Dallas Cowboys: Navigating The Salary Cap

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I had planned, time permitting, to do these cap breakdowns towards the end of the season or in the offseason, but with the Dallas Cowboys making the news today with Adam Schefter’s report that they are $31 million over next years’ projected salary cap I figured this was a reasonable time to look at the Cowboys.

I’m going to base everything off my estimates which have Dallas with a payroll of about $145 million for 46 players next season. That number seems to mesh with most reports so it should be a reasonable starting point. It should be noted that the 46th player under contract here is Jeff Olson an injured player who will be released as soon as he is healthy enough. With the cap currently at $123 million that obviously leaves some distance between my estimates of $22 million over the cap and Schefter’s reported $31 million. So how do we account for the discrepancy?

Well first of all his information is likely from someone projecting at least 51 players, and most likely a full 53. To get from 46 to 53 we need to add 7 futures contracts which will add $2.94 million in salary. We also need to account for the 2011 draft classes “Proven Performance Escalator” which is a bump in salary to the RFA tender for those who played in either 35% of the total snaps from 11-13 or 35% in two of three seasons from 11-13. That would include RB DeMarco Murray, G David Arkin, and WR Dwayne Harris and add another $2 million if all 3 qualify, putting our number at $27 million, leaving us just $4 million short. CB Orlando Scandrick, G Mackenzy Bernadeau, and DE Justin Durant I know have escalators/incentives in their contracts. While I don’t know how much those incentives are worth I’ll give you a guess that we are looking at close to $4 million to give us the $31 million figure Schefter was given. So we are probably working with a roster that is around $29-30 million over the salary cap when the top 51 accounting takes place.

Getting around the 2014 salary cap

Sites like mine and various media reports can sometimes blow a teams’ cap situation out of proportion.  From my time working exclusively covering the Jets salary cap I saw this occur twice, once in 2009 and again in 2013. While the 2013 situation was not great it was never as overblown as portrayed by a salary cap sheet. In 2009 the salary cap situation was actually fine. What occurs is that teams often have contracts that are designed to be restructured or terminated to aid a teams’ salary cap. That does not show up in a static chart.

The one contract Dallas has that is designed that way is Tony Romo’s. Romo has a salary cap figure of nearly $21.8 million in 2014, but the contract contains two “empty” proration years in 2018 and 2019 that were there to absorb restructured dollars. This is no different than Joe Flacco’s contract with the Ravens containing two option bonuses for cap purposes, except for the Ravens their salary cap will look fine on paper because they chose to use options in the initial deal. Dallas never does that and instead makes their situation look worse than it is.

It is basically a given that Dallas will reduce Romo’s base salary in 2014 from $13.5 million to $955,000 and convert the remainder to a bonus. That will free up $10,036,000 in salary cap commitments and reduce his cap figure to $11,737,000. That’s the intended value for Romo’s contract and will shave $10 million off Dallas’ $30 million overage. The team will also carry over around $2 million in cap space so we are looking at a team that is $18 million over prior to free agency.

The Cowboys have one major problem moving forward and that is the lack of cap relief the team can find by releasing players. While Romo fits the intended restructure category, the team has nobody in the intended release category. My estimates only have 8 players that would save Dallas more than $995,000 in cap room via release. These include starters Dez Bryant, Barry Church, and DeMarcus Ware. The following would be the releases:

Name

Savings

Net Savings

Phil Costa

$1,500,000

$1,080,000

Jeremy Parnell

$1,500,000

$1,080,000

Mackenzy Bernadeau

$1,425,832

$1,005,832

Justin Durant

$1,250,000

$830,000

Kyle Orton

$995,000

$575,000

Total

$6,670,832

$4,570,832

The net savings, after factoring in costs of replacements, are just $4.6 million. We mentioned that Bernadeau likely has an escalator worked into the Schefter estimate so we’ll call this $5.5 million in savings. That brings Dallas to approximately $12.5 million over the cap. I think it’s also safe to say that if the Schefter figure includes Arkin’s and Harris’ PPE that neither will happen due to playing time so we are around $11.1 million.

I know some will discuss the additional savings that could be realized with the June 1 designation, but a June 1 cut stays on the books until June 1 at the full cap charge. That designation will only be used to create functional cap room during the season and is only going to be used on players whose dead money and salary cap charge are essentially equal. The only real candidate for this is Doug Free whose $3.5 million dollar salary guarantees early in the League Year, but with Brian Waters contract expiring Free should have a role in 2014 either at Guard or Tackle especially since he has played so much better this season.  Miles Austin is another candidate but they don’t actually have a need to cut him until after June 1.

The first restructure will probably be that of CB Brandon Carr. Carr has a $12.2 million dollar cap charge in 2014 with a $7.5 million base that makes up a majority of the charge. With a conventional restructure they can save $4,908,750 in cap space. By adding a voidable season, which is likely what they would do, they will save $5,236,000.

Fitting the Romo restructure category will be that of newly extended LB Sean Lee. Lee has a $5.5 million base salary in 2014 with empty proration years in 2018 and 2019. These seasons are just waiting to have money pushed into them. By reducing his salary to $730,000 and prorating the remainder they will create $3.816 million in cap room while adding $954,000 to the next four years. This puts Dallas in a position where they are approximately $2 million over the cap with three restructures (two of which were planned on signing) and five cuts.

Going forward Dallas is going to have a very difficult decision to make regarding DE/OLB DeMarcus Ware. Ware will be 32 years old in 2014. He is the lone Cowboys whose release or trade saves significant money- $7.4 million. Ware’s cap figure in 2014 is $16 million and then $17.5 million in 2015. These are very difficult cap numbers for 32 and 33 year old pass rushers. Julius Peppers has that kind of figure this season and won’t be back in Chicago next year. The going rate for older rushers is around $5 million a year. Ware will earn $27 million in cash in 2014 and 2015.

The reality is Ware really needs to have his contract ripped up and to take a paycut that makes him the highest paid older player rather than one of the highest paid player, but Dallas’ negotiations throughout history would give them almost no leverage to even push it. It would require a complete philosophical change. Most likely they will look to restructure his contract, which in my mind would be a disaster, but I don’t see them going another route.

If the Cowboys go all in with Ware and reduce his salary to the minimum they can save $8,471,250 against the salary cap even if they do not add void seasons to the contract.  The problem with that move is it pushes Ware’s salary cap figure to $20.3 million in 2015 with a whopping $13,789,000 in dead money if they need to release him. Is that worth doing?  Probably not and the team needs to avoid touching that deal if at all possible.

The team is probably best suited to first restructure the contract of Jason Witten and reducing his base salary from $5 million to the $955,000 minimum. This creates $3,031,500 in cap space which should be enough to at least get Dallas to be cap compliant. Witten will be 32 next season but his cap charges, even if he begins to decline, are more reasonable at 33 than Ware’s would be.

The other move would be to work with Austin on his contract. Personally I don’t believe Austin is worth the headache. He’s missed a few games this season and has slid down the depth charts. Austin really should be by ace in the hole. I cut him in June and free up $5.5 million to move the Cowboys to around $6 million in cap space which I can use for the rookie class when they sign in June and July.

If something disastrous happens I can then work with Ware but Ware is a deal Dallas should only touch as a last resort. The door needs to be open to take him off the roster in 2015. There are also a few other small deals that Dallas could terminate to gain a few hundred thousand here and there.

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Where Will Dallas Stand

What works to Dallas’ favor in all of this is that the only starters who are free agents next season are G Brian Waters and DT Jason Hatcher. The team won’t have the money to go into free agency and replace them with starters, but you can find rotational players that may fit in the limited budget. These are also draftable positions, specifically on the offensive line where many teams find first year starters.

Dallas starting lineup would have an average age  of about 27 years with the offense being the problem unit, featuring four players over the age of 30. If Romo and Witten can continue to perform age should not be a primary factor of weakness in 2014. Basically what this amounts to is that the team in 2014 will look almost identical to the team in 2013 and 2012.

2015 Salary Cap Outlook

By reworking the contracts of Romo, Carr,  Witten, and Lee we added $5,785,000 to the 2015 salary cap. That’s not too bad, but the roster at this point is in shambles and our top 5 players now account for nearly $76 million in cap commitments. The team will already have $9,086,200 in dead money on the books via the June 1 release of Miles Austin and Doug Free’s contract voiding.

Not including the 2014 draft class, Dallas would have around $109 million in salary cap commitments in 2015 with just 22 players under contract. One would assume that the team would invoke the option on starting Tackle Tyron Smith, which would be equal to the 2014 Transition tag. In 2013 that was $8,709,000 so we’ll assume $8.7 million for 2014 as well.  I think it’s safe to assume two players from the 2012 draft class will earn the PPE adding around $1.3 million in cap to our total giving the team $119 in cap committed to 23 players.

Not among those 23 players is superstar WR Dez Bryant who will end up being the recipient of the Franchise tag, which should be valued around $10.6 million. Seven draft choices from 2014 should cost around $6 million in 2015 cap dollars. This brings Dallas to a fair estimate of 31 contracts of $135.6 million. If the remainder of the offseason roster is filled with players earning the minimum the salary cap will stand for Dallas at $144,300,000.

2015 Problems

We just navigated 2014 which seemed to be even worse so why is this different?  Assuming the Bryant and Smith moves and one 2014 rookie starting the team would be looking at returning just 12 or 13 starters from the 2014 team.  Of these starters Romo will be 35 while Ware and Witten will be 33. Neither Carr nor Lee would be youngsters anymore at 29 years old.  These 5 players account for $74.3 million in cap charges and there has to be real questions about how much further can you push on with the same group.

Romo would carry a $27.782 million dollar cap charge in this scenario.   The team could save $12.824 million in a restructure which virtually guarantees Romo will be QB through 2017 as his 2017 dead money would rise to $14.636 million if cut. Even at 38 years old he would still cost $8.921 million to part ways with.

Releasing Ware saves the team $12,186,000, which is why I would not want to touch his contract in 2014. He needs to go in 2014 to allow the team to move forward.  There really are no other options. Through all the restructures we had to use for 2013 and 2014, Carr is already going to cost $11.36 million to release in 2016. I can’t go further in on a cornerback about to turn 30.   Same goes with Witten.

2015 and Beyond

Most likely, barring a salary cap explosion in 2015, those two moves will give Dallas a few million to work with to fill all their open roster spots with players other than rookies. The two franchise type players will need to be signed to long term contracts with low cap charges in the first two years to help deal with some of the issues in 2015 and 2016.

Dallas is not going to trot out 10 rookies to start for the team if at all possible especially with Romo still at the helm.  That is going to require significant creativity to do. They have to avoid doing anything with Ware, unless it’s a major paycut, and the desire to rework Carr’s deal another time. I would imagine the end game is something similar to what we saw in New York in 2013 with a slew of minimum salary benefit contracts filling out the roster.

By 2016 the team should move into full turnover mode with Romo being the last man standing from the old guard. Witten and Carr will combine for over $14 million in dead money in 2016, which should mark their fourth year in a row with well above the average dead money on their salary cap, but it should help them avoid the one mega season of dead money that has hit some other squads.

Can They Survive the Cap

In terms of success this is really a two year window for Dallas. They will cruise to a division title in 2013 because the NFC East is so bad. At this point it’s about gearing up for the playoffs. It is why if they are really considering a trade to upgrade a position it makes sense to do as long as they realize it is a one year commitment and they will move on next year. This is the best chance Dallas will have and you have to do everything you can to make it happen. If Dallas believes Maurice Jones-Drew can help them win its worth the $2.2 million carryover loss they would have.

2015 is really the year for the massive shakeup which Dallas will probably piece together over a few years rather than just one massive dump in a single season.  By then many of the playmakers they have will probably be too old to make the same type of contributions that they are making now. But Dallas should be able to navigate 2014 without too much issue contractually. The problem is if everyone gets older a year earlier than expected. That is what is happening in New York in 2013 as they hung on one year too long with an overpriced veteran group. If 2014 ends up being a poor season on the field it will be a bleak outlook for the future because the team is still going to be stuck in neutral when it comes to making big additions over the next two seasons due to cap constraints. For better or worse they have to win with this group.

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Brian Cushing Contract Breakdown

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Two days ago it was announced that LB Brian Cushing had signed a $56.6 million dollar contract with the Houston Texans, now we have the financial details of the deal.

Per a league source, Cushing received a $9 million dollar signing bonus and will receive a $6 million dollar option bonus in 2014. Cushing will earn base salaries of $1,143,000 (2013), $2,000,000(2014), $4,000,000 (2015), $6,000,000 (2016), $5,500,000 (2017), $7,250,000 (2018), and $8,250,000 (2019). In addition each season contains $1.25 million in roster bonuses. As previously reported the contract contains $21 million in guarantees.

In terms of new money Cushing will earn $53.5 million over the 6 year period. He will earn $16.25 million in new money in the first extension year which is $750,000 more than Sean Lee earns with the Dallas Cowboys. From there Cushing’s money vaults far above Lee’s, which is to be expected as this is a much larger contract.  The final year of the deal contains no prorated money so the real meat of the contract is 5 years for $44 million.

