Explaining Free Agent and Contract Terms

In the last few days I’ve been getting a number of questions regarding NFL free agency and some of the particulars regarding certain contract mechanisms and free agent status. So I thought this might be a good time to update some explanations about some of the contract terms you see on OTC or hear about when reading up on the NFL. If you have any further questions let me know and I’ll be more than happy to try to explain.

Free Agent Definitions

Unrestricted Free Agents (UFA’s)

UFA’s are players who have at least four years of accrued service in the NFL and whose contracts will expire or void following the 2015 season.  An accrued year is defined as a season in which a player was on a NFL roster, including injured reserve, for at least 6 weeks.  Despite the fact that these players are classified as free agents they are only able to sign a new contract with their current team until March 9, 2016, which is when the new league year officially begins. These players are not allowed to negotiate or communicate with other teams but their agents may begin to negotiate contracts with other teams beginning on March 7, 2016.

UFA’s count towards the awarding of draft picks in the compensatory draft system. Nick has that covered in many places on the site, but the general rule of thumb is that if you lose more UFA’s than you sign, the NFL will award you with a draft pick the following year, in this case the 2017 draft. How high that pick will be depends upon the new salaries of the players lost in free agency.

Every UFA is eligible for the franchise or transition tag, unless it is explicitly stated otherwise in his contract. Teams have between February 16 and March 1, 2016 to apply the tag to a player. A team may apply the tag, whether the franchise or transition tag, to one player.

The application of the non-exclusive tag means the team extends a one year, fully guaranteed contract to player worth a running average of the top 5 or 10 salaries at his position as a percentage of the salary cap over the prior five seasons. If the team applies an exclusive franchise tag the player will be paid the average of the top 5 cap charges in that given year unless the non-exclusive tag is of higher value. The primary difference between the two types of tags is freedom in free agency. A non-exclusive player has the ability, however small, to negotiate with other teams. An exclusive player is not allowed to enter free agency. The tag immediately counts on the salary cap once the tender is made, not when the contract is signed.

Once the non-exclusive or transition tag is applied the team receives the right of first refusal on any contract offer a player signs with another team. In addition, if the franchise tag is used the team will receive two first round draft picks as “trade” compensation if the player signs with another team. Because of that provision the franchise tag essentially bars unrestrictred free agents from free agency the same as the exclusive tag and locks them into negotiating only with their current team. Teams are permitted to trade franchise players for less than two first round picks once the franchise player signs his tender, but they can not simply trade the negotiating rights to another team.

There are usually tiers/waves to unrestricted free agency. The Tier 1 players are the big name players who break the bank within the first few days of free agency if they are not tagged. These players are the biggest name talent such as Von Miller and Muhammad Wilkerson. Such players receive large guarantees that likely run into the third year of a contract and genuinely excite the fanbase as a signal of change. These names appeal to even the most casual of football plans.

The Tier 2 free agent won’t command as much money but often proves to be more of a value.  Some teams will only target this tier of player from day 1 while others may wait the Tier 1’s out and then jump to the second tier which is a backup plan of sorts. Often these Tier 2s are the ones that people like me may say “that’s a pretty good value compared to…” and more diehard fans see strong benefits in the player. Both the free agent and the team sometimes will wait to see if the free agent trends shown by the tier ones changes the salary dynamic, though there is a risk to that strategy as both sides run the risk of losing an opportunity.

Tier 3 free agents are those who may have something to prove. These are players that may wait out the free agency process or need to wait until others are signed to try and locate ideal situations. They might be a veteran coming off an injury or two, such as Russell Okung, or a young player who fell out of favor with a new coaching staff or had something else impact his play. Such players can be very cheap and sign for bargain basement prices with an eye on the future. In many cases they want to find the best situation (long term opportunity, stable staff/front office, etc…) that can provide them with a true audition rather than taking a few extra dollars with a less desirable situation.

Tier 4 free agents are those who may have difficulty finding a home in the spring and may be working through the early summer or training camp months to find a position. They likely need to wait out the draft and then find teams that did not fill holes with drafted players. These are the players that will be competing with the low draft picks and undrafted players for those last few spots on a roster in camp.

