Colts over cap by $6M

[Miguel]

The Colts did what the league told them to do

http://www.washingtonpost.com/wp-dyn/content/blog/2006/02/02/BL2006020200779.html

Union, Colts Lose Special-Master Case


Special master Stephen Burbank, the University of Pennsylvania law professor who's in charge of resolving disputes arising from the NFL's collective bargaining agreement, ruled against the union Wednesday in a case involving the Indianapolis Colts' attempt to rework the contracts of quarterback Peyton Manning and wide receiver Marvin Harrison to create salary-cap space.

The Colts had written roster bonuses into the contracts of Manning and Harrison that could be converted into signing bonuses by the team, which then could prorate those signing bonuses over the remainder of the contracts for cap accounting purposes to create additional salary-cap room. That's what the Colts planned to do to create some cap space this week. But the league ruled that the Colts' maneuver violates the salary-cap requirements related to going from the final season of a salary cap (in 2006) to a season without a salary cap (in 2007). A player's salary can increase by no more than 30 percent from a season with a salary cap to a season without one, and the league's stance was that the Colts' juggling of Manning's and Harrison's contracts didn't comply with that rule. The Colts and the union disagreed.

The union took the case before Burbank and argued that the Colts should be allowed to do what they wanted to do, but Burbank sided with the league.

According to a person familiar with the case, the Colts originally wrote Manning's and Harrison's contracts the way the league had instructed them at the time to do so, and Manning and Harrison had to sign new contracts when the team invoked the provision to convert roster bonuses into signing bonuses. But other clubs have written similar clauses into players' contracts that don't require the players to sign new contracts, and the issue of whether those provisions now can be utilized by teams soon could be brought before Burbank in another case.

The Colts, meantime, are at odds with the league over the issue, the person familiar with the case said, adding he thinks there is some chance that the Colts simply could defy the league on the matter, rework Manning's and Harrison's contracts as planned and see if the league charges them with being in violation of the salary cap and takes action."

My emphasis added -
Let me understand this. The Colts did what the league told them what to do and they are at fault. IMO, if the league had originally told the Colts to use option bonuses instead of roster bonuses, this matter would have ended a long time ago.

 

[Miguel]

Miguel - I know you're a capologist at heart

You do realize that I was providing one scenario. If I am right about teams being able to do contracts in 2006 that have option bonuses in 2007 with 2007 being uncapped, then the Colts will not release Peyton in 2007.

 

[hwc]

Let me understand this. The Colts did what the league told them what to do and they are at fault. IMO, if the league had originally told the Colts to use option bonuses instead of roster bonuses, this matter would have ended a long time ago.

Miguel, recognize the Post article for what it is....Bill Polian spinning as an "unnamed source". Do you honestly believe that Tom Condon and Polian didn't know the ins and outs of writing big ticket salary cap deals when they did Manning's contract? Of course they did. They just bet on the fact that there would be a new CBA. That was obvious from the cap numbers Polian supplied to the Indy Star when the contract was announced showing seven year prorations on the 2006 and 2007 roster bonuses.

The article is pure spin, attempting to convince the Post writer that the league has rejected the concept of converting roster bonuses to guaranteed pro-rated bonuses. The league has no problem with that, as long as the contract still meets the 30% Rule requirements -- like every other contract in the NFL. Polian just wants different rules for his team.

 

[Warhorse]

hey HWC

Since the article says that they did things the way the league told them to, maybe that's why Polian is also going ahead with signing our own free agents even though we won't be under the cap. By filing a lawsuit against the Nfl it buys time until the CBA is completed so we won't have to dump our own talent from the team. On the other hand, if we go into 2006 without a new CBA and the salary cap stays at 94.5mil then he's got 2 options. Be over the cap and take your punishment or release all of our low end positions just to field a team and get by until next year when Manning's and Harrison's bonuses will be off the books. That's an awful fine line to tread but as we say in Indy, In Polian we trust.

 

[Miguel]

Miguel, recognize the Post article for what it is....Bill Polian spinning as an "unnamed source". Do you honestly believe that Tom Condon and Polian didn't know the ins and outs of writing big ticket salary cap deals when they did Manning's contract? Of course they did.

It is precisely because I believe that Condon and Polian know how to write big-ticket salary cap deals that I believe the article.

he article is pure spin, attempting to convince the Post writer that the league has rejected the concept of converting roster bonuses to guaranteed pro-rated bonuses. The league has no problem with that, as long as the contract still meets the 30% Rule requirements -- like every other contract in the NFL. Polian just wants different rules for his team.

