

When free agency in the way that it currently stands in the NFL was introduced in 1993, the next offseason of 1994 brought the first awarded compensatory picks. While the first two years had picks awarded outside for normal rationale, the understanding of the compensatory formula has evolved more over the years. In the most recent Collective Bargaining Agreement (CBA), the methodology behind the compensatory formula was outlined much more specifically than ever before.

The purpose of awarding teams compensatory draft picks is to offset the losses a team may see from losing players to free agency. Not all players fit the qualifications of becoming a compensatory free agent (CFA) which means they are taken into account in the compensatory formula.

What teams are eligible

For a team to be eligible for a compensatory draft pick, the most likely route is for them to lose more CFAs than they gain in a given offseason. In some cases, a team can be awarded a compensatory draft pick even if they do not lose more free agents and they gain, but the net loss is considered greater based on the level of players they lost versus gained. Additionally, a team cannot receive more than four compensatory draft picks in a given draft due to players lost in free agency.

Potential Rounds

In the current compensatory formula calculation, teams are awarded draft picks which fall into a given round. These picks fall anywhere from the third round through the seventh round with the picks coming after the normal selections of that round. Assuming that every team has one scheduled draft pick in each round, this means the compensatory picks would be pick 33 and beyond in a given round.


The first step is to determine if a player who signed with a new team is a CFA. First, they must be an unrestricted free agent and not a street free agent. Second, they could not be a player who potentially had more years under contract with the team. If there was a team option that was not exercised, or at any point in their contract a player renegotiated their deal for fewer years, they are not eligible to be a CFAs. If there are void years in a players contract, these do not preclude the player from being a CFA.

The next step is to determine what round a player qualifies under which cannot be done until the first season of their new contract is complete. Although there are projections of where a player could fall, the exact amount is based on things that aren’t determined until the season is over. The biggest factor involved is a players salary which is determined by their average per year (APY) salary over the life of a contract which includes their base salary, signing and workout bonuses, and any other bonus that is in the category of a likely to be earned (LTBE).

At the conclusion of the season, every player who received regular season pay in the NFL is ranked from highest to lowest. The player in the lowest position is given one point and the second lowest player is given two points all the way up until the highest player receives the most points. Obviously, the number of players will determine the number of points for the highest salary.

With this number being the largest contributor, the next largest contribution will be applied which is the number of snaps played. Looking only at either the offensive or defensive side of the ball, the percentage played of the team’s total snaps of the season could award the player between 25 and 100 additional points. A player only receives points if they play at least 25% of the snaps of the season otherwise there are no points awarded. If a player played 87% of the team snaps, they will receive 87 points. There is a different method used for kickers and punters that is not determined by their snap counts.

The final points which can be awarded are if a player lands on the Associated Press First Team All-Pro List or the Pro Football Writers of America’s All-Conference List. A player selected First Team All-Pro receives an additional 20 points. If the player is selected All Conference, they would receive five additional points. A player cannot receive points for both awards, only the greater amount.

After taking all these things into account, the players are re-ordered from the highest number of points to the lowest. Players in the top 5% of the league (95% to 100%) would classify the player as a third-round compensatory value. Players in the next 5% (90% to 95%) would be assigned a fourth-round value with players in the third group of 5% (85% to 90%) would be a fifth-round value. The next 10% (75% to 85%) would be given a sixth-round valuation while the next 10% (65% to 75%) would be a seventh-round value. Players that are not in the top 35% (below 65%) do not qualify as CFAs.

Once all of the CFAs have been assigned a round value, the next step is the cancellation process to see where a team will receive a compensatory draft pick. If a team has more CFAs lost than gained, they begin the cancellation process. For each team, all the players lost are listed in one column in order from lowest round (third) to highest round (seventh). The same is done with the CFAs gained. Any player gained will cancel a player lost in an equal round. If there is no player lost in that round, then the player in the next highest round (moving down on the list) would be canceled. If there is no player to cancel in an equal or higher round, then the last remaining player on the list is canceled. Any CFA lost who is not canceled out makes the team eligible for a compensatory draft pick in that round.

Once a team is deemed to be in the running for a compensatory draft pick for a lost CFA, all the eligible remaining CFA‘s in that round are placed in order of the points used to determine which round they were in. If four different teams are eligible for a third-round compensatory pick, the team who picks first will be the team with the player with the highest point total.

Only 32 compensatory draft picks will be awarded each year for CFAs. Teams who have a potential net loss where the points of their players lost are significantly more than those gained could be eligible for a seventh-round compensatory pick but only if the previous 32 spots are not filled. If the spots are not filled, the final compensatory picks would awarded to teams in order of the draft that particular year.

Special cases

If an NFL player is a CFA and has 10 or more credited seasons, there is a cap on their round in which they are designated. Unless the player is a quarterback, any player with more than 10 years experience cannot be ranked higher than a fifth-round compensatory pick.

In case you missed other parts of the series, they can be seen here: