Clear Up a Cap Issue for Me, Please

[Brady'sButtBoy]

Just to confirm an elementary aspect of NFL finance -

When a player is cut a certain amout counts against the total cap number but does the team have to actually PAY that money to a player? If they don't - then taking a 'cap hit' may squeeze the roster but it would/could save the organization millions of dollars.

For instance, Dillon's money was supposedly 'guaranteed' for 2006 and thus he would be paid $4.5 million even if he were cut. But this seems to a rarity. Take Willie's $8mil cap number, if he were cut a portion of that would count against the total cap number for 2006 but McGinest wouldn't receive a dime, right?

So... cutting a player in McGinest's position would hurt the cap but actually save the Pat's millions on the bottom line? (I'm not advocating cutting McGinest, only using him for an example)

Thanks....

 

[PatsSteve1]

What still counts against the cap for a team when a player is cut is the bonus money already paid to the player. So it doesn't save the team any money except for regular salary that he may have made if not cut. Regular salary doesn't count against the cap for a cut player.

 

[Ring 6]

Every penny given to a player counts against the cap, and every penny counted against the cap is paid out.
How and when that money counts is what you are talking about.

Example. 10mill signing bonus on a 5 yr contract.
Player receives 10mill IN HAND AT ONCE.
The cap spreads that out to hit each year of the contract equally, i.e. 2milll per year. If the player is released or traded, all remaining unamortized bonus hits at once, i.e. if after year one you cut the player, you take an 8mill hit. The 10 mill turned out to cost 2mill in year 1 and 8mill in year 2.

 

[Brady'sButtBoy]

So, rounded off, Willie already has all but $3.5million of $8million listed for this year, right? By cutting him the team would save that $3.5 million in actual dollars regardless of the cap impact, correct?

 

[mgteich]

Willie has the SB. This year's cap portion of the SB is $1,320,500. That's gone no matter what.
-------------------------------------------------
What is due (and avoidable) this year is a $3.5M roster bonus, a $6,720 workout bonus and a $3.5M salary. Since roster bonuses are usually due on the first day of free agency, a decision about Willie must be made by March 2nd. Also, it is on that date that the patriots must be under the cap with the 2006 cap costs of their Top 51 players.

So, rounded off, Willie already has all but $3.5million of $8million listed for this year, right? By cutting him the team would save that $3.5 million in actual dollars regardless of the cap impact, correct?

 

[pats1]

So, rounded off, Willie already has all but $3.5million of $8million listed for this year, right? By cutting him the team would save that $3.5 million in actual dollars regardless of the cap impact, correct?

Correct. Paragraph 5 (base salary) is non-guaranteed (unless specified in a contract - rare), so he doesn't receive any of that. That IS paid by-year.

However, like AJ said, signing bonus is paid ALL UP FRONT but just counts against the cap in a prorated manner.

Since Willie has 1 year remaining on his contract, he has that last year of his prorated signing bonus counting against the cap in 2006. That would be $1.32 mil.

When a player is cut before June 1st, that unamoritized signing bonus counts against the cap for the current year (say, if he was cut today, that $1.32 mil would count against our 2006 cap - as it did anyway, as $1.32 of his $8.32 2006 cap number. The other part of that is the paragraph 5 salary, and the Likely To Be Earned incentive, or in Willie's case, a $3.5 mil. roster bonus if he makes the roster this fall, or possibly a reporting bonus.).

But if he was cut after June 1st, it would simply count against the 2007 cap instead.

If he was indeed cut, what ISN'T going to count against the cap, and WON'T BE PAID is the $3.5 mil. base salary.

The $3.5 mil. LTBE incentive ALREADY counts against the 2006 cap. If he were to be cut, the Pats would get a $3.5 mil. cap credit for the 2007 season.

But if Willie was to retire instead, the Pats would get that $3.5 mil. LTBE back, wouldn't have to pay or suffer in the cap the $3.5 mil base salary, Willie would also have to PAY the Patriots his remaining signing bonus, $1.32 mil. instead of the Pats paying it to him if he was cut.

 

[pats1]

Willie has the SB. This year's cap portion of the SB is $1,320,500. That's gone no matter what.

Unless he retires - which probably won't happen. He'll have to pay it back, but does the $1.32 mil. cap hit still stay, with the Patriots just getting reimbursed for it?