My take is that the Colts were led to believe that converting the roster bonuses to signing bonuses would not comply Manning and Harrison to sign new contracts. It is the signing of contracts in 2006 that forces a team to comply with the 30% rule. If Manning and Harrison did not have to sign new contracts, the 30% rule would not apply to their contracts.

We will have to disagree on this.

 

[hwc]

It is the signing of contracts in 2006 that forces a team to comply with the 30% rule. If Manning and Harrison did not have to sign new contracts, the 30% rule would not apply to their contracts.

Not according to AdamJT. He addressed this issue directly on the Redskins forum. All NFL contracts that extend into an uncapped year must comply with the 30% rule at all times, no matter when they were written. Writing a contract, or renegotiating a contract, in 2006 is totally irrelevant.

Here's the exact language:

No NFL Player Contract entered into in a Capped Year and extending into the Final League Year or beyond may provide for an annual increase in Salary, excluding any amount attributable to a signing bonus as defined in Section 7(b)(iv) above, of more than 30% of the Salary provided for in the Final Capped Year...

The problem is that Manning's contract did comply with the 30% rule as long as the $10 million was a roster bonus (i.e. treated as $10 million in salary). It does not comply following a renegotiation that prorates that $10 million (because the 2006 salary becomes too low.) If the Colts had written the contract with the $10 million as an option bonus initially, the contract would have been illegal when it was signed. If they had guaranteed the 2006 roster bonus last year, the contract would have become illegal at that time, too. That $10 million (or at least $8.5 million of it) had to be written as either roster bonus or straight salary in order for the contract to be legal under the 30% rule the day it was signed in 2004.

The Pats are being squeezed by exactly the same league rules on Brady's contract. Looking at his cap numbers going forward, it is painfully obvious that the Pats would LOVE to convert some more of his 2006 salary to pro-rated bonus (either option or signing) and shift some cap dollars from 2006 to later years. But, they can't and they aren't crying about it. If there is a new CBA, my guess is that the first thing the Pats will do is a simple restructure of Brady's 2006 salary down to $1 million or so.

To really boil it down to the essence, the problem with Manning's contract (assuming the Colts intention all along was to prorate the 2006/07 roster bonuses) is that it has too much guaranteed bonus money ($53.4 million) in the first four years of the deal. That's more than half of the total value of the contract. The very heavy Deon Rule adjusment was a sure-fire indicator that the contract was unusually prorated and backloaded.

 

[MoLewisrocks]

It is precisely because I believe that Condon and Polian know how to write big-ticket salary cap deals that I believe the article.



My take is that the Colts were led to believe that converting the roster bonuses to signing bonuses would not comply Manning and Harrison to sign new contracts. It is the signing of contracts in 2006 that forces a team to comply with the 30% rule. If Manning and Harrison did not have to sign new contracts, the 30% rule would not apply to their contracts.

We will have to disagree on this.

Even if that were true, people are inadvertently misled all the time. Get bad advice from an IRS employee and when the mistake is uncovered you still have to pay the bill. You can try and sue, but they will simply tell you ignorance and misinformation - even emanating from their office - is no excuse and at the end of the day the law is the law. You pay the bill.

 

[Miguel]

Even if that were true, people are inadvertently misled all the time. Get bad advice from an IRS employee and when the mistake is uncovered you still have to pay the bill. You can try and sue, but they will simply tell you ignorance and misinformation - even emanating from their office - is no excuse and at the end of the day the law is the law. You pay the bill.

which is why I said that I do not understand why the Colts are thinking of suing the league. Just come with another workaround.

 

[Miguel]

Not according to AdamJT. He addressed this issue directly on the Redskins forum. All NFL contracts that extend into an uncapped year must comply with the 30% rule at all times, no matter when they were written. Writing a contract, or renegotiating a contract, in 2006 is totally irrelevant.

Here's the exact language:

You are right. I was wrong.

 

[Miguel]

The problem is that Manning's contract did comply with the 30% rule as long as the $10 million was a roster bonus (i.e. treated as $10 million in salary). It does not comply following a renegotiation that prorates that $10 million (because the 2006 salary becomes too low.) If the Colts had written the contract with the $10 million as an option bonus initially, the contract would have been illegal when it was signed. If they had guaranteed the 2006 roster bonus last year, the contract would have become illegal at that time, too. That $10 million (or at least $8.5 million of it) had to be written as either roster bonus or straight salary in order for the contract to be legal under the 30% rule the day it was signed in 2004.

