Monday, July 21, 2008

One of the Reasons for the Holdup on Rookie Signings


According to John Clayton of, the NFLPA won it's special master grievance against the NFL management council. The grievance had to do with how "one-time bonuses" are counted against the salary cap. Why it's a problem, is a little complicated, but I'll explain what I understand about the bonus.

How a "One-time bonus" works. A player's agent has negotiated into his contract a bonus that is payable if he plays in 35% of the plays that is also only payable if the team does something, i.e. wins 3 games, finishes with 3,500 yards of total offense, etc . . .basically something that is easily attainable. For salary cap purposes, since it's a bonus that is based on a team performance and requires at least 35% playing time, the bonus is considered, non-likely to be earned (NLTBE). This is beneficial for the team giving the bonus, because the bonus isn't counted in the rookie year and only counts against the cap when NLTBE bonuses are reconciled against likely to be earned bonuses at the end of the year. Calvin Johnson had this type of bonus and I discussed it in a prior entry.

It's referred to as a "One-time" bonus because, if it's not earned in the initial year, it's available in the 2nd year, if it's not earned in either of the first two seasons, it's available to be earned in the 3rd season. In the final year of the contract, if it hasn't been previously earned, it's automatically payable no matter what. Because this "One-time" bonus is going to be earned at one point or another, it is considered a guaranteed bonus. Also, once it's earned, it voids in all subsequent seasons. If a player earns the bonus in the first season of his contract, the bonus is void in all subsequent years, hence the "One-time" bonus reference.

One aspect of this bonus is that it is guaranteed, even though when it's actually paid can vary. Typically, it's not a problem, it's just a guaranteed payment that is guaranteed to be paid by the final year of the contract. However, on May 20th, the owners elected to opt out of the Collective Bargaining Agreement (CBA) and by doing this, it created a problem with this type of bonus. After the owners made the election to opt out, the final year of the CBA accelerated to 2010. First round picks usually sign either a five or six year contract, which for this years rookie class will extend through the 2012 or 2013 season. The 2nd round draft picks usually sign four year contracts and those contracts will extend beyond the CBA into the 2011 season. So, by using this type of bonus, it guarantees a payment after the scope of the current CBA. According to the CBA, guaranteed payments due and payable after the CBA expires, are for salary cap purposes, supposed to be reallocated to capped years within the CