Introducing Commitment Index
Part 4: Realizable Cap Room and Relevance Adjusted Cap Number
As I have explored this week, a team may – consciously and for legitimate reasons – “mortgage its future” by committing more future cap space relative to the other teams in the league, thereby making it more susceptible to the negative consequences of both predictable and random instances of production decline and injury. Such commitments can come in two possible forms: future allocations of signing bonus proration and fully guaranteed future base salary.
But as I have written about in the past, guaranteed base salary is “tradable” future cap commitment, whereas future signing bonus proration is non-tradable future salary cap commitment. At the moment that a player receives a signing bonus, and the amount of the bonus is accordingly prorated over the length of the contract (up to a maximum of five years), the entire amount of the bonus is thereafter “stuck” on the salary cap of the team that paid the bonus.
And not only is the total amount to be “stuck” over the life of the contract immediately determined, but the minimum amount to be “stuck” in each individual season of the contract is also set in stone. If a player receives a $10 million signing bonus in connection with a five-year contract, the signing bonus proration allocated to the second year of the contract will be $2 million. The proration amount could be more (if the player is released or traded prior to June 1st), but in no circumstance will the amount be less than $2 million. The amount cannot be traded or renegotiated in any way. It becomes a sunk cost on the salary cap of the team, regardless of what happens with the player.
The first implication of this is that neither the amount of cap room that a team currently “possesses,” nor the team’s adjusted salary cap limit, is ever the most relevant indication of the team’s ability to spend. Rather, the relevant number is the difference between the team’s adjusted salary cap limit and the aggregate of all signing bonus proration scheduled to apply to the team’s salary cap in the given league year, as this represents the total amount of cap room that is not “stuck” as a sunk cost. I will refer to this delta as “Realizable Cap Room.” So to the extent that members of the media report cap space numbers for the purpose of giving fans an idea as to the ability of each team to spend on players, then Realizable Cap Room would more effectively convey the message than nominal cap space.
 This accounts for the fact that, in theory, each player on the team’s roster could be released after June 1st, however unlikely that may be in practice.
The second implication of this is that, in the case of any player who has signing bonus proration connected with his contract that has not yet counted against the salary cap, the player’s actual salary cap number is irrelevant, as part of such number will consist of a sunk cost. For example, if a player has an $8 million cap number, but $2 million of that number consists of signing bonus proration, then the $8 million cap number is irrelevant. The $2 million proration will count against the cap regardless of what happens to the player. The only meaningful number is the $6 million delta between the cap number and the sunk cost, as this represents the amount of cap room that the team is presented with an opportunity to make a decision regarding. The team can allocate that $6 million toward the player, or it can engage in transactions that would result in allocating that $6 million in a different way. It cannot, however, make any decision that would alter the fact that the $2 million proration will count against its salary cap in the given league year. I will refer to the $6 million number as a player’s “Relevance Adjusted Cap Number.”
Leading up to, and during, the NFL free agency period, analysts often state, “Team X can save Y amount of cap room by releasing (or trading) Player Z.” The problem with this statement is that it is framed from the perspective of the traditional notions of cap room and cap numbers. The analyst makes the statement as if the current cap number had been previously thought entirely committed, and has suddenly been made subject to recapture. However, as I explained above, only the sunk cost portion of the player’s cap number was every truly committed, and the remaining Relevance Adjusted Cap Number was always part of the team’s Realizable Cap Room.
A more accurate version of the statement would be as follows: “Team X will lose Y amount of Realizable Cap Room if they choose not to release Player Z, because Player Z’s Relevance Adjusted Cap Number is Y.” The statement properly reframes inaction – choosing not to release a player – as an affirmative decision on the part of the team with respect to its allocation of salary cap dollars.
Furthermore, the statement allows us to avoid the cumbersome verbal gymnastics of explaining, “Team X has Y amount of cap room, but it can free up Z amount of cap room by releasing players A, B, and C.” Stating the situation in terms of Realizable Cap Room and Relevance Adjusted Cap Numbers incorporates all potential moves that could be made, and it avoids incorporating the analyst’s subjective opinion regarding which players deserve to be released, an opinion which is irrelevant to the extent it does not align with the opinion of the team’s decision makers.
Realizable Cap Room and Relevance Adjusted Cap Number are not directly related to Commitment Index, but I wanted to include the concept in this series because it relates to the topic of commitment. Commitment Index deals with how committed each team is to its current roster, Realizable Cap Room deals with how much cap space each team has truly committed in the given league year, and Relevance Adjusted Cap Number deals with how much cap space has truly been committed to each individual player in the given league year. It is my hope that the concepts and terminology discussed this week can help lead to more descriptively accurate and objectively meaningful analysis of potential and actual transactions.
On Monday, I will post Part 5 in a Frequently Asked Questions format. I have already typed up answers to a number of potentially asked questions that I asked myself, but I would be happy to respond to any actual questions or critiques that anyone may have.
Bryce Johnston is the creator of Commitment Index and the co-creator of Expected Contract Value. Bryce earned his Juris Doctor, magna cum laude, from Georgetown University Law Center in May 2014, and currently works as a corporate associate in the New York City office of an AmLaw 50 law firm. Before becoming a contributor to overthecap.com, Bryce operated eaglescap.com 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 at email@example.com or via Twitter @NFLCapAnalytics.