Trading Dead Money & The NFL Expiring Contract

Dead money has historically served as an impediment to the consummation of player-related trades in the NFL, but recent trends in contract structuring have opened up the possibility for the opposite outcome to take place: dead money as a driver of player-related trades. The new, and increasingly common, contract structures employed by NFL teams allow for dead money to be assigned to any team, whereas traditional contract structures rendered dead money “stuck” with the team which had originally signed the player. As a result, much dead money is now “tradable,” allowing for NBA-style transactions in which one team provides compensation to another team in return for taking on cap-clogging contracts.

Prior to the trade deadline of the 2013 season, the Philadelphia Eagles traded Isaac Sopoaga to the New England Patriots for marginal draft pick compensation. At first glance, the trade seemed fairly inconsequential. Sopoaga, while a starter, had not received a substantial amount of playing time for the Eagles, and the Patriots did not send a noteworthy amount of compensation in return. However, the transaction was somewhat surprising due to the fact that the Eagles had just signed Sopoaga to a three-year contract in free agency prior to the season. The contract, worth a total of $11 million, included $4.75 million worth of guaranteed money. The guaranteed money came in the form of a $2.75 million roster bonus in 2013, a $1 million guaranteed base salary in 2013, and $1 million of the $3.75 million 2014 base salary guaranteed.

This final portion of guaranteed money is what makes this transaction interesting and potentially precedent setting. The Eagles, having apparently decided that they did not want Sopoaga on the team anymore, managed to trade not only the player, but also the $1 million worth of guaranteed money, to the Patriots. If the Eagles had released Sopoaga in the spring of 2014, this $1 million worth of guaranteed money would have become $1 million worth of dead money for the Eagles. Instead, the Patriots released Sopoaga in the spring of 2014 and absorbed the dead money.

Under a “traditional” contract structure, the $4.75 million guaranteed (let’s use $4.8 million for the sake of round numbers) would have come in the form of a signing bonus, with $1.6 million counting against the cap each of the 3 seasons of the contract. If the player were to be traded or released prior to completion of the contract, the yet unaccounted for $1.6 million amounts would accelerate against the salary cap in the year of the transaction (or in the following year if the June 1st rule is applicable). With such a structure, the Eagles-Patriots trade would most likely not have taken place, because the Eagles would incur $3.2 million worth of dead money in 2014 had they traded Sopoaga during the 2013 regular season. The Patriots would receive a salary cap windfall – a player on a contract stripped of all prorated signing bonus amounts and without any potential to generate subsequent dead money – but the Eagles would receive a substantial salary cap hit.

An alternative traditional structure would have involved including the entire $4.8 million guarantee as a roster bonus in 2013. Such a structure would preclude any future dead money, but it also requires more salary cap space in the year of signing. Teams have also traditionally used a combination of signing bonus and first-year roster bonus, with the aforementioned pros and cons of each present to the degree of distribution between the two.

However, in the years since the 2011 CBA was signed, a new type of contract structure has emerged. With Sopoaga’s contract being an example, this new contract structure typically features a fully guaranteed first year base salary, a first-year roster bonus, and full or partial guarantees on subsequent-year base salaries. Under this structure, the salary cap allocation of the guaranteed money – and the potential dead money associated with such guaranteed money – is spread over multiple years. But because the guaranteed money comes in the form of guaranteed base salary, it can be traded to another team, whereas prorated signing bonus guaranteed money and first-year roster bonus guaranteed money cannot be.

These charts demonstrate the difference in potential Sopoaga contract structures:

Traditional Signing Bonus Structure

SeasonSalary Cap AllocationPotential Dead MoneyTradable?

Traditional Roster Bonus Structure

SeasonSalary Cap AllocationPotential Dead MoneyTradable?

2011 CBA Style Structure

SeasonSalary Cap AllocationPotential Dead MoneyTradable?

These effects have already been seen to some degree in trades involving failed rookies drafted under the new CBA, such as Trent Richardson and AJ Jenkins, but those trades still resulted in dead money for the player’s former team, and the contracts were not specifically designed to facilitate dead money trading.  Isaac Sopoaga’s contract is insignificant within the context of a $133,000,000 salary cap, but one can imagine a scenario in which this new type of contract structure  paves the way for significant dead money dumping deals.

The contract Alex Mack signed with Jacksonville, and which Cleveland matched, contains $8 million worth of guaranteed money in 2015, but it did not include a signing bonus.  If Alex Mack the football player becomes worthless during the 2014 season, how much compensation would Cleveland be willing to provide to another team in order for that team to trade for Mack’s contract and then release him, thereby absorbing the dead money instead of Cleveland?  In other words, how much (in terms of draft picks or young players) is $8 million in cap room worth?

These types of trades have long been a feature of the NBA, where salary cap space is harder to come by and the guaranteed portions of contracts extend longer than the types of NFL contracts discussed here. In the upcoming NBA draft the Detroit Pistons will send the 9th pick to the Charlotte Hornets as a result of a June 2012 trade in which the Pistons traded the two years remaining on Ben Gordon’s contract for the one year remaining on Cory Maggette’s contract. Detroit essentially traded a future first round pick in exchange for dumping two year’s worth of dead money onto Charlotte in exchange for only one year’s worth of dead money.

Perhaps the opportunity to have the flexibility to engage in this type of transaction will encourage teams to implement this type of contract structure more often. The teams that have gotten into serious salary cap trouble have done so because they were forced to release players with large cap numbers but did not recoup a corresponding amount of cap room because of high dead money acceleration. If these teams could trade the dead money to other teams, they could buy themselves another year or two of contention at the expense of draft picks. This most likely exacerbates the problem in the long-term, but it’s a strategy nonetheless.