 

[Miguel]

Unless he retires - which probably won't happen. He'll have to pay it back, but does the $1.32 mil. cap hit still stay, with the Patriots just getting reimbursed for it?

Willie has to pay it back ONLY if the Patriots ask for the money back. And I doubt that the Pats are going to ask Willie to pay it back.

 

[Brady'sButtBoy]

The bottom line improves...

While this appears to be getting a bit complicated, my main point in starting this thread was to clarify whether teams - as in the 'organization' - can save actual dollars, often millions, by cutting players despite those dollars being counted against the cap because much of the money figured into 'cap hits' is never actually paid out. OK, so that fact has been established and helps explain why teams like Tennessee would blow themsleves up cap wise - not only do they change players but the team's bottom line improves by not paying out much of the money signed into the contracts players they cut, a fact often overlooked, or at least, under emphasized, in cap related news stories. To make it plain, guys are cut not just because they aren't worth a certain amount of cap space given their performance, but are also cut to save real cash for the team regardless of what goes on with cap. Simple enough.

Now...
It appears that there are two divergent opinions in the thread about how much Willie has been paid already and what the Pat's cap hit would be for cutting him.

One person says that Willie has everything but the $3.5 million in salary due this year, another says he not only doesn't have the salary, but he also doesn't have the $3.5 million roster bonus. The latter makes sense since the 2006 rosters haven't been determined yet.

But according to one poster here the cap hit for cutting him now would include that roster bonus because it's an LTBE incentive but Miguel's patscap.com page lists the cap hit for cutting McGinest as only $1.32mil - the remaining portion of his pro-rated signing bonus. So which is it?

 

[Ring 6]

I think your error is considering a roster bonus a LTBE. They are 2 entirely different things.

I dont know for sure, and Im not even sure Miguel is privy to these things, but I estimate we come out ahead on these calculations.

I may misunderstand, but this is how I understand it.

1) A bonus is LTBE if you accomplished it last year.
2) A LTBE bonus counts in the cap year that you are in. i.e. A bonus to be payable at the end of 2006 for 2006 production counts against the 2006 cap.
3) A bonus is NLTBE if you didnt achieve it last year.
4) That bonus is ignored in the current year cap.

Example.
Tom Brady has (Im making this up) in his contract a 500,000 bonus for winning the SB, and a 100,000 for making the playoffs, and it is in effect each year.
2005. In this case Bradys cap number would have included both bonusses in 2005. Since we both made the playoffs, and won the SB in 2004, those bonusses become LTBE.
2006. Brady did earn the 100k but did not earn the 500k. We would receive a 500k credit on the 2006 cap for the LTBE that was not earned. Also on the 2006 cap the 100k is LTBE but the 500k is now NLTBE.

The impact of Tom Brady on the 2005/2006 cap therefore would be as follows (note it isnt HIS cap number, but the adjustment made to the cap)

2005 His normal cap charge PLUS 600k
2006 His normal cap charge MINUS the 'rebate' of 500k that was LTBE in 2005 but turned out unearned, plus 100k for the playoff bonus being LTBE. The 500k SB bonus now becomes NLTBE and is absent from cap calculations.

Therefore Bradys impact on the cap, in this ficticious scenario would be $1mill lower in 06 than 05 (of course that doesnt reflect any salary increase)

That 1 mill shows up as:
2005 a debit to the Pat cap # of 600k
2006 a credit to the Pats cap of 400k

My estimate is that the Pats have bonusses for winning or at least getting to the SB in many contracts. (I seem to recall the 'hit' in 2003 when they would have been NLTBE)

If 10 Patriots had such bonusses, averaging 250k, they were treated as 2.5 mill of LTBE bonusses last year. In other words, because of that (ignoring any other adjustments) we had 2.5 less to spend on the cap than a team without such LTBEs.
Therefore, this year, not only would there be a credit back for the 2.5 mill charged to 05, but that 2.5 in 06 is NLTBE and absent from any cap calculations.

My simplistic explanation of this is:

If you have a bonus in your contract 'the cap needs to decide' whether it thinks you will get it this year or not. It uses the formula that if you achieved the requirement last year, its treated as you will.
If its expected you will be paid the bonus, its treated basically the same as salary in this cap year. If its expected you will not, it doesnt count on the cap.
After the season is over, the 'estimate' that was charged to your cap is now earned or not, and the net difference goes to the following year cap.