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Originally Posted by TAFKAS
I think it would help if you specify your sources-link and person, just so you know whou you're referring to.
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This one came from falcfans.com / salary cap tutorial & faq.
In our example, let's say the Falcons need to save some extra space so they need to restructure some contracts. Say it is the offseason prior to Year 3 of Ed's contract, so it would not be a good idea to cut him (would add an extra $1 million to the Falcons cap). So they decide to restructure Ed's contract. A common form of restructuring is lowering the player's base salary. In this case, the Falcons can lower Ed's base salary of $1.5 million to $500,000. Now the Falcons have cleared $1 million off Ed's contract. But now what happens to that $1 million? Usually teams treat it as a signing bonus. In that way, it becomes prorated over the remaining years of his contract just like a normal signing bonus. That means that there will be a $333,333 cap hit ($1 million / 3 years) in Years 3, 4, and 5. Although this frees up $666,667 in cap space in Year 3, it adds an additional $333,333 to the Falcons cap in Years 4 and 5.
So although restructuring is a quick way to gain cap space without losing a player, but it also can hurt a team down the road. When you begin to restructure contracts with large bonuses, it can be very detrimental to the salary cap in future years.
2nd one came from football outsiders.com Capanomics II cap management strategies.
I’d like to introduce another term: “Cap Overhang”. These are bonus payments that will not be amortized over the life of the contracts of players currently with the team. We all know that NFL teams sign players to very long contracts that include up front bonuses, and to measure the value of the contract against the salary cap, those bonuses are amortized (evenly spread on an annual basis) over the length of the contract. These contracts typically have very low salary levels in the early years, escalate to “normal” levels in the middle (say the third and fourth years), and then typically include some very high salary years at the end. These last years are not intended to be paid — the players are usually cut instead — but exist in order to extend the amortization period to lower the immediate cap impact.
This is really a pretty efficient form for a contract in the NFL. It gives the player what he needs most, guaranteed cash, and gives the team a high degree of flexibility to cut the player rather than pay him if his skills decline through age or injury. Of course they’re left with dead cap money, but at least they’re not forced to throw good money after bad as per baseball contracts.
Teams also gain a degree of flexibility from the contract length and the early cheap years. This means that a player who in effect is being paid five or six million per year has less of an impact on the salary cap his first couple of seasons than in the outyears. Of course eventually you have to pay the piper. Often the length of the contract extends beyond the likely career of a given player, or the latter year salary levels are so high its obvious the player will be cut rather retained.
Here are some quotes from CBS sportsline.com regarding cap numbers :
In recent years, the 49ers, Packers, Steelers and Cowboys have all seen juggernauts torn apart because their front offices planned for today with little regard for tomorrow.
Here is another article from the post-gazette.com regarding the steelers pending cap problems by doing the same thing we do.
Cap games costly in long run
Friday, March 04, 2005
By Ed Bouchette, Pittsburgh Post-Gazette
Are the Steelers mortgaging their future to try to keep their team together?
That's the opinion of some NFL executives, and maybe one of their own, as the Steelers voraciously restructure contracts to retrofit their salary cap.
They reworked at least four contracts the past week to clear $5 million worth of salary cap room for 2005. But in the NFL's world of the hard salary cap, that room doesn't magically appear -- or disappear.
The room created today must be made up tomorrow, which reduces their salary caps in future years. Once begun, it's a vicious cycle that ultimately must be confronted, like paying the minimum on a credit-card bill.
Despite $5 million in restructured savings, the Steelers were only $1.7 million under the NFL's $85.5 million salary cap. They might have to restructure more contracts as they sign their draft picks, possible free agents and extend contracts to such players as Hines Ward and Casey Hampton, who enter the final year of their deals.
The Steelers, who once stood steadfast against such tactics, began restructuring contracts to create immediate salary cap relief about three years ago and have routinely done so since then. Dan Rooney, their chairman, long opposed the strategy, believing it to be an unsound way to operate under the salary cap. Nevertheless, they continue to do it.
"You're pushing your problems into the future," an executive from another NFL team said. "It's not a solid way to do it. You can avoid it for a while, but eventually it will catch up to you." Other NFL teams have done it, some wholly embracing the idea as a way to keep a good team together. But their financial judgment day arrived, and it forced them to dump players in order to comply with the salary cap. An example of that this year is Tennessee. Jacksonville, San Francisco and Baltimore are teams that also had to purge players in recent years because of contract restructures that ultimately caught up to them. "They're going to get into trouble," said one team financial officer. "You can't keep pushing it on to other years. It's going to catch up with you."
Now, there is 3 to 4 different people, atricles, executives, capologists, experts that say what we do will eventually catch up to us. Not in a year two years, eventually. As long as we continue to restructure, renegoiate, whatever, we just keep putting it off until the future.
Do you need anymore proof?