NOTE: this article is outdated and deprecated since the passage of the 2020 Collective Bargaining Agreement. It is archived for historical reference only. Please view this article for the updated and active explanation of the compensatory formula.

When the salary cap era of the NFL began in 1993, many changes came to the league other than just the eponym of this era.  One of those changes was the introduction of unrestricted free agency. Another was to reduce the number of rounds in the draft from twelve to seven.  However, while there have been officially seven rounds ever since, in truth the total number of draft picks equate to eight rounds. This is due to advent of compensatory draft picks, a entire round’s worth of picks that are distributed among the ends of rounds 3 through 7 that are awarded to teams that lose certain Unrestricted Free Agents (known as Compensatory Free Agents) to other teams.

The formula used to award compensatory draft picks, developed by the NFL Management Council, has never been publicly revealed.  However, in the years since 1994 outside observers have been able to determine much of how the formula works, and have created projections in an effort to demystify how compensatory picks work, a prthatocess that has confused many an NFL fan.

From 2001 to 2010, the person who has brought the most public awareness to how the compensatory draft pick formula works is someone known as AdamJT13. For nine of those ten years, he would annually write up a detailed projection of which picks he expected to be award to which teams. His contributions have been valuable to gain a better understanding of the compensatory formula. Unfortunately, when the CBA expired in 2011, Adam declined to give a projection for that year, and understandably so given that we had no idea whether the new CBA would even include compensatory picks. He has not offered a detailed projection since 2010, and has not posted at his blog since June of 2012.

The advent of OTC, however, with its excellent wealth of contract data, has provided a way to continue the projection of compensatory picks.  Since 2015, our goal here is to attempt to carry on the excellent work that AdamJT13 has done, by citing his work to offer our own projections for future compensatory picks.  Using OTC’s web interface, we have also automatically programmed compensatory pick projections–not just in the past going back to 2015, but also for future compensatory pick offerings. When free agency begins along with the new league year, free agent signings that qualify for the compensatory pick formula will be denoted as such, and as free agency proceeds you will be able to get real time updates and a broad idea on which teams could earn which compensatory picks for the next draft. It will be broad because happenings during the rest of the league year (such as training camp and in-season cuts, injuries, amount of playing time, and postseason honors) could alter the picks further.

It is important to remember that future projections will not known for sure what the picks will be until the NFL Management Council issues its official release. It is always anticipated that several of the projected picks will not be exactly correct, and even Adam himself could not project with full accuracy. But there is good confidence that these projections will give a general idea as to where teams stand in earning compensatory picks.

The Basics

As explained by AdamJT13:

As the NFL explains, compensatory picks are awarded to teams that lose more or better compensatory free agents than they acquire. The number of picks a team can receive equals the net loss of compensatory free agents, up to a maximum of four. Compensatory free agents are determined by a secret formula based on salary, playing time and postseason honors. Not every free agent lost or signed is covered by the formula.

Although the formula has never been revealed, by studying the compensatory picks that have been awarded since they began in 1994, I’ve determined that the primary factor in the value of the picks awarded is the average annual value of the contract the player signed with his new team, with an adjustment for playing time and a smaller adjustment for postseason honors.

As regular visitors of OTC know, this primary factor is known as Average Per Year, or APY. Because this is a common figure used here, it is also quite useful for setting the primary factor in determining compensatory picks. Adam has also determined that playing time seems to be determined by offensive & defensive snaps played, while postseason honors are determined by Pro Bowl appearances.

Also take note that only certain players qualify for the compensatory formula. Adam explains this further:

In order to qualify for the comp equation, a player must have been a true Unrestricted Free Agent whose contract had expired or was voided after the previous season (i.e., he cannot have been released by his old team); he must sign during the UFA signing period (which ended July 27 last year); if he signs after June 1[*], he must have been tendered a June 1 qualifying offer by his old team; his compensatory value or contract value must be above a specific minimum amount; and he cannot have been permanently released by his new team before a certain point in the season (which seems to be after Week 10) or, possibly, before getting a certain amount of playing time, unless he was claimed off waivers by another team.

*On 2015, this date was switched to May 12, and in 2016 it was May 10. It is believed that the cutoff date in future years will be the second Tuesday after the draft.

These players that qualify are known as Compensatory Free Agents (CFAs), and this is perhaps the provision that trips up most people who unfamiliar with the process. Players who are cut are the most common example of free agents not becoming CFAs, but other methods of disqualification, such as a Restricted Free Agent not given a tender, also exist.  In its most general sense, players only become Compensatory Free Agents if they are able to leave their old team against that team’s will. (However, one notable exception are team options that void a contract; see Special Cases below.)

