NFL CBA quirks that could have a big effect on the 2020 offseason
Quarterback Dak Prescott, wide receiver Amari Cooper and cornerback Byron Jones are all entering the final years of their contracts. It looks likely that defensive end DeMarcus Lawrence will receive a franchise tag for the second year in a row, which will be extremely expensive if the team can’t extend him. And star running back Ezekiel Elliott has one year left on his rookie deal (though the team does hold a fifth-year option on him for 2020).
This makes for some tricky accounting and in a normal year would put a lot of pressure on the Cowboys to get as many of these deals done as possible. A normal year’s rules allow teams to use either the franchise or transition tags to keep a player off the open market, but not both. So, normally, one of the Cowboys’ concerns would be having to decide at this time next year between, say, franchising Prescott or franchising Cooper.
As it stands, however, 2020 does not project to be a normal year in the NFL contract landscape. Because the collective bargaining agreement (CBA) between the league’s players and owners expires at the end of the 2020 season, next year is referred to in the CBA as the “Final League Year.” And in the Final League Year, some critical contract rules are different.
Assuming no agreement on a new CBA is reached between now and March 2020, contract structures next offseason will be affected. And because of that, long-term contract structures and teams’ long-range plans could be affected this offseason. To play off our lead example above, for instance: Article 10 of the CBA stipulates that, in the Final League Year, teams are allowed to designate one franchise player and one transition player. So, in a hypothetical (and, frankly, unlikely) example in which neither Prescott nor Cooper is signed to a long-term extension by the end of the 2019 season and no new CBA is negotiated by next March, the Cowboys would have the ability to keep both of those players off the open market by designating one a franchise player and the other a transition player.
You might remember that the final year of the previous CBA — 2010 — was an “uncapped year,” meaning a year with no salary cap. (We found out later that it wasn’t really that, as Washington and Dallas had salary-cap space taken away as punishment for structuring contracts to take advantage of the lack of a 2010 cap after owners agreed in private not to do that.) The current CBA makes no such stipulation, and 2020 will feature a salary cap just like the first nine years of the deal have. In fact, because of the rules in place specifically for the Final League Year, the 2020 cap will offer some unique challenges:
No post-June 1 designations
In a normal year, if a team wants to release a player from his contract without incurring an excessive amount of dead money on its salary cap, the team is allowed to designate that player a post-June 1 release. Doing so allows the team to defer a chunk of the dead-money cap hit into the following season.
For example, let’s say the Kansas City Chiefs decide in the next couple of weeks to release veteran safety Eric Berry. He has four years left on his contract but only $2.95 million in remaining guarantees. Because the contract was signed in 2017 and included a $20 million signing bonus, the Chiefs carry a $4 million cap charge in each of the contract’s first five seasons as a prorated portion of the signing bonus. They have three of those years left, so $12 million worth of signing-bonus proration. Cutting Berry now would require them to accelerate all $12 million of that onto this year’s cap. Combined with Berry’s salary guarantee, that would mean a $14.95 million cap charge for Berry if he were cut.
However, if in this (purely hypothetical) example, the Chiefs were to designate Berry a post-June 1 cut, the CBA rules would allow them to defer $8 million of that signing proration onto next year’s cap, so this year’s dead-money charge would be only $6.95 million. It’s an accounting loophole that saves $8 million on this year’s salary cap by floating it into next year and delaying the team’s present-year cap relief until June 2.
In the Final League Year, there are no post-June 1 release designations. A team in our example dealing with the same problem next year would have to absorb the full dead-money hit no matter when it released the player. It makes sense when you think about it: Why would you make it easier for a team to release a player by allowing it to defer a cap hit into a season that might never even happen?
So watch out when the new contract structures start to roll in this March, and don’t be surprised to see teams structuring the deals to limit dead-money charges in 2020 (as some of the 2017 and 2018 free-agent deals already have). That could mean lower signing bonuses, greater reliance on roster bonuses, higher guaranteed 2019 salaries and shorter-term deals overall, as teams likely won’t want to be financially unable to release players they don’t feel are playing up to their contracts.
The ’30 percent’ rule
Article 13, Section 7 of the CBA mandates that “no player contract extending into a season beyond the Final League Year may provide for an annual increase in salary … of more than 30 percent of the salary provided for in the Final League Year, per year, either in the season after the Final League Year or in any subsequent season covered by the Player Contract.”
So if a player signs a five-year contract this offseason, and his 2020 salary is $10 million, the rules state his scheduled 2021, 2022 and 2023 salaries can’t be higher than $13 million, $16 million and $19 million, respectively. And yes, there are already contracts on the books that reflect this. The deal Odell Beckham Jr. signed with the Giants last summer, for example, provides for a higher salary this year ($17 million) than in 2020 ($14.25 million), 2021 ($15.75 million), 2022 ($15 million) and 2023 ($15 million).
The 30 percent rule would allow the Giants to pay Beckham up to $18.525-$27.075 million in each of the years from 2021-23; as you can see, they are well under that figure. But Beckham’s contract pays him about $38.5 million in the first two years of the deal (2018-2019), a structure that allows him to get more of his money sooner and also allows the Giants to stay well clear of the 30 percent rule on the back end of the type of contract that doesn’t usually get paid out in full anyway.
The 2016 book “Crunching Numbers: An Inside Look at the Salary Cap and Negotiating Player Contracts” by Jason Fitzgerald and Vijay Natarajan (which was a big help in putting this piece together) deals with the 30 percent rule in greater detail and has helpful, concrete examples of different contract structures.
In a normal year, if a player’s contract calls for in-season incentive bonuses, these don’t always have to be counted against the team’s salary cap until after the season. Teams put “Not Likely To Be Earned” incentives (NLTBEs) in many contracts, and incentives that qualify as such aren’t counted against the salary cap until after the season, when those that were earned are charged retroactively. This allows teams to stay under the cap while promising their players they’ll be taken care of if they play well.
The New England Patriots used $38.8 million in NLTBEs in 2018 — far more than any other team (Washington was second at $24.6 million). This is perfectly legal and likely the result of the Patriots’ ability to promise their players postseason shares and Super Bowl glory more reliably than other teams can. But in 2020, unless a new CBA is reached between now and then, it will be tougher to pull that off.
In the Final League Year, any incentive bonuses, be they likely or unlikely to be earned, will count against a team’s salary cap the moment they are triggered. For example, if a player gets a $1 million incentive for catching 75 passes, as soon as he catches his 75th pass of the 2020 season, his team absorbs a fresh $1 million salary-cap charge. In 2019 and all previous years of the current agreement, the team wouldn’t have to account for that charge until after the season was over.
What this means is that teams giving out new deals this offseason will have to be conscious of the way their incentive clauses are structured in the 2020 season to avoid having to make tough roster decisions during the season if their players hit their incentives.
These are just a few examples of the way the looming end of the CBA could affect the league’s economic landscape over the next 12 to 24 months. Players and owners have yet to begin negotiating a new CBA or an extension to the current one, and NFLPA executive director DeMaurice Smith has used terms such as “prepare for war” while suggesting a work stoppage is likely before a new deal can be reached.
It’s possible the clouds clear and a deal gets done in time for none of these Final League Year rules to matter. But in the meantime, as the franchise-tag designation period swings into high gear and free agency lurks around the corner, keep in mind that teams are having to juggle stuff they haven’t had to deal with before now.