Implications of Salary Cap Rollover

To me, one of the most important yet least talked about changes to the Collective Bargaining Agreement that was signed in 2011, is the ability for teams to rollover any unused salary cap from one year to the next.

What this means is that if your favorite team is $5 million under the salary cap, they can notify the NFL that they want to take that amount and add it to the following year’s salary cap. Your most hated team only has $1 million in cap space and chooses to roll it over to the next year. Therefore, your team has $4 million more available to spend next year than your opponent. So you can see the benefits of being frugal already, right?

But let’s talk about why this even happened in the first place. In negotiating the current CBA, both owners and players were looking for compromises that would benefit them the most. This was a compromise that both parties agreed to willingly because it serves a benefit for each.

The players loved the idea because previously any unused cap space would go to waste when the NFL calendar changed seasons. That meant money that could have been paid to the players, wasn’t. The ability for teams to rollover unused cap space meant a more likely chance that the money would actually find the pockets of the players and not just end up as the angel’s share.

For teams, this was a better and easier way to manipulate the salary cap to their liking. Teams don’t HAVE to rollover unused cap space. They can choose to let it disappear at the end of the year if they choose to. This provides front offices with some flexibility. Front offices had the ability to manipulate the team’s cap number in the last CBA, but on a much smaller scale and with a lot more work.

In the old CBA, contract incentives fell under 2 categories: “likely to be earned” (LTBE) or “not likely to be earned” (NLTBE). LTBE incentives counted towards the cap for that season. NLTBE incentives did not count against the cap. However, should a player have a LTBE incentive in his contract that was not reached, then that cap space was “refunded” as an addition to the following year’s salary cap. This is how teams were able to manipulate the cap.

Teams could negotiate LTBE incentives into contracts late in the season that in reality would never be met. For example, with 1 game left in the season, the team would renegotiate with the backup QB (who had played zero snaps thus far) that if he threw 7 touchdowns in that season then he would get a $500,000 incentive. Seven touchdowns over the course of a season is an easy goal, and under the CBA, was considered “likely to be earned.” But as a practical matter, a backup QB with only 1 game left wasn’t going to throw 7 TDs. When the backup QB didn’t reach his incentive trigger, that $500,000 LTBE incentive would then be tacked on to the salary cap the next year. Confusing I know, but it worked.

The current rollover process just involves notifying the league office whether you wish or do not wish to rollover any unused cap space. Simple as that.

There is an unintended consequence to this new cap rollover element of the current CBA. There are far less late season renegotiations of contracts. Under the old CBA, because cap space was “use it or lose it,” teams tried to use it to effectively. In weeks 14-17, teams would really ramp up renegotiation efforts with players they wanted to re-sign. In the renegotiation, the team would add on additional salary to the current year, which used up cap space that would have been lost anyways. The player and agent would agree because it’s more money up front. But now, because teams aren’t losing that cap space, there isn’t any incentive to renegotiate and to pay players up front.

The current rollover situation provides teams flexibility in dealing with players, cash, and in cap space. However, there is one more log to throw in the fire. In 2013, the salary floor will be introduced. Basically, teams will have to spend at least 89% of the unadjusted salary cap number in 2013, and beyond. Remember that word “unadjusted.” It becomes very important in terms of the spending minimum in just a second.

The salary floor or “spending minimum” was introduced to make sure that teams couldn’t be overly frugal; i.e. CHEAP. Towards the end of the previous CBA, the NFL Player’s Association had begun to notice that some teams were taking advantage of all the spending room they had, while other teams (the Bucs are the first team to come to mind) were just fine with spending very little and fielding a non-competitive team.

The introduction of the spending floor is what will make the next few years under the current CBA interesting. The current salary cap is around $120 million. With an 11% differential between the cap and the floor, that means that teams only have about $13.2 million to play around with. I say ONLY $13.2 million because roster shuffling due to injuries and signings make that number a lot smaller than what it really is.

How a front office manages that 11% will likely mean the difference between a dynasty and a dumpster fire. The brightest general managers and salary cap managers will shine.

My first question when I heard about the ability to rollover any unused salary cap was, “Is it compounding?” Meaning, if we rollover $5 million this year and don’t use it next year, can we roll it over again? The answer is yes.

My next question was, “Is there a limit to how much you can rollover?” No, there isn’t. A team can continuously rollover as much as it wants and build up as much of a bankroll as it pleases.

A lot of fans may have a problem with a team being cheap for the first few years of this. But being “cheap” now, will allow them to be rich later. Much richer because the savings basically grow exponentially.

Say the Browns only spent 90% of the $120 million salary cap in 2013, giving them $12 million to rollover. For ease of calculation, let’s say in 2014 and beyond, the NFL keeps the salary cap at $120 million. This is the cap number that all teams are given to work with. That salary cap number is then adjusted to reflect any rollover cap from the previous year.

Remember when I said to remember that word, “unadjusted?” This is where it becomes important.

Even though the Browns were able to add $12 million to their salary cap number, the salary floor is still only 11% of the UNADJUSTED cap number. This means that the Browns have increased their ceiling, but the floor hasn’t moved. The Browns could still lowball and come in at 90% of the 2014 unadjusted cap number (again, $120 million) instead of the cap plus their adjusted $12 million.

Now the Browns have more cap space than anyone else in 2014 because they we so “cheap” in 2013. The first benefit to that is more flexibility because the gap between the floor and the cap is now a lot larger than other teams. The second benefit is that they can grow their cap space exponentially now. They can turn $12 million in 2013 into $24 million in 2014. If their cap usage is still only at 90% of the unadjusted cap, then the Browns will have $36 million EXTRA cap space in 2015.

Being able to spend $36 million more than most teams is quite the competitive advantage, isn’t it? If planned correctly, a team could position itself for a very long run of success simply because it has more resources to work with.

Now, extra spending ability is worth nothing if a team has a poor scouting system and spends that extra money on bad players. So while a team can be great with its money management, it can still be awful on the field.

It’s still necessary to continue thinking this through because if a team doesn’t it could cripple the organization financially for years.

Bank robbers are usually great at devising ways to get into banks. But the stupid ones only plan to get into the vault and don’t consider how they’re going to take that money out of the bank and get it to a safe place. They lack the exit strategy. For teams that consider going this route, I urge them to plan their exit strategy.

Returning to our previous example, if the Browns stack up $36 million in extra cap money they will obviously go spend it on players. Let’s say the Browns sign every major free agent on the market that year and eat up $32 million of that extra cap space in 2015.

So while the Browns are now paying out $152 million in salaries ($120M + $32M they just signed) they only had $4 million to rollover, which means their salary cap is only at $124 million. Oops. Now they have $28 million they have to get rid of. They can’t cut any of the guys they just signed because that will accelerate all the signing bonuses into that year which only exacerbates the problem. Instead, they have to then cut other players they wanted to keep just to get under the salary cap.

It’s important to note here that the league office would likely flag the big free agent contracts and report back to the team that by agreeing to this contract the team would be over the salary cap for next year. The league office almost never rejects these types of deals but will alert teams when they see something of issue. It’s also completely possible it could be overlooked (seen it happen).

This is why it’s so important to understand every word of the collective bargaining agreement, rulebook, etc. A team can make or break its success by knowing the accounting processes of the salary cap, which obviously has nothing to do with schemes, playbooks, or film.

Personally, I don’t think being completely cheap is the way to go. I do think a smart team will be tighter with its money this year and next to allow it some flexibility later on. This especially goes for younger teams that are a couple of years from developing into contenders. Those teams could use extra cap space in a couple of years to really make a run at the Super Bowl.

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