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Mar 08

The Voidable Year and the Salary Cap

One of the more recently used salary cap relief methods has been the (ab)use of voidable contract years.  Under the cap accounting rules of the CBA a signing bonus or an amount treated as a signing bonus is prorated on a straightline basis over the course of a contract up to a maximum of 5 years. When teams look for cap relief they often go to players they feel are contributing talent and restructure their contracts to convert salary into a bonus thus reducing the salary cap hit for the year.

For example lets say a player is set to earn $7 million for playing football in 2013 and that he has 3 years remaining on his contract. To make the numbers work out easier lets just assume his cap charge is also $7 million. To bring the cap charge down to a more reasonable level they will convert $6 million of his salary into a bonus and prorate it over the life of the contract. His new cap hit is only $3 million which stems from $1 million in base salary and $2 million in prorated money.  His cap charges over the next two years will rise by $1 million each year.

But what if a team needs more relief?  In the contract above the team is limited in its proration due to the three year length of the deal. To increase the ability to prorate money the team will offer the player to tack on two voidable years on the end of the contract. That now brings the term of the contract to 5 years. Now our team can go from $2 million a year in prorated money to just $1.2 million. Our team is now able to reduce the players overall cap charge from $7 million to just $2.2 million in 2013.

The problem with this strategy is that we are extending our contract well beyond the useful life of most players and increasing our dead money associated with the player. A voidable year has no chance of being played out. Normally the conditions to void are ridiculous such as being on a teams roster the day after the Super Bowl. No performance is needed to earn the void.

Void years were popular in the days of the old CBA as a way to deal with the rising costs of high priced rookies. They began to find their way into more veteran contracts with the first real monster deal being the Nnamdi Asomugha deal with the Raiders. Under his initial contract Asomugha locked the Raiders into a dead money cost of $12.5 million unless the Raiders were able to come to a contractual agreement on an extension before his contract voided. This deal became the model for the current problem situation the New York Jets find themselves in with Darrelle Revis.

Certain teams have begun to use the voidable year as a detriment to their future cap health, with the Raiders and Dallas Cowboys being the biggest abusers of the technique. Its one thing to use the void years for a younger player like Revis who arguably could be re-signed to a longer term deal but its an entirely different thing to use it with a player like DeMarcus Ware or Richard Seymour and to develop an entire roster devoted to void contracts. Ware will be 31 years old when the 2013 season begins. His contract will void in 2016 when he is 34 years old. There is probably a high probability that Ware’s career will be over at the point. The Cowboys have locked themselves into at least $2 million of dead money due to the void.

Every dollar saved this year is going to now be allocated to future contract years both in terms of cap costs and potential dead money costs.  The cost is just driven up each year by taking the shortsighted approach and using the void contract structure. The salary cap ramifications of prorated money should provide fiscal restraints to most cap managers in the sport. Unfortunately this doesn’t seem to be the case for some teams even as they stare at millions of dollars of dead money on their cap books year after year and no trophy to show for it.