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NFL 101: (Re)Accounting every dollar of NFL contracts

Every dollar in an NFL contract must be accounted for -- but that doesn't mean a contract is ever set in stone, as you'll see in today's NFL 101.

Isaiah J. Downing-USA TODAY Sports

The NFL season is full of jargon that can be a big confusing to the uninitiated: what is a "football move", for example. But, if in-season talk can be a little troublesome, the off-season conversations are oftentimes downright mindboggling. This series of "primers", known as "NFL 101", aims to break down the communication barriers between Joe and Jane Football Fan and those of use who obsess over every detail.

When is a dollar not a dollar?

When it's part of an NFL contract, that's when.

That dollar could be worth one dollar, or it might be worth as little as twenty cents this year. It all depends on how you look at it. Or, at least, how the contract is drawn up.

This is typically the part of the NFL salary cap discussion where eyes gloss over, pulses slow to a crawl and brains stop waving: when we figure out how long a dollar lives and how much it's worth. And oh, by the way, those numbers aren't just subject to change -- they're likely to, if the player in question is valuable enough to account for a considerable portion of a team's cap space.

In our last installment, we talked about how salary counts in the year to which it is assigned, but some bonuses can be spread around. It's simply a way for teams to spread out the burden of a contract. But what if the collective burden of all the team's contracts is already too much to bear?

Simple: just rewrite some contracts!

It's not really that simple, but in a way, it is. Teams can't just change the terms of a contract without the player agreeing. However, in most cases, the player will agree, because most contract restructuring means giving a player more guaranteed money. And who doesn't want more money that comes with a guarantee attached to it?

There are primarily two ways to change the terms of a contract: move the existing money around, or extend the contract.

Restructuring a Contract

When restructuring a contract, one critical detail doesn't change: the number of actual dollars included in the contract. It is, quite literally, a matter of changing when a player gets paid certain amounts, and when those amounts are accounted for during the contract. The most common way to restructure a contract is to convert some of a player's base salary in a given year to extra signing bonus money. This has two main effects: first, the player gets paid a new lump sum of money, rather than that money being paid out over the course of the season. Few players will balk at this unless it's obvious that doing so will simply make their contract too expensive to see through to completion in a few more years. That would result in the player being cut. This, along with injuries, is what happened to LaMarr Woodley.

The second thing it does -- and this is the reason why contracts get restructured to begin with -- is allow a team to take what would have been base salary or a roster bonus, all accounted for in the current season, and spread those dollars across the remaining seasons of the contract. Let's look at Cameron Heyward's current contract for an example.

Heyward is due a $5 million roster bonus when the league year begins next month. He has five years left on his contract. The team could save four million dollars on this year's cap hit by converting that roster bonus to a signing bonus. Doing so converts the lump-sum roster bonus to a prorated amount, spread over the five remaining years.  That means $1 million of that $5 million would count toward this year's cap hit, and $1 million would be counted toward each of the remaining four years as well. From Heyward's perspective, it makes no difference -- he was going to get that money in a lump sum anyway, no matter how the team accounted for it on the annual ledger. For the team, though, it gives them an additional $4 million to spend this year, and most of the time, that's the only year that matters to a team.

This is actually a good restructure for the team, too, because it only increases their cap hits by $1 million for each of the next four years after 2016. That's quite manageable, because he still has a long time left on the contract. Generally speaking, the more years left on the contract, the less a restructure will tangibly affect the cap in future years.

Extending a Contract

When extending a contract, the player is essentially given the "promise" -- at least, as much of a promise as a guy will get in the world of NFL contracts -- to keep him employed for additional years, and pay him new guaranteed money, if the player is willing to move some of the current year's money around. Oftentimes, this doesn't even affect the player's bottom line in the current year, but it does remove their ability to test the waters in free agency before the end of the new contract.

Lawrence Timmons' 2016 contract is a perfect example of a contract in need of extending.

With one year left on a contract that has already been restructured three times, Timmons will account for just over $15 million, thanks to all those restructures. Cutting him right now would free up more than $8 million by eliminating his base salary, but it would leave the team with more than $6 million in dead money -- money that they must still account for on the ledger, but for which they would not be getting any production from a player. We will discuss the impacts of cutting players in more detail soon.

If the team wants to retain Timmons' services, but at a more manageable price, they need to extend his contract. That "extension" is actually an entirely new contract, and the team and Timmons agree to throw out the remaining time on the current contract. Let's say the team wanted to extend Timmons for three years -- making the new contract a four-year contract, including the current year. The team might offer him a contract for 4 years and $40 million, including an $8 million signing bonus, perhaps broken up as follows:

  • 2016: $6 million base salary, $2 million signing bonus
  • 2017: $8 million base salary, 2 million signing bonus
  • 2018: $8 million base salary, $2 million signing bonus
  • 2019: $10 million base salary, $2 million signing bonus
What this would do is drop his cap hit in 2016 from $15 million to $8 million, for a cap savings of $7 million, while giving the team further restructure leverage in future years. What it does for Timmons is guarantee him $10 million more from the signing bonus, plus $6 million to be paid over the course of the season, for a total payout in 2016 of $16 million. His existing contract would have paid him $8.75 million actual dollars this year, so the extension would give him an additional $7.25 million in 2016. It's a no-brainer for Timmons. The team could further help itself by making some of that base salary a roster bonus in years three and four instead, giving themselves additional savings should Timmons retire or decline over the next few years.

One last note on the subject: teams like the Steelers, which use restructuring as a regular tool for managing the cap, often walk a razor's edge. The drop-off in play in 2012 and 2013 can be at least partially attributed to the team having their hands tied as a result of some restructures gone bad -- namely, Woodley's contract, which looked great in the beginning but turned awful when he couldn't stay healthy. These are the risks of restructuring and extending players. But when you haven't had so much as a single losing season in 10 years, with a Super Bowl win and another AFC Championship in that time, you must be doing something right.