Methodology

Adam describes the core methodology here:

Each qualifying player has a value based on his contract, playing time and postseason honors, and that value corresponds to a round in the draft. In the compensatory equation, each qualifying player that a team signs cancels out a qualifying player that the team lost whose value is the highest in the same round. If there are no lost players remaining in that round, the signed player cancels out the lost player whose value is the next-highest. A signed player will cancel out a lost player whose value falls in a higher round only if there are no remaining lost players. After all of a team’s qualifying signed players have canceled out a lost player, the team can receive a comp pick for each qualifying player who remains. For example, consider a team that loses one qualifying player whose value falls in the third round and another qualifying player whose value falls in the sixth round but signs a qualifying player whose value falls in the third round. That team would receive a sixth-round comp pick because the signed player would cancel out the loss of the higher-valued player. If the signed player’s value were equal to a fourth-round pick or lower, however, the team would receive a third-round comp pick, because the signed player would cancel out the loss of the lower-valued player.

Determining Adjusted APY

The first phase necessary to execute these cancellations are to value each UFA that changed teams. OTC’s program does this by using the following steps:

1. Start with the actual APY of the contract signed.
2. Subtract from the actual APY any money that the compensatory formula does not count.  It has been determined that workout bonuses, incentives, and salary escalators are the most common money figures that the compensatory formula does not count.
3. Adjust the APY by applying a coefficient based upon the percentage of offensive or defensive snaps the player took in his first year under the contract.
4. Apply a positive coefficient to each UFA that obtained postseason honors. Currently, there is not enough data for OTC to reliably apply the coefficient. However, it is believed that postseason honors adjustments are smaller than playing time adjustments, and there are typically very few relevant CFAs that obtain them to begin with.  It is believed that the postseason honors used in the compensatory formula are the ones explicitly listed in the CBA.  These honors are Pro Bowl, All-NFL (First and Second Team), All-Conference (First and Second Team), Super Bowl MVP, NFL MVP, Offensive Player of the Year (NFL or Conference), Defensive Player of the Year (NFL or Conference), and Player of the Year (NFL or Conference).

Qualifying CFAs And Assigning Them To A Round

Once an adjusted APY has been determined, each UFA is given a value that either assigns him as a CFA to a particular round, ranging from the 3rd  to the 7th, or does not qualify him as a CFA at all. For years, this assignment has been considered by far the hardest part of the formula to project.  When Adam did his projections, he observed that by year to year the cutoff points for each assignment appeared to increase at the same rate as the salary cap. Therefore his solution to address this difficulty was to increase the cutoff points at the same rate. However, when OTC investigated the 2013 to 2015 compensatory draft pick awardings, we were unable to find a reliable way to apply such an increase.  Nonetheless, in the past we continued to use Adam’s method as there was no clearly superior alternative available.

This changed, however, on December 2, 2015.  On this day, the NFL agreed to make a change to the rules of the compensatory picks by allowing them to be traded, starting with the 2017 NFL Draft. However, as part of the resolution to make this change, a key clause may have revealed how the valuation may work (bolded ours):

Whereas, the level of compensation (i.e., the round and selection number within the round) that a Club may receive for each CFA [Compensatory Free Agent] lost is based upon a weighted combination of the CFA’s “average yearly compensation”, postseason honors and playtime with the new Club, ranked against all players in the League who are on rosters at the end of the season.

This suggests that a snapshot of the entire league’s rosters at the end of the regular season should be taken (including at least all players that were on the active 53-man roster or injured reserve at least ten weeks during the regular season), and adjust their APYs as explained above to product a ranked list, sorted by adjusted APY in descending order.  While it is still not fully determined where the cutoffs lie on this ranked list, looking at previous compensatory pick awardings suggest that the cutoffs lie on certain percentile ranks on this list, conjectured as follows:

It is important to note that the qualification threshold may have changed considerably since AdamJT13 stopped projecting the compensatory picks, resulting in more players qualifying as CFAs than in the past. For example, in 2009 Adam observed the threshold was around $850,000 APY, and in 2010 Adam estimated it closer to $900,000 APY. But in 2013, the signing of Philip Wheeler counted against Oakland despite only making the veteran minimum of $700,000 at the time. Perhaps it could have been explained by the fact that he played 98.5% of the snaps on defense in 2012. But in 2014 there were several qualifying low value players that played much less. The most stark example was Brian Leonard qualifying in favor for Cincinnati on a veteran minimum of $715,000 despite only playing in 28.1% of the offensive snaps in 2013. Similarly, Mike Pollak qualified against Cincinnati on a minimum salary benefit contract of $780,000 despite only appearing in 32.4% of 2013’s offensive snaps.