To really boil it down to the essence, the problem with Manning's contract (assuming the Colts intention all along was to prorate the 2006/07 roster bonuses) is that it has too much guaranteed bonus money ($53.4 million) in the first four years of the deal. That's more than half of the total value of the contract. The very heavy Deon Rule adjusment was a sure-fire indicator that the contract was unusually prorated and backloaded.

If we presume that the Colts were given the correct information in 2004, then we can then presume that they would have structured the deal differently.

I still think that if there is not an extension the Colts will use option bonuses to get around the cap this year.

 

[hwc]

If we presume that the Colts were given the correct information in 2004, then we can then presume that they would have structured the deal differently.

They couldn't structure the deal differently because they didn't have the cap room. That's why the deal had so much prorated bonus money in it (effectively more than half of the total value). They needed to hold Manning's cap numbers in 2004/05 down to 8 million and change because they also had one of the highest paid receivers in the league and one of the highest paid RBs in the league. It was "keep the triplets", damn the torpedos (and the cap).

If the Colts are able to do what they planned to do (i.e. if a CBA extension tonight wipes out the 30% rule), they will have paid Manning $3.2 million in salary and $53.5 million in prorated bonus money over the first four years of the deal (2004-07). It's hard to imagine a more cash-over-cap, back-loaded deal in the history of the league.

 

[hwc]

You are right. I was wrong.

Hey, at least I got on the scoreboard! I think it's now about 99-1 in your favor on that matchup...

 

[Warhorse]

On Foxsports.com they stated with the new stadium and the naming rights that the Colts will be one of the more financially stable teams in the NFL. I believe that is why Polian structured the contracts the way he did, cash over cap was finally going to work in our favor with the new money that was coming in.





John Czarnecki

"There is no avoiding the fact that there is revenue disparity throughout the NFL, much of it created by Tagliabue's ability to help franchises build new stadiums. In this scenario, franchises like New England, Tampa Bay and Philadelphia, which were in the bottom third of the league 10 years ago, have leap-frogged the middle class into the top 10. Also, a small-market franchise like Indianapolis will eventually be among the league's richest due to a new stadium deal, which included $120 million in stadium naming rights last week.

Colts owner Jimmy Irsay may have wanted to leave Indiana for California, but he was literally forced to stay (smart business decision) because of all the revenue he can earn in Indianapolis compared to fluctuating future promises in somewhere like Los Angeles. The Colts, who recently signed receiver Reggie Wayne with a $12.5 million signing bonus, are in position to keep many of their stars because the franchise is financially secure."

 

[hwc]

On Foxsports.com they stated with the new stadium and the naming rights that the Colts will be one of the more financially stable teams in the NFL.

I should certainly hope so, given the way Irsay bent over and greased up the taxpayers of Marion County for a $650 million stadium.

 

[arrellbee]

http://www.washingtonpost.com/wp-dyn/content/blog/2006/02/02/BL2006020200779.htmlAccording to a person familiar with the case, the Colts originally wrote Manning's and Harrison's contracts the way the league had instructed them at the time to do so, and Manning and Harrison had to sign new contracts when the team invoked the provision to convert roster bonuses into signing bonuses.

No NFL Player Contract entered into in a Capped Year and extending into the Final League Year or beyond may provide for an annual increase in Salary, excluding any amount attributable to a signing bonus as defined in Section 7(b)(iv) above, of more than 30% of the Salary provided for in the Final Capped Year...

Personal note: NOW I understand the problem ... duh.

Just a curiosity question, Miguel - I hear why you think that Irsay and Polian must have been misled/misinformed. But the thing that puzzles me is that there seems to be nothing that the league could have told them that they could have regarded as "legal" if noone (including the Master) can find anything in the CBA that would give them that 'out'. Is it possible that they just gambled on a new CBA being signed ??

Another curiosity question, Miguel - the way Manning's contract is now, he get's 9M hard cash this year in addition to his salary. Even if it had been legal to change to a new signing bonus, he would still have gotten the cash this year. I think (and forgive me if I didn't get it correct) that what you are proposing would push off some of that cash in his pocket until next year ? That would be an interesting Condon dynamic in terms of 'cash in hand' versus future value of money.

I'm also not sure (apologies) how any deal that keeps his 2008 thru 2010 salaries the same can pay him a salary of any less than 6.805M this year. But maybe that's what you are saying - that they could at least save 4.425M on the cap this year (14.575M). But there doesn't seem to be any way that they can get his cap number down to 11M.