Restricted Free Agents (RFA)

RFA’s are players that have at least three years of accrued service in the NFL. Due to changes in the draft process, which now mandates four year contracts, these players are almost exclusively Undrafted Free Agents. In this case the team with which they finished the 2015 season holds the right through March 9 at 4PM to extend a one year tender offer to the player. A tender allows the former team to exhibit a level of control over the player in free agency, similar to the franchise tag. At a minimum every tender allows them to match the offer sheet made by another team. RFAs are allowed to negotiate with other teams, even if a tender is applied, starting at 4PM on March 9. Tenders count on the salary cap as soon as applied, provided they factor into the Top 51, which most do.

The team can place one of three tenders on the player. The highest tender is the 1st round compensation tender, meaning if another team signs the player and the original team decides to not match it the new team will have to give the team a 1st round draft pick in 2015. If the team does not own their first round pick (such as the Patriots) they are unable to sign the restricted free agent. The other tenders are a 2nd round tender, original draft round, and finally right of first refusal tender. The ROFR means you get no compensation if you decide to not match the offer sheet. Teams have five days to match the new offer sheet. During that time period the player will count on both teams’ salary cap.

The tender offer is a non-guaranteed one year contract amount based on the compensation level. Based on salary cap estimates the 2016 tenders should be close to $3.582 million for the 1st round tender, $2.516 million for the 2nd round tender, and $1.647 million for the original round and ROFR tenders. The RFA free agency period is shorter than that of the regular unrestricted free agent, ending in late April. Once the April 24 deadline passes the player can only negotiate with the team that tendered them.

Often once the RFA free agency period is complete teams will use the leverage to reduce the costs of these contracts, specifically for the low tendered players, since they know the players’ options are limited. What they will do is offer the player a minimum salary and a guaranteed bonus somewhere between $100,000 and $300,000. The total compensation is lower but at least there is some job security.

Just because a player is extended a tender does not mean he can’t find a new home. Teams will sometimes work out trades for these players at lower compensation levels. For example the Saints tendered RB Chris Ivory in 2013 at the 2nd round level with the hopes of trading him as he was going to be unaffordable on their salary cap once the roster expanded to 53 players. Before the draft he was traded to the Jets where he signed a three year contract.

If a player is not tendered or the tender is rescinded before a player is signed he immediately becomes an unrestricted free agent that is free to sign with any team in the NFL. These players should not factor in the compensatory draft equations. It is rare that RFAs switch teams but it does occasionally happen.

If a team chooses not to tender a RFA they enter free agency the same as any unrestricted free agent. They do not, however, count towards the compensatory award system.

Exclusive Rights Free Agents (ERFA)

Players with less than two accrued seasons are the exclusive property of their former team provided the team makes a one year tender offer for the minimum salary based on the players experience level. So for a player that was in his first year in 2015 on a $435,000 contract, the team will place a $525,000 tender on the player and own his rights, assuming he earned a credited season (if no credited season was earned the player would receive a $450,000 tender). Most ERFA’s will be tendered at either $525,000 or $600,000 this year but occasionally players have been around long enough to earn in the $700,000’s despite not being on rosters enough weeks to earn regular free agent status.

Unlike RFA’s the ERFA is not allowed to negotiate a contract with another team once the tender is applied. Essentially they are locked in for another season with their original team. If no tender is made or the tender is rescinded then the player becomes an unrestricted free agent. If that occurs they do not factor into the compensatory equation. Tenders count on the salary cap as soon as applied, provided they count in the Top 51, which they usually do not.

Street/Other Free Agents (SFA)

SFA’s are players who had contracts that extended into at least 2016 with a NFL team but were released from the contract. Players who were released or not on an active roster prior to the playoffs were free to sign futures contracts for the 2016 League Year in January. Now that the Super Bowl is complete, teams can begin to release players under contract for 2016. Unlike unrestricted free agents who are not allowed to sign until March 9, these players are free to sign with any team in the NFL once released from their contract.

Usually players released from their contract during this period are those who don’t factor at all into the future plans of a team and the team sees fit to let them have an early chance at free agency, Players like Michael Griffin, Nate Allen, and Riley Cooper all recently cut fit into this category. These players do not factor into any compensatory equations and would be the type of free agent that draft conscious teams like the Ravens and Packers would target once available.

Contract Terms

Recently I have also gotten numerous questions on certain phrases that occur during this time of year and I’ll do my best to explain those as well.

Vesting Guarantees

Agents love to pump up the numbers for a player by getting a team to agree to massive guarantees in a contract that they then report in the media. The majority of these guarantees are not real guarantees. Usually they just cover injury which means teams are free 99% of the time to release the player as if the guarantee did not exist. As the start of the new League Year draws closer these injury guarantees vest on a certain date and become fully guaranteed if the player is still on the roster.

In some cases the vesting aspect is simply in place to allow the NFL team to bypass an archaic rule about setting aside money when a contract is signed to cover salary that is guaranteed for skill termination. You can generally see this when looking at the construction of the contract and realizing that the large salary cap penalties or up front money paid in the first year of a contract are going to block the release of the player. In most cases though it’s simply the team throwing a bone to the agent who should realize that the guarantee is worth very little. Its usually nothing more than a catastrophic insurance policy for injury.

There are generally three periods of dates you will hear regarding these guarantees. One is “xth day of the waiver period”. That’s simply a fancy way of saying days after the Super Bowl. So a player whose guarantee kicks in on the 5th day of the waiver period, it means 5 days after the Super Bowl at 4PM EST.  Usually only the biggest name players or those who feel they signed at a discount receive this type of vesting date as its very player friendly.

The most common vesting date is “xth day of the League Year”, which means the day of free agency. A 3rd day of the LY is the 3rd day of free agency. The most common dates are the 3rd and 5th day. This gives teams ample time to try to restructure a contract or release a player after getting to take part in or see free agency unfold. This can give a team a much better understanding of the market as it exists in a given season.

The last date we usually see (though they can be later) is April 1, which is used almost exclusively by the 49ers in all their contracts. In this case all of free agency has basically been completed and teams resources are used up. These players are at a big disadvantage if in late March the 49ers were to approach the player about the possibility of being released if he refuses to renegotiate his contract.

Dead Money/Cap Savings

When a player is released from his contract and that player earned either a prorated bonus such as a signing bonus or has fully guaranteed future salary they will still carry a charge on their salary cap for that player even if cut. We refer to this charge as “dead money” because its money spent on players no longer on the team.  In general the way you calculate dead money is to look at how much prorated money exists in 2016 and beyond and add it all together. If the player also has salary guarantees add that amount on top of the bonus money. This is the cap charge if cut.

The cap savings a team realizes is the players current cap charge minus the dead money. That is the true impact on a teams salary cap. In general teams will look at two financial items when releasing a player. One is the cap savings and the other is the cash savings. The cash saved is all the contract money in a given year besides the prorated bonus. If the amount of money saved can be used to sign a player who will make a better contribution to the team then the player will be released. If neither opens up enough space in either the cap or cash budget then the player has a good chance to stay on the team even if it seems surprising based on the play the prior year.

Players cut before June 1 will have all the money count on the 2016 salary cap. Players cut after June 1 will only have this year’s prorated money and all guarantees count on the 2016 cap. All future prorated money counts in 2017 in that situation. Teams are allowed two June 1 designations each year to terminate the contract before June but have it count as if the player was cut in June. When using a June 1 designation the team will carry the full cap charge for the player, as if he is on the roster, until June 1. On June 2nd only the current years prorated money and guarantees will become dead money. A team can not designate a player a June 1 cut until te new league year which starts at 4PM on March 9.

As an example if Brandon Browner is cut on March 10 the Saints would take on a $5.35 milion dead money charge in 2016 and immediately save $950,000 against the cap. Browner would not count on the Saints 2017 cap. If designated a June 1 cut the Saints will realize no cap savings between March 10 and June 1. On June 2nd, however, Browner’s 2016 cap number will fall to $4.05 million, a savings of $2.25 million on the cap. His 2017 number will then be $1.3 million. Browner would be free to sign with another team as soon as the June 1  designation was made and would not have to wait until June to find a new home.

One small note on guarantees. Guarantees all accelerate into the current league year which is still technically the 2015 LY. If a team does not have the cap room remaiing in 2015 or already notified the NFL that they are carrying over all their 2015 cap space to 2016 then players like Browner or Johnny Manziel can not be released until March 10. Their release would violate the salary cap becuase the teams would not have the 2015 cap room to execute the move and they would be returned to the team.  So if you wonder why those players or a Dwayne Bowe are still on a roster this is why.

