How Do Teams Prefer To Structure Guarantees? Introducing The Proration Ratio

One of the most important features of an NFL contract is the amount of guaranteed money a player will receive.  There are two primary methods teams will award guaranteed money to players.  One is via the signing bonus, the salary cap chargers of which are prorated over the length of the contract to a maximum of five years.  The other method is via guaranteeing Paragraph 5 base salaries, a payment that does not require proration for cap purposes. As we get closer to the start of free agency, as well as possible extensions agreed upon before then, I thought it would be instructive to put together a fairly simple table illustrating the balance that each team uses between signing bonuses and P5 guarantees.  This balance is what I’ll term the proration ratio of guaranteed money.

You can view the table at this following link, and I have also added a link to it in the Featured Content section on the sidebar.

The total amount of guarantees paid out are listed, along with a breakdown between signing bonuses and salary guarantees.  The later two dollar figures are then divided against each other, with the proration ratio resulting as the quotient.  The table includes data on all contracts agreed upon by the 32 active general managers in the NFL.  Since the Dolphins, Titans, Lions, and Browns all have new general managers this year, we have yet to know how they will prefer to structure the guaranteed money they pay out.

Teams with a high proration ratio prefer to primarily contain their guarantees in signing bonuses.  This gives the short term advantage of lower cap numbers in the year of signing, but leaves the team liable for higher cap numbers and potential dead money in the future.  For example, the Ravens (with the second highest proration ratio) currently have Joe Flacco with the very high salary cap number of $28.55 million for 2016, and it surpasses $30 million in 2017.

Teams with a low proration ratio tend to prefer a “pay as you go” approach by primarily containing guarantees in P5 base salaries on a year to year basis, thus limiting delayed cap charges and potential dead money down the road.  For another example, this is the path that the Jets (with the lowest proration ratio) predominantly took in the 2015 offseason, with one of the strongest usages coming on the contract of Antonio Cromartie.  As we know by now, Cromartie’s contract was recently terminated, with the notable feature of the transaction resulting in no dead money against the Jets for 2016.

Currently, the average proration ratio in the league is just below 2.  This suggests that about two-thirds of the guaranteed money being handed out by the NFL’s current GMs comes in the form of signing bonuses, with the other third coming from P5 guarantees.  However, it should also be noted that the median proration ratio is closer to about 1.6, as the teams with the highest proration ratios are relying on signing bonuses quite heavily.