Explaining Some of the Different Salary Cap Rules for 2020

As of right now the 2020 NFL offseason and regular season will be a bit different due to the fact that the CBA is expiring. If you follow me on Twitter you have probably seen a few comments here and there about the different rules but I thought it would make some sense to talk about some of them here.

1. There is no June 1 Cut

The question I’ve gotten the most in the last few weeks has been “Hey Jason where did the June 1 option go on the cap and calculator pages” and the answer is quite simple. As of now it doesn’t exist so rather than have people be confused about ways they can manipulate the cap we simply removed it from most of the pages on OTC. For those unfamiliar with the June 1, it was a date in the NFL calendar that was used to defer acceleration (dead money from future years) due to signing bonus prorations to the following league year. So when you cut a player all the cap dollars have to be taken in 2020. While this sounds bad to most fans its not that big of a deal. Only a handful of teams in recent years have had such a bad cap/contract situation where they have needed to use the June 1 so most times deferring money to the following year is just due to circumstance not need. If you wanted to put a number on this the average team should plan on keeping an additional $3-$3.5 million to account for cuts that normally would be treated as a June 1.

2. Teams have Both a Franchise and Transition Tag at their Disposal

In a normal year a team can designate just one player either a Franchise or a Transition player. In 2020 they can designate both. So for a team like the Cowboys with a set of major free agents this is a very useful tool as it gives them the ability to, at the very, least match any offer received for two players. In a normal year a team like Dallas would franchise Dak Prescott which would leave Amari Cooper and Byron Jones free to find employment. Now only one of those two will be 100% free. It’s important to note, though, that you can’t use two Franchise tags or two Transition tags, it’s a one and one situation.

3 Expect some Funky Sounding Contracts due to the 30% rule

To prevent teams from dumping huge amounts of cap into what may one day be uncapped seasons the league has a rule in place that does not allow raises of more than 30% of a player’s cap charge minus the signing bonus proration in 2020. So if a player has a cap charge of $6M in 2020 and $3M of that comes from a signing bonus it means he is only allowed a $900,000 raise in any season beyond 2020. Basically the rule is in place to prevent teams from using a signing bonus and from backloading contracts.

There are creative ways around this by using escalators, incentives, option bonuses, and other mechanisms so it just requires more time for team and agents (or self represented players) to finalize a deal. But we have already seen this going on in 2018 and 2019 and it led to a whole bunch of confusion in particular when Carson Wentz, who signed a deal in excess of $30M a year, had a contract that averaged millions less on paper to comply with the 30% rule but had a million and one ways to unlock the full contract value through escalators and incentives that had a 99.99999999999% chance of being earned.

Because so many don’t know about some of these rules and there is such a rush to report on a contract I can already envision all kinds of mis-information about option years, completion bonuses,  guaranteed salary, and annual contract values. Don’t get me wrong there is a lot of fluff in contracts that gets leaked out to make contracts sound better than they are but this year it’s a different story. If you are old enough to remember the old rookie contract system these contracts will all need to be written like those were. The difference is that back then people knew that Sam Bradford’s $20M contract (or whatever that number was) was really a $78M one. This is the same concept it’s just that people don’t know as much about it.

3A. These 30% Rules also Impact Renegotiations

What that means is that teams who usually convert millions of dollars to a signing bonus in February to create salary cap space in March won’t be allowed to do it that same way because they have to be 30% rule compliant and remember signing bonus prorations won’t count in the equation. This is why there was a flurry of renegotiated contracts in the last week of the 2019 season primarily by the smarter salary cap strapped teams (Falcons, Eagles, Lions, etc…) as it was easier to accomplish last year by some liberal use of what is and is not considered a likely to be earned salary escalator or de-escalator and putting in option bonuses that can be exercised and prorated in 2019.

Admittedly I’m not as up on how these incentives can be used now that the season is done but we are technically still in the 2019 league year so there may be some ways teams can use the same methods now (Im sure they cant use options to create cap space because they cant increase a cap charge for 19) but the few teams that did it at the end of the year were the smart ones.

