Trading Dead Money: Eagles Reaping Benefits of Flexible Guarantee Structure

During the first week of free agency, the Eagles were able to trade three players – DeMarco Murray, Byron Maxwell and Mark Sanchez – whose contracts were structured in such as a way that the salary cap treatment in the case of a trade would be significantly different than in the case of a release. As a result of this contract structuring strategy, the Eagles were able to trade potential dead money to the respective trade partners.

Fully guaranteed contract amounts usually take the form of either a signing bonus or base salary. Amounts treated as a signing bonus are prorated over the length of the contract (up to five years) in equal amounts for salary cap purposes. If the player is released or traded prior to the conclusion of the contract, the prorated signing bonus amounts that have not yet counted against the team’s salary cap accelerate as dead money. In certain circumstances the team can defer some of this accelerated dead money into the following year, but it is not possible for the team to trade these amounts to a different team.[1]

Fully guaranteed base salary counts against the salary cap entirely in the year of payment. If the player is released prior to receiving the guaranteed amount, such amount will remain or accelerate as dead money. However, the guaranteed base salary only becomes the salary cap responsibility of the team that actually pays it (i.e. the team employing the player during the regular season). This means that if one team trades a player with guaranteed base salary to a new team, the new team will be responsible for the guaranteed amount. As a result, the original team can avoid the dead money acceleration associated with releasing the player if the team trades the player before the regular season. The same is true of a roster bonus, although the relevant payment date will likely be in March, rather than throughout the regular season.

As a result of this differing salary cap treatment, a team is able to trade the potential dead money associated with guaranteed base salary, but a team is not able to trade the potential dead money associated with a signing bonus.

The Eagles entered the offseason seemingly with the desire to move on from DeMarco Murray and Byron Maxwell. However, releasing either player was not feasible from a salary cap perspective. Releasing Murray would result in $13 million worth of dead money as compared to an $8 million cap number, and releasing Maxwell would result in $16.3 million worth of dead money as compared to a $9.7 million cap number.

Fortunately for the Eagles – and when I “fortunately” I do not intend to imply that this was accidental – these contracts were structured such that only a small portion of the guaranteed money came in the form of a signing bonus ($5 million out of $18 million for Murray and $6 million out of $25 million for Maxwell). As a result, the Eagles were able to trade away $9 million of the $13 million worth of potential dead money associated with Murray and 11.5 million of the $16.3 million worth of potential dead money associated with Maxwell. The Eagles were also able to trade away $1 million out of $2 million worth of potential dead money associated with Mark Sanchez. The Titans, Dolphins and Broncos, respectively, are now instead responsible for this potential dead money (unless any of these players are traded again prior to the season).

If the Eagles had given the entirely of the guarantee to either player in the form of a signing bonus, these trades would not have been feasible due to the exorbitant dead money acceleration ($14.4 million for Murray and $20 million for Maxwell if we assume such a signing bonus would be equal to the guarantees they received in their actual contracts), and releasing them would have still not been feasible for the same reason.  The way in which the contract was designed in 2015 facilitated its trade in 2016.  It is for this reason that the specific character and timing of guarantees often matter more than the quantity.

This added optionality dictates that providing for guarantees in the form of base salary instead of in the form of a signing bonus is preferable from the team perspective.  One reason for a team to provide a guarantee structure heavy on signing bonus is because the team lacks salary cap space in the current season and must therefore keep the base salary in the first season low, thereby making it difficult to reach the agreed-upon amount of full guarantees using mostly base salary. However, the team would be better off fully guaranteeing portions of the base salaries of the third or fourth contract season instead of increasing the portion of full guarantees consisting of signing bonus. The total amount of full guarantees will be the same, and the potential dead money in the third and/or fourth contract season will be the same. The only difference will be that the team will have the option to trade the dead money to another team. Doing so may involve attaching a draft pick, but at least the team will be in a position to determine the best course of action. The team will sometimes be in a better position but will never be in a worse position.

There may be some pushback to reducing signing bonuses from the player’s perspective. The player would obviously prefer to receive money at the time of signing instead of months or years in the future, even if such future payments are fully guaranteed. But this may be of less practical significance as more and more signing bonuses are paid in installments. More importantly, signing bonuses provide “dead money protection” in later contract years that reduce the probability of the team releasing the player. This consideration is incorporated into Expected Contract Value, and it serves as a buffer allowing the player to suffer some amount of performance decline before the scales tip in favor of releasing him from a salary cap perspective. The degree to which players do – or should – prefer signing bonus to guaranteed base salary has not yet been quantified.

[1] Option bonuses are treated the same way for salary cap purposes, with the only difference being that such amounts come in a contract season subsequent to the first contract season. This means that if the player is traded prior to the option bonus payment date, the original team is not responsible for the salary cap affects of the bonus.

Bryce Johnston earned his Juris Doctor from Georgetown University Law Center in May 2014, and currently works as a corporate M&A associate in the New York City office of an AmLaw 50 law firm.  Before becoming a contributor to, Bryce operated for 10 NFL offseasons, appearing multiple times on 610 WIP Sports Radio in Philadelphia as an NFL salary cap expert. Bryce can be contacted via e-mail or via Twitter @NFLCapAnalytics.