For fun variation: I calculated what would happen if they backed down from the 15.8M salary of 2010 to keep salaries within the 30% rule and just did a signing bonus this year to essentially include this years 9M plus the differences in salary for the last 4 years. Irsay would have to up this years cash outlay to 12.273M but could save 3.243M on this years cap for a cap number of 15.757M. Not a lot but not insignificant either.

 

[Miguel]

Personal note: NOW I understand the problem ... duh.

Just a curiosity question, Miguel - I hear why you think that Irsay and Polian must have been misled/misinformed. But the thing that puzzles me is that there seems to be nothing that the league could have told them that they could have regarded as "legal" if noone (including the Master) can find anything in the CBA that would give them that 'out'.

The Colts could have been told that prorated roster bonus would be treated the same as option bonus in the 30% calculation. The prorated option signing bonus is treated as salary. Example, Brady's 2006 salary is $4,000,000. Brady's 2007 salary is $6,000,000. That is a 50% increase. How is Brady's contract then legal??Because the Pats are allowed to consider the $3 million option bonus proration as salary for the purposes of the 30% calculation??

Is it possible that they just gambled on a new CBA being signed ??

Yes. Anything is possible. I doubt that it was probable.

Another curiosity question, Miguel - the way Manning's contract is now, he get's 9M hard cash this year in addition to his salary. Even if it had been legal to change to a new signing bonus, he would still have gotten the cash this year. I think (and forgive me if I didn't get it correct) that what you are proposing would push off some of that cash in his pocket until next year ?

No, what I proposed is that he would get the $9 million a week later after signing the new contract.

I'm also not sure (apologies) how any deal that keeps his 2008 thru 2010 salaries the same can pay him a salary of any less than 6.805M this year.

For the record I never said that my proposal would keep his 2008/2009/2010 salaries the same. I freely admit that they will not which is why I expect the Colts to release Manning in February, 2009 and sign him to a new contract days later if they do what I propose.

But maybe that's what you are saying - that they could at least save 4.425M on the cap this year (14.575M). But there doesn't seem to be any way that they can get his cap number down to 11M.

See http://www.patscap.com/manning.gif
for example of my proposals

 

[hwc]

Miguel:

If I read your max case scenario properly, Manning would be giving up $17.95 million in salary from 2006 - 2009, when the Colts would release him.

What happens if he suffers a career-ending rotator cuff injury?

Manning is not going to give back money, IMO.

 

[Miguel]

Miguel:

If I read your max case scenario properly, Manning would be giving up $17.95 million in salary from 2006 - 2009, when the Colts would release him.

But you are not including the signing bonus Manning would get in 2009.

What happens if he suffers a career-ending rotator cuff injury?

Let's say that Manning's injury happens in 2006. Under his current deal it would be cheaper for the Colts to release him in February, 2007 than to keep him. The cap savings are more in 2008 and even more in 2009. Under my proposal the Colts would be better off in 2007 cap-wise keeping an injured Manning on the roster than by releasing him. My deal protects Manning better than his current deal if the CBA is extended later on.

If the CBA is not extended later on, does it really matter?? If 2007/2008/2009/2010/2011/2012/2013/2014 are all uncapped, any injured player is going to get released the next year.

Manning is not going to give back money, IMO.

IMO, Manning would be a fool to turn down a deal that offers him the same amount of money in 2006/2007 while giving the Colts the best opportunity to build a Super Bowl championship team around him. I think that winning a Super Bowl is important to Manning so I do think that he will give up money. Heck, if I were Manning, I would give up the $9 million roster bonus and tell Polian to go after Adam, Rocky Bernard, and Julian Peterson with the money.

 

[Warhorse]

Again it has been stated that Irsay

greased up the taxpayers of Marion County for a $650 million stadium

.

That stadium will serve a whole lot more purpose than just to house the colts for 10 games a year. The NCAA tourney, various conventions, the NFL combine, and whatever else Indy wants. It's part of a bigger picture. The new stadium is downtown so it can be a centerpiece of attraction for various city junctures. And Irsay even put some of his own money in to having the stadium built.

I think he's a really smart business man. While he isn't out much when it comes time to settle on outside revenue, owners like Kraft will be screwed out of their money because they paid for their own stadium and now have to split money they would have used to pay off their loans for their stadiums. It's good business sense. As a taxpayer, I'm not thrilled by it, but if I was an owner I'd rather be in Irsays shoes than Krafts, financially speaking.

 

[PATSNUTme]

Actually, why do we care if the Colts are above or below the cap?

Next year the media will stoke them again and then they will choke,again.