Saturday, March 29, 2008

Signing Bonuses and Other Items Treated as SB's

5:45am EDT

The following terms are common items in a player's contract and include a brief description of the treatment of those items. It is not intended to be an exact interpretation of the treatment of these payments, but to provide a layman's definition as to what these items are and how they are treated for salary cap purposes. For a more detailed description of these items, please refer to the Collective Bargaining Agreement, Article XXIV, Section 7 - Valuation of Player Contracts for a more detailed description.

Signing Bonuses - Are bonuses paid to a player when he signs a contract. They are guaranteed, paid at the initial signing and are prorated over the life of the contract to a maximum of 6 years.

Other Items Treated as Signing Bonuses - These are bonuses that are paid to a player at a time after the initial signing, but for salary cap purposes are treated just like signing bonuses and are prorated over the remaining life of the contract to a maximum of 6 years.

  • Guaranteed Roster Bonuses - Are bonuses for being on a roster at a specific time or being on the active and/or inactive roster on game day, but they are guaranteed to be paid even if the player isn't on the roster at the specified time in the future.
  • Guaranteed Reporting Bonuses - Are bonuses paid for reporting to training camp, but they are guaranteed to be paid whether the player shows up to training camp or not.
  • Guaranteed Workout Bonuses - Are bonuses paid for participation in the club's off-season workout program, but the club guarantees payment, even if the player doesn't participate in the program.
  • Option Bonuses - Are bonuses that are paid at the option of the club, usually in the second and/or third year(s). They used to be prevalent in rookie contracts, as the use of an option bonus was one of the ways that a club could sign a rookie to a large contract that contained a large amount of guaranteed money. When Ashley Lelie failed to show up to training camp and therefore violated his contract, the court ruled that the Denver Broncos could only recover a portion of the original signing bonus and none of the option bonus paid to Lelie. Without the ability to recover damages when a player fails to honor the terms of the contract, teams are now hesitant to pay players large dollar amounts in the form of an option bonus. For salary cap purposes, option bonus payments are prorated over the life of the contract to a maximum of 6 years.
  • Salary Advances - These are advances on future years' salaries. To the best of my knowledge, they used to not be a common item in a player's contract, but with the Ashley Lelie ruling (see Option bonuses above), Tom Lewand, the Lions Chief Operating Officer and Chief Contract Negotiator, used Salary advances in Calvin Johnson's contract. This allowed Johnson to get the large amount of guaranteed money due to being a #2 overall draft pick and gave the Lions recourse against Johnson if he doesn't honor his contract. I fully expect salary advances to become more prevalent in rookie contracts, now that teams are hesitant to use option bonuses. Salary advances on future salaries are prorated over the life of the contract to a maximum of 6 years.
Guaranteed Reporting and Guaranteed Workout bonuses are not common. The Collective Bargaining Agreement (CBA) addressed the treatment of these guaranteed payments to prevent clubs from manipulating the salary cap.

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