What Teams Will Gain in Cap Space with the June 1 Cut

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With June 1 rapidly approaching I thought this would be a good time to update on the salary cap changes that will occur for a number of teams as well as some other thoughts on the subject. On June 1 the league changes their accounting rules for acceleration of prorated bonus money. If a player is cut prior to June 1 all of a players unaccounted for bonus money accelerates onto the salary cap. If a player is cut after June 1 the players unaccounted for money accelerates to the following season (in this case 2014) with only his current proration remaining on the 2013 cap books.

The NFL allows teams to cut up to two players prior to June 1 and designate them “June 1 cuts”. If this mechanism is used the team carries the players’ full cap charge in their top 51 until June 1. On June 2 the player is officially removed from the roster with only his current years proration remaining on the books and in many cases a dramatic increase in cap space for cap starved teams that need to sign rookies or have money on hand for in season roster management. 10 teams utilized the June 1 designation, with the Dolphins being the only team to use it on two players.

For many of the teams the money is desperately needed. The Oakland Raiders have yet to sign a draft pick as they remain right around the NFL’s cap limit, but on June 2 their cap will grow to about $7.86 million after Michael Huff drops off the books. The Steelers with almost no breathing room and less than $600,000 in cap room with 4 picks to sign will now have $5.59 million to spend, due to the June 1 treatment of Willie Colon. The Chargers, the other cap strapped team with less than $1 million in room, will remove Jared Gaither to jump to $4.65 million in cap space.  The other teams with limited cap funds that will benefit from the June 1 rule are the Falcons and Ravens, both of whom currently have around $2 million in cap space.

Other teams such as the Bills and Dolphins will see large increases that will jump them very close to the top of the NFL in cap space. The Dolphins will jump from 15th to 7th in the NFL in cap space while the Bills will go from 7th to 5th. This is primarily because of the large cap investments that the teams’ made in mediocre players. Ryan Fitzpatrick current sits as the 2nd largest cap charge on the Bills active roster while Karlos Dansby has the highest cap figure of any Dolphin. Huff of the Raiders also ranks as the highest cap charge on his team.

Most of the players are all good enough to find another job in the NFL, only Gaither has not found a team willing to take him, but only 5 received multi-year contracts and the highest cap charge to be found is Tyson Clabo, now of the Dolphins, at $3.5 million. The June 1 rule really illustrates the mistakes that teams make when valuing players and structuring contracts. While Dansby, Huff, and Fitzpatrick were outrageous figures, 6 of the June 1 cuts still take up a top 5 cap spot on the active roster and 9 are in the top 10. The following table shows the amount of estimated cap space that was to be spent on these players, dead money the teams will carry, and how much cap new teams are going to pay these players this season:

Category

Total

Original Cap Charge

$70,563,750

2013 Dead Money

$19,413,750

2014 Dead Money

$36,883,750

New Team 2013 Cap

$18,088,750

So the cutting teams will carry more dead money this year than the players will collectively make from their new teams to play in the NFL. The league valued these players at 74.3% less than the teams original projections. Assuming that the average salary for the group in 2014 is $1 million each then those players will play football over a 2 year period for 50% less than the dead money totals that the original teams will now carry in 2013 and 2014. That’s one of the reasons why when we do some of the valuations on the site from a team perspective we try to take into account future productivity as this was, for the most part, money thrown away on players. These are the type of contracts that get General Managers fired over the long run.

As for the June 1 cuts themselves here is the list of players that will be removed on June 2 and what the projected cap totals for the teams will be based on the official salary cap numbers as of May 28, 2013.

PlayerTeam

Current Charge

New Charge

Savings

New Team Cap Space

James AndersonPanthers

$4,400,000

$1,400,000

$3,000,000

$9,793,115

Michael HuffRaiders

$11,288,750

$3,288,750

$8,000,000

$7,857,320

Bernard PollardRavens

$3,250,000

$750,000

$2,500,000

$4,303,573

Ryan FitzpatrickBills

$10,450,000

$3,000,000

$7,450,000

$19,027,240

Karlos DansbyDolphins

$8,575,000

$2,325,000

$6,250,000

$17,949,298

Kevin BurnettDolphins

$5,700,000

$1,250,000

$4,450,000

$17,949,298

Willie ColonSteelers

$7,650,000

$2,150,000

$5,500,000

$5,590,098

Jared GaitherChargers

$6,500,000

$2,000,000

$4,500,000

$4,645,848

Tyson ClaboFalcons

$6,050,000

$1,550,000

$4,500,000

$6,437,723

Marcus SpearsCowboys

$2,700,000

$700,000

$2,000,000

$9,695,234

Adam SnyderCardinals

$4,000,000

$1,000,000

$3,000,000

$10,792,654

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Valuation Metrics for the Clay Matthews Extension

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After weeks of rumored contract negotiations between the Green Bay Packers and LB Clay Matthews, the two sides made it official that Matthews would not become the highest paid outside linebacker in the NFL, surpassing the $13 million per year that the Cowboys DeMarcus Ware received in his 2009 contract extension. While no numbers are in as I am writing this (who knows by the time I’m finished) I wanted to look at the two real benchmark deals ahead of time so that we can get a better idea of just how strong the contract really is. The two deals I want to look at are those of Ware and the Ravens’ Terrell Suggs.

When I evaluate high level deals like this for the site I like to look at two sets of numbers- yearly cash flow and functional guarantees. The cash flows are pretty self explanatory. Functional guarantees are the amount of money that a player will actually earn not just because of the guarantee but because of the structure of the contract which comes with prorated bonus protections that leads to excessive dead money if cut.

Ware’s case is more similar to Matthews in that both were currently under contract to their teams on rookie contracts when they signed their extensions. Suggs had gone beyond the rookie deal and was on a franchise tag. The following cash flows represent the new money totals per year for the players

Ware

Ware Total

Suggs

Suggs Total

Year 1

$32,800,000

$32,800,000

$15,100,000

$15,100,000

Year 2

$7,200,000

$40,000,000

$24,900,000

$40,000,000

Year 3

$5,000,000

$45,000,000

$3,400,000

$43,400,000

Year 4

$6,000,000

$51,000,000

$4,900,000

$48,300,000

Year 5

$12,750,000

$63,750,000

$6,400,000

$54,700,000

Year 6

$14,250,000

$78,000,000

$7,800,000

$62,500,000

The first benchmark for Matthews is clearly the $40 million over a two year period, matching what both Ware and Suggs received. Ware’s number is a bit more misleading since it actually took him 3 years to reach $40 million due to the prior year contract not counting in the calculation. If Matthews surpasses $45 million over his first three extension years he will get the best deal of the group. Matthews was already set to earn over $3 million this season which would mean his 4 year total would surpass Suggs’ 4 year if he gets $45 million over the first three new years of the contract. Ware’s contract was filled with big money at the end which normally wont be earned which is why I want to go to the functional guarantees next, first with Ware and then with Suggs.

Ware:

Base

Prorated Money

Misc.

Cap Number

Dead

Savings

Year 1

$7,800,000

$5,430,693

$0

$13,230,693

$25,226,772

($11,996,079)

Year 2

$6,700,000

$3,998,693

$500,000

$11,198,693

$11,996,079

($797,386)

Year 3

$4,500,000

$3,998,693

$500,000

$8,998,693

$7,997,386

$1,001,307

Year 4

$5,500,000

$3,998,693

$500,000

$9,998,693

$3,998,693

$6,000,000

Year 5

$12,250,000

$0

$500,000

$12,750,000

$0

$12,750,000

Year 6

$13,750,000

$0

$500,000

$14,250,000

$0

$14,250,000

Suggs:

Base

Prorated Money

Misc.

Cap Number

Dead

Savings

Year 1

$1,000,000

$2,020,000

$4,000,000

$7,020,000

$14,100,000

($7,080,000)

Year 2

$1,900,000

$6,620,000

$0

$8,520,000

$31,080,000

($22,560,000)

Year 3

$3,400,000

$6,620,000

$0

$10,020,000

$24,460,000

($14,440,000)

Year 4

$4,900,000

$6,620,000

$0

$11,520,000

$17,840,000

($6,320,000)

Year 5

$6,400,000

$6,620,000

$0

$13,020,000

$11,220,000

$1,800,000

Year 6

$7,800,000

$4,600,000

$0

$12,400,000

$4,600,000

$7,800,000

This actually drives home a major difference between the two contracts. The fact that Suggs got massive prorated bonus money rather than base salary guarantees in the first two years of his deal make him virtually uncuttable for the first 4 years of his contract and even Year 5 is a difficult choice. This would be a functional guarantee of $48.3 million with a decent chance of earning $54.7 million before being released.