The Texans’ use of two prorated bonuses early in the life of the contract allows for manageable cap figures in the early stages of the contract. Cushing’s in which he will count for just $4.443 million in 2013 and $6.25 million in 2014. This was important for Houston who has been in a cap crunch most of the summer. The first truly burdensome year will occur in 2016 when his cap leaps to $10.25 million, an excessive number for an interior linebacker. At that point his contract will contain $7.2 million in dead money making it a difficult pill to swallow if the team was to need to cut him for cap reasons. So he has a strong chance to earn more than the guarantee in his contract due to the contractual structure, typically a strong win for the player. That said I don’t know if the roster bonuses are of the per game variety and if they are that is likely the giveback Cushing’s side had to make in order to get the strong overall cash and cap structure.

View Brian Cushing’s Contract and Salary Cap Page

View Brian Cushing’s Financial Report

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A Thorough Look at Sean Lee’s Contract

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With the details out on Sean Lee’s new contract (hat tip to Todd Archer) we can begin to examine the contract and the way in which this works out to be a good deal for Lee while also being a reasonable one for the Dallas Cowboys.

The first thing to note is while the contract is a 6 year extension we can throw that 6th year out when comparing the contract to some of the other deals on the market. The 6th year is nothing but a placeholder for potential restructures or extensions down the line. It doesn’t contain a funny number designed to artificially inflate or deflate the value of a contract. Lee will actually earn $7 million in the final year of his deal, exactly the amount of the annual value of the contract. For the most part we can just look at it like a void year and consider this a 5 year, $35 million dollar deal.

Cash Flows

Perhaps the most important aspect to a player of a contract should be the cash flows of the deal followed by the likelihood of earning that money. Lee’s APY of $7 million ties with Miami’s Dannell Ellerbe and is less than that of the Jaguars’ Paul Posluzny ($7.5 million) and Browns’ D’Qwell Jackson ($7.7 million). However, when we look at the cash flows of the contract Lee’s deal compares very favorably in the initial stages, despite being a smaller contract than Posluzny’s and Jackson’s.

ilbcashflow

It will not be until the third season of the contract extension where Lee’s cash begins to decline below that of his peers. That is a strong deal for Lee especially when we begin to consider expected cash flows of the contract.

Expected Cash Flows

While we often get wrapped around numbers like total contract value, annual value, and even guaranteed money very rarely do we take into account the expected value of a contract. I often call this “virtually guaranteed” money.  It is a topic I often talk about on the site and shows the importance of dead money in a contract.

Cutting a player that received a large signing bonus can become prohibitive to a team’s salary cap. If there is little cap money to be saved by releasing a player is there a point to releasing him?  The answer is probably not. If he is still productive you have to not only factor in the dead money adjusted savings but also the cost of replacing the player with an equivalent talent. For example if you are going to save $3 million on an unproductive player and feel he can be replaced by a UDFA making $500,000 you will likely cut the player. However if the cost of replacement is going to be $2.5 million or $3 million is it worth cutting a player, even if his play level no longer justifies the overall contract price?  Not really.

Odds are if a player brings you small savings in cap dollars it means they are earning little cash in the current year and were already “prepaid” in the form of a bonus some time earlier in the contract. While the salary is not guaranteed the dead money caused by signing bonus acceleration acts as a powerful deterrent to cutting a player.

ilb cap savings

When we look at the above grouping there are distinct differences in the savings a team would realize by parting ways with a player. Remember how we said that it will be year 3 of the extension where Lee finally begins to fall behind the others at the position. Well Lee is virtually guaranteed to see the 3rd year of his contract because there is almost no benefit to cutting him that season, unless his play falls off a cliff.

Ellerbe is going to have to perform at an extremely high level over the first two years of his contract to see that 3rd year. It is almost a certainty that he will see his contract reduced or be cut outright. Jackson could have difficulty seeing 2014 if his play level does not remain at a high level. Posluszny did make it to year 3.

Escalated Values

Lee’s contract is further improved by the inclusion of high end playtime escalators worth $1.5 million a year beginning in 2015. Each escalator earned increases the contract’s true annual value of the contract by $300,000. Because he already has such high cash flows early on, earning an escalator in 2015 or 2016 puts his cash flows over 3 years on par with Posluszy and only $500,000 less than Posluszny over 4 years. Considering Lee’s APY will be $7.3 million compared to Posluszny’s $7.5 million this is a major win for Lee even if he is the “lower price point” player. If two of those escalators are earned his true APY is $7.6 million he will earn more than the higher priced Jackson over 4 years.