4. Teams have to account for all incentives in 2020

Normally when it comes to incentives the way it works is if the incentive was reached the year before it counts on the cap and if it wasn’t then it doesn’t count. At the end of the year the league then determines who did and did not actually earn those incentives and adjusts the cap the following year. For 2020 all of this happens in real time so teams will need to carry the cap space to account for all possibilities.

As an example, since it was well publicized, Richard Sherman earned $4 million in incentives in 2019 from the 49ers. The 49ers were not charged for that on the salary cap because Sherman did not meet the criteria in 2018. Instead they will have their 2020 salary cap knocked down by $4 million. If that same situation occurred in 2020, the 49ers would be required to have $4 million in cap space to cover the incentive.

It will also work the other way too. This year Sherman should carry a $4 million LTBE incentive on his cap figure because of what he did last season. If he does not hit those same incentives the 49ers would then receive $4 million in cap room once it becomes apparent that he will not earn the incentive.

The latter situation really doesn’t help a team too much since it would be near the end of the season when these go unearned, but teams with a great deal of incentives in their contracts will likely need to prepare for the first scenario to avoid in-season problems. Preparing most likely means hoarding a few million extra in cap room.

5. Void Years May be a Problem

We all know that teams use void years in contracts to dump salary cap dollars for the future. It’s a big discussion point right now because of the pending free agency and huge void year prorations for Tom Brady and Drew Brees. Teams often use multiple void years to make cap hits work. That will be fine this year as well except for 1 year contracts.  This is a problem because the void occurs in what is technically still the 2020 league year (the 2020 league year runs until the first day of free agency in 2021). This is never an issue for teams because that void date is post June 1 of the prior year so the money follows the calendar year for all practical purposes.

Since there is no June 1 all the money from those voids should accelerate into 2020 when the void occurs. That means teams will need to carry the cap room to cover those cap charges essentially rendering the void useless. As an example Drew Brees has a 2021 void year charge of $5.4 million. Assume the Saints bring him back on a new one year contract for 2020. The way they have always done Brees’ recent deals would be to do something with a low salary, huge signing bonus, and two or three void years to dump that money. Assume between the existing void and any new ones that there is $20M in void year cap charges. Well once the deal voids the Saints need $20M in cap to cover it. So my opinion is that teams with Brees type players will actually have to negotiate two year contracts likely using the “Revis structure” from his time with the Patriots where you make the second year salary so high that you will be forced to cut the player thus making it a one year deal but protecting yourself from the void charges since in this case you actually release whenever football resumes. So if you see someone like Brees get a $40M a year deal with a big 2nd year payment relative to the 1st its really a one year deal written in a manner to protect both parties.

6. Expect a Second Salary Cap Adjustment

Usually the NFL salary cap is set around the combine in late February/early March. That number is then firm for the rest of the year. Normally the accountants then go over various items to determine where things may have been off and whatever that number is usually gets baked into the cap the following year. This time around I believe they have to issue the adjustment for this season and it should come in later April or early May. The last time this happened in 2010 every team got an additional $4 million or so in cap space to use. If that happened here it would be a help for teams that may have been relying on that June 1. Of course the adjustment could be negative too but Id think that is much more unlikely.

7. There may be no Cap Carryover for 2021

Technically the CBA ends in 2020 so the concept of carrying over space seems unlikely. The last CBA was somewhat different with regard to carryover rules so its not fair to lean on that for information but it was a “start over” in 2011.  So it’s possible that the NFL would agree to just keep things going as if there was no interruption in 2021 but there is also no guarantee. Rather than chance losing it the smart teams should be putting voids and buyback options into player contracts this year which should be a way to accelerate future prorated money into 2020 and thus use up the cap room. Likewise if you want to cut a player who is underperforming you can do it after the season is over and use up some of that cap room that you have and get the player off the books for 2021.

Questions about this article? Reach Jason Fitzgerald on Twitter at @Jason_OTC