Perhaps a rebuilding team with ample cap room will determine that its best long-term strategy is to utilize its cap room to take on dead money contracts in trades in exchange for draft picks instead of utilizing the cap room to sign free agents or re-sign its own players. The merits of such a strategy are debatable, but it is a strategy that a patient organization could potentially utilize to success.

Perhaps the term “expiring contract” will enter the NFL lexicon for the same reason it has become widespread in that of the NBA.  But unlike the Sopoaga trade, dead money trades will likely feature the team alleviating itself of the dead money surrendering the draft pick compensation.  As a result, a market will emerge in which amounts of cap room can be priced in terms of draft picks and/or young players.

Having established the foundation for this concept, in my next piece I will propose a new contract structure that takes this notion to its logical extreme in allowing for maximum flexibility in trading and timing the effect of dead money.

Bryce Johnston, @eaglessalarycap

Looking Closer at Mike Vick…

After another terrible performance Monday night Michael Vick in a position where he will likely be released at seasons end and need to search for a new job. Vick’s current contract with Philadelphia allows the Eagles to part ways with Vick after the seasons end for a small cap charge of just $4.2 million dollars provided he is released as soon as the waiver period begins in February, which represents a cap savings of $12.7 million that can be used to instead bolster the defense or the offensive line.

Vick’s situation goes to show just how unimportant reported values are in an NFL contract. When Vick signed his deal in 2011 the contract was reported to be worth $100 million for 6 years which sent shockwaves throughout the NFL. While Vick was a star he was never on the level of Tom Brady or Peyton Manning, neither of whom had a contract worth $100 million. As more details came out about the contract it was learned that the real value of the contract was 5 years for $80 million, with a void year being added so that Vick and his team could report a $100 million dollar deal. Considering Vick had already signed his franchise tender, which was guaranteed, that year the real value of the extension was 4 years for $63.943 million. Still not a number to laugh at but a far cry from  the $100 million reported value.As things turned out Vick is actually only going to see $16.443 million of that near $64 million extension- only 25.7% of the total value. He will earn a total of $32.5 million of the $80 million total- 40.6%.

In hindsight the deal was well crafted to protect the Philadelphia Eagles in the event Vick crashed and burned, which seems to be the case. They guaranteed him two years of salary, but gave him almost no prorated money that could hamper the team from cutting Vick. Prorated money is a safety net for the player in that if the dead money is so high the team will be unable to release the player due to salary cap considerations. Had Vick pushed for a higher signing bonus and perhaps taken a slightly lower overall contract in return he would have been more protected from release come February.

That being said Vick will find a job when and if he is released. He is one of those enigmatic players that can dazzle you at times with his running ability and floor you at others with his complete lack of understanding of the position. But his ability to be spectacular will get him another chance. The question is for how much money?  Vick will be 33 in June, which is not old for a good QB, but Vick’s body has taken a beating and he relies so much on his athletic ability that it is hard to view him as a true QB. Vick’s on field performance warrants a contract in line with the lower tier starters making between $8 and $10 million a year, so if he wants to make more than that he probably needs to take an incentive laden one year “prove it” deal for some team. At 33 years of age that could be his end.

ESPN’s Mike Sando weighs in on Kevin Kolb

In keeping with the Clayton list, ESPN’s Mike Sando takes a deeper look at the Kevin Kolb contract in the NFC West blog. Sando does a really excellent job of laying out what went into the decision and reasons why it sometimes is more difficult than not to look at a number and say “bad deal”.

Arizona fell into the trap of falling in love with the backup QB. It happens time and time again. Most times it does not work out (Rob Johnson, Matt Cassel, etc…), but occasionally (Matt Schaub) it can pay dividends. What was more difficult here is that Kolb had shown just as much bad as he did good in his brief playing tenure in Philadelphia. The Eagles were prepared to move on from an ineffective Donovan McNabb in 2008, but Kolb was so bad in relief against the Baltimore Ravens that the idea was immediately scrapped. He would get two chances to start in 2009, one of which was a good game and the other a good statistical game in which he threw three picks and was blown out. Once McNabb was healthy he retook the starting position. He showed little special when finally given the ball in 2010 before getting injured and eventually replaced by Mike Vick.

Maybe Arizona was swayed by the success of Aaron Rodgers. Maybe they felt that if you paired Kolb with Larry Fitzgerald that it would be a match made in heaven. But the risk with the move was very high and they compounded the cost by sinking more money into Kolb when they should have moved on after one season. Here is Sando’s take on the future:

Kolb’s deal included $20 million in compensation for the first two seasons. His salary is scheduled to be $9 million in 2013. The team must account for $6 million in future salary-cap charges related to Kolb whether or not he remains on the roster. That $6 million charge could be spread across more than one year. Seeking a reduced salary for Kolb could make sense if the team thinks he can still provide value in the future.

The $6 million cap charge is the remaining proration from his $10 million signing bonus that is unaccounted for. By designating Kolb a June 1 cut the Cardinals can spread that hit over two seasons, with $2 million being charged to 2013 and $4 million charged to 2014. There is a catch to doing that, however. If the Cardinals designate Kolb a June 1st cut they will carry his full cap charge, $13.5 million, throughout free agency with the relief coming after June 1st.  By just using the normal cut and taking the full $6 million hit the Cardinals will free up $7.5 million in immediate cap room. Kolb has a roster bonus due on the 5th day of the League Year, so a decision will need to be made before that date.