Ware, before Jerry Jones went wild with the restructures, did not have that protection upon signing. In this case I would consider the first two years functionally guaranteed with a decent chance of the third year being earned.  So the reality is its $40 million and a good chance at $45. If his play trailed off he would have been a prime candidate for a restructure in year 4 and easily cut beyond that. In reality his year 5 and 6 were nothing but funny money. Now Dallas has virtually guaranteed the whole contract because of their cap problems, but when signed Suggs had the far better contract structure despite lower money totals.

For Matthews to come out on top of the market he needs a structure that is closer to that of Suggs. Something that functionally guarantees him those first four years and a great chance at 5 years. If he can reach that $51 million over 4 year plateau and have a structure that makes it difficult for the Packers to wave good bye in 2018 he will truly have the best contract in recent memory at the position. If the Packers have outs early on and his cash flow is similar to that of Ware it may be a case where it’s a deal that looks better on paper than it plays out in real life, especially since the Packers are not going to get in a deep mess the way the Cowboys did.

Thoughts on Joe Flacco’s New Contract

Dan Hanzus of NFL.com has the particulars as it relates to cash flow on the record setting contract for Ravens QB Joe Flacco. It is certainly quite the deal for Flacco, a player who has yet to throw for 3,900 yards in a season. The QB salaries are getting so out of whack with the rest of the league that at some point you are going to see teams suffer for overpaying good but not great QB’s. Flacco had a miracle playoff run, but a contract like this completely disregards 5 years of performance on the field.

That is not to say that this should be a surprise. A few weeks ago I looked at Flacco and predicted he would get a contract close to $21 million a year. Why?  It was the Eli Manning model. Manning, who had a similar career trajectory but with more draft status cache and a slightly better track record, blew the field away in 2009 when he signed his contract worth $16.25 million a season. Eventually the bigger names like his brother Peyton surpassed that number, but Eli had more of less been the standard mark for a QB that was not considered prolific but had some playoff success.

The difference between Eli then and Flacco now is the new CBA. The new salary cap limit is $123 million and the union had to jump through hoops to even get the number that high. The salary cap limit back when Eli signed his deal was $123 million and growing rapidly. Basically there has been no inflation in the cap but the same player salary has now risen greatly. On an APY basis Manning’s deal was about $13.2% of the cap. Flacco’s is16.3%.  Sure Flacco and the Ravens will manipulate that cap figure this year but at some point it will catch up with them and teams will suffer because they spent far too much money on a position, even one as important as QB. Here are some very early (and totally unofficial) estimates of what Flacco’s deal may look like.

Base SalaryProratedCap ChargeDead MoneyCash Flow
2013$1,000,000$5,800,000$6,800,000$52,000,000$30,000,000
2014$6,000,000$8,800,000$14,800,000$45,200,000$21,000,000
2015$4,000,000$10,550,000$14,550,000$30,400,000$11,000,000
2016$18,000,000$10,550,000$28,550,000$25,850,000$18,000,000
2017$20,600,000$10,550,000$31,150,000$15,300,000$20,600,000
2018$20,000,000$4,750,000$24,750,000$4,750,000$20,000,000

These numbers are assuming that this $7 million dollar option bonus is paid in 2015 and is prorated over the life of the deal. Sure some will say that its a 3 year contract where you simple re-do the deal in 2016, but look at that dead money figure. What leverage does a team have to force any kind of market correction when cutting a player costs nearly $26 million on your cap?  Those backend cash flows are important because it more of less gives Flacco a starting point of $19.5 million a year in a renegotiation. Its really absurd.

In my value price model I worked on, Flacco’s regular season was worth about $11.5 million a year comparative to the current marketplace. That is a ton of ground to make up to justify this contract. Its just amazing the way the QB position has been treated in the last 8 or 9 years, really since Peyton signed his first mega-deal in 2004 with the Colts. Think back to the early 2000s. Players like Trent Dilfer and Brad Johnson couldnt cash in. Thats not to say Flacco was along for the ride like they were, its just to point out the way things have changed.  Even Tom Brady could not cash in relative to what others in the league were getting after his Super Bowls.

Green Bay is next up in the crazy QB carousel with a far better QB that is going to look for far more money. They don’t usually give in like this but I would not have expected the Ravens to cave in this badly either. The team that makes out the best in all of this is the New England Patriots who got their QB under a cap friendly contract until he retires. Sure he is much older and likely declining but they have a long term advantage that few teams, unless they have outstanding rookies on their rookie contracts, will be able to match in the salary allotments to field a full roster.

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