Cancel Out CFAs Lost With CFAs Gained For Each Team

Finally, one each team’s list of CFAs lost and gained are determined and valued, one-to-one cancellations are applied.  Cancellations work as follows:

1. A CFA gained by a team cancels out the highest-valued available CFA lost that has the same round valuation of the CFA gained.
2. If there is no available CFA lost in the same round as the CFA gained, the CFA gained will instead cancel out the highest-available CFA lost with a lower round value.
3. A CFA gained will only cancel out a CFA lost with a higher draft order if there are no other CFAs lost available to cancel out.

Any team that has more CFAs lost than CFAs gained will then be eligible for compensatory picks for the CFAs lost that were not cancelled out by CFAs gained.

For a visual representation of how cancellations work, please visit our Compensatory Draft Picks Cancellation Chart to gain a better understanding of this complex process.

Additional Compensatory Picks

In addition to the regular compensatory pick awardings described above, there are two other types of compensatory picks that may potentially be awarded:

• The formula will occasionally award a “net value” compensatory pick for a team if that team loses and gains an equal number of CFAs, but the value of the CFAs lost is considerably greater than the value of CFAs gained.  Adam once observed that the difference needs to be at least 50%, and this is the difference that OTC’s program will currently use unless additional information suggests otherwise.  Net value compensatory picks are always 7th round picks, and they are always placed in order immediately after the regular 7th round compensatory picks.
• If, after awarding both regular and net value compensatory picks, there are less than 32 picks awarded, the formula will award “supplemental” compensatory picks to ensure that the total number of compensatory picks is always exactly 32.  These supplemental picks are awarded in the order of what would be the eighth round of the draft, if an eighth round existed.

Compensatory Pick Limits

There are two key restrictions that may limit the number of compensatory picks a team may receive:

• There is a strict limit of 32 compensatory picks that are awarded every year.  If the formula initially awards more than 32 compensatory picks, all picks ranked 33rd and below are not awarded, although the league will still recognize that those picks would have otherwise been eligible for compensation.  (There has only been one exception to this: as noted in the Special Cases below a 33rd comp pick was collectively bargained upon for 2016.)
• A team may not be awarded any more than four compensatory picks in one year.  If the formula initially awards a team more than four, the lowest of the picks over the per-team limit of four are not awarded, although the league will still recognize that those picks would have otherwise been eligible for compensation.

Special Cases

As with any set of rules, there are sets of exceptions.  Over the years, several of these exceptions have been discovered by the compensatory formula, and it is likely that there are additional exceptions that we do not yet know about.

• In the past, transition tagged players qualified for the compensatory formula.  See Steve Hutchinson in 2007, who qualified in favor of Seattle despite being transition tagged and lost to Minnesota as part of the infamous “poison pill” incident in which the Seahawks retaliated by signing RFA Nate Burleson to a similar “poison pill” offer sheet.  However, in 2016 the NFL and NFLPA agreed to change this rule, and now transition tagged players should no longer qualify.  That year, this allowed Buffalo to get a 4th round comp pick for Da’Norris Searcy by removing Charles Clay (signed on a transition tag offer sheet from Miami) from the compensatory formula. As part of the agreement, 33 comp picks were awarded in 2016 instead of the standard 32.
• Players who have options declined by their former teams qualify for the compensatory formula, even though the team had a method to keep them under contract.  See Donte Stallworth in 2009, who qualified in favor of New England despite having an option on his contract declined. This exception has in recent years been used far more often to protect teams’ compensatory pick potential, with the Patriots, Broncos and Ravens particularly standing out in their usage of team options.
• Teams who renegotiate a contract that add a player option to void their contract earlier than first agreed upon do not qualify for the compensatory formula if the player exercises that option to void.  See Laveranues Coles in 2010; see also Jerome Felton in 2016.
• Players who have ten or more accrued seasons may only yield a maximum of a 5th round compensatory pick, even if their actual value would otherwise be assigned higher.  See Alan Faneca in 2009, who only awarded Pittsburgh with a 5th round pick instead of a 3rd despite his contract, playing time, and postseason honors.
• Players who are cut with an injury settlement by their new team may qualify for the compensatory formula even if they otherwise would not.  See Domenik Hixon in 2015, who qualified in favor of Carolina despite being cut with an injury settlement on June 3 due to tearing his ACL in OTAs.

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You may find OTC’s current compensatory draft pick projections on our draft page.