Because the playtime required to earn the escalators is so high it validates the presence of Lee on the team and should eliminate any concerns of being cut despite the higher savings that could be realized by cutting him. Though Lee’s escalator is guaranteed if earned in 2015, the remainder are not. If he earns his 2016 escalator his cap savings will jump to $2.5 million, the same as Posluszny’s in the same year. That is reasonable and again 80% playtime means a high cost of replacement player.

Wins for the Cowboys

Well I just spent a lot of time explaining why this is a great deal for Lee and how it actually pays him much more than many expect based on the reported annual value of the contract, so how is it still team friendly?  For that we have to look at the cap charges of the contract.

The only year where Lee stands to be a potential cap burden is in the first year of the contract for the Cowboys. His cap charge in 2014 is $7.5 million and if we factor in the $2 million in lost rollover that is allocated to 2013 we can really consider his net cap charge to be $9.5 million. The following two seasons his cap charge will only be $4.5 and $5 million respectively. Of course we are assuming that Dallas does not go down the usual route of contract restructures, which ends any win that Dallas would have.

Based on the base values of the deal, the market allocation for Lee vs the others for cap dollars over three active years and three active plus a fourth “dead money” year is as follows:

Ellerbe

Lee

Jackson

Posluszny

3 Year

$19,700,000

$19,000,000

$20,700,000

$18,500,000

3 Year + Dead

$22,500,000

$21,000,000

$23,500,000

$22,500,000

All things considered I think those are solid numbers for Lee who is a better player than Ellerbe. If you begin to add escalators to the contract Lee moves on par with the higher priced players but considering Lee’s performance I think that is very acceptable.

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Thoughts on Sean Lee’s $42 Million Dollar Extension

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Per his agent Mike McCartney, Sean Lee has signed a six year extension with the Dallas Cowboys. According to multiple sources the contract is worth anywhere from $42 to $51 million dollars depending on playing time.  That would put Lee, at the low end, at the same value as the Dolphins’ Dannell Ellerbe. If he hits his playtime escalators, reported by Albert Breer to be at 80% defensive playtime, his value jumps to just below that of the 49ers’ NaVorro Bowman.

Andrew Brandt has tweeted out the initial cash flows of the contract which are very strong for Lee. Lee will earn $10 million in new money in 2013 and what seems to be another $5.5 million in 2014. That money will be guaranteed, along with his $630,000 salary already on the books for this season. Both are important numbers for Lee. If fully guaranteed, which they likely are, the contract contains more guaranteed money than all of the second tier inside linebackers, which capped out at $14 million for Ellerbe and D’Qwell Jackson of the Browns.

Because the contract extension technically does not start until 2014, the one year takehome for Lee would be considered to be $15.5 million which is a strong contract in a time when teams are often pulling back. The two year payout would be $18.02 million if no escalators are reached. Jackson earned $16.8 million over two years and Ellerbe $14.05 million.

Lee should receive a $10 million dollar signing bonus which would make his cap charge in 2013 rise by only $2 million. His new salary cap figure should be (though this is not confirmed) $2.93 million in 2013. Dallas had about $8 million in cap room prior to the extension so a $2 million dollar raise should not impact the Cowboys decision making in 2013 in regards to the cap.

If given that signing bonus, Lee’s cap charge in 2014 will most likely be $7.5 million. Dallas rarely includes option bonuses so the reported second year cash flow should be in the form of P5 salary. Like most Cowboys contract extensions I never read into the second year cap total. As is standard for the Cowboys there are many additional years at the end of the contract which are placeholders for eventual restructures of the contract to make them more salary cap friendly. It is probably reasonable to view Lee’s cap charge to be $3.684 million after reducing his salary to the league minimum and prorating the remainder.

Such cap charges are significantly better than the alternative of applying the franchise tag on Lee. With a low third year salary Dallas should not have to worry about salary cap charges for some time with him, making it a very good signing for a team that has a reputation of doing a poor job with the financials for their team. The fact that the escalators are legit at 80% just further strengthens the need for performance from Lee. If Lee’s play was to drop off significantly this season Dallas does have outs in the contract to escape by 2015, not often the case in their contracts.

When full details come in I’ll do a better comparison with some of the other relevant contracts, but for now it looks like a solid contract for both sides.

EDIT: Per Todd Archer of ESPN the breakdown of the contract is exactly what described above. He has a full breakdown of the contract on ESPN. 

Based on that information I have updated Lee’s contract page.

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