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Jun 18

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?
2013$1,600,000$4,800,000NO
2014$1,600,000$3,200,000NO
2015$1,600,000$1,600,000NO

 

Traditional Roster Bonus Structure

SeasonSalary Cap AllocationPotential Dead MoneyTradable?
2013$4,800,000$4,800,000N/A
2014$0$0N/A
2015$0$0N/A

 

2011 CBA Style Structure

SeasonSalary Cap AllocationPotential Dead MoneyTradable?
2013$3,800,000$3,800,000Partial
2014$1,000,000$1,000,000YES
2015$0$0N/A

 

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

eaglescap@yahoo.com, @eaglessalarycap

 

  • Anders

    Nice read.