If you want to see how much teams can save for every possible player transaction check out or transaction table that details every player in the NFL with a cap charge over $4 million. 

Restructured Contracts

A restructured contract is one where a player simply agrees to convert salary that counts in full in a given year to a signing bonus that can be prorated up to 5 years. This is not a pay cut. If anything this guarantees payment to a player on more favorable terms than his original contract and protects his future earnings more as well. When a player says he “will restructure for the good of the team” that’s just a PR move whether the player understands it or not. Restructuring is simply an acounting trick that generally puts more leverage to the player than the team.

This is different than a renegotiated contract in which the terms for the current year are often changed for the worse for the player. Thi is when  players take pay cuts. Sometimes its a pure pay cut while other times it may add more years and guarantees but generally reduces the teams financial commitement both in cash and salary cap for the current season.

Voidable Contracts

Teams sometimes use void years in a contract for the purpose of salary cap relief. Generally a team want’s to sign a player for a two or three year period but does not have the cap space to execute the contract. Because the NFL allows you to prorate up to five years, teams add “dummy” years to a contract so they can prorate the bonus over a long term. You don’t have to do anything to earn the void. All you have to do is still be on the roster, generally 5 days after the Super Bowl, to have the remaining years of the contract terminate.

Once the contract voids any future prorated money from those dummy years accelerates onto the 2016 salary cap. The player becomes a UFA and just like any other player will have to wait until March 9 to sign with a new team. Usually if a contract voids the player does not sign a new contract with his old team (a team would not allow that future money to accelerate if they really wanted to keep him) but every now and then they do. This was the case with Doug Free and the Cowboys.

As an example of how the void works the 49ers signed wide receiver Anquan Boldin two years ago to a two year, $12 million contract that included a $4.5 million signing bonus. Had this been a normal two year contract Boldin’s 2014 and 2015 cap charge would have been $3.7 and $8.3 million respectively.  That was too high for the 49ers so they include three dummy years to prorate that bonus money over 5 rather than 2 years. The new cap hits were a more affordable $2.4 and $6.9 million.

If not extended before February 12 at 4PM, those dummy years from Boldin’s contract will all vanish and the 49ers will take a $2.72 million cap charge in 2016 for Boldin. Boldin will then be a UFA. The 49ers basically deferred cap charges to the 2016 league year in this contract and they likely knew the day they signed it that there was a very high probability of carrying the $2.7 million in dead money for Boldin.

If you want some great information on vesting dates and void dates around the NFL check out Joel Corry’s piece for CBS Sports.

A Bit About OTC

We maintain a very accurate database of free agents at OTC that is often used (and copied) by other sites. I dont think you will find a better resource than the one here though. We list every UFA, RFA, and ERFA that we know of (some mistakes in status are bound to happen so please let me know if you see an error) and once loaded you can use the menu above the table to quickly change the view without having to reload pages or anything like that. So you have the option to select all unrestricted free agents in the NFL and then drill that down into position or by team by simply clicking a menu button.

We are the only site that I know of that breaks the offensive line down into all 5 positions and defensive tackles down into what defense they play. Players are listed in order of their prior contract annual value, but you can click on a table header to change that. I firmly believe that this is the best free agent resource you can find.

If you want to learn more about the draft process and compensatory picks check out Nick’s draft page he developed that includes his process for identifying all the compensatory selections in the draft. This compensatory forecast is unique to OTC so when you see it showing up elsewhere just know it came from here. We have estimates for each team’s rookie salary cap pool there as well.

We’ll work hard to continue to break things down as free agency approaches but remember the cap is very fluid and things change all the time.

I do often get questions about differences in numbers between OTC and Spotrac. Some of those differences are from different estimations of cap limits in a given year or a math mistake or two, but please note that the two sites are generally not a cross check of one another. While Spotrac has some good tools to use and different ways to present the data, in general they do not source any contract information independently. The data is often taken direct from OTC and discrepancies are mainly OTC updating something that they have not yet taken from the site. That is primary reason for differences. So while Ill try to explain the differences when asked that is the answer 95% of the time.

Feel free to contact us for anything you want to see in the future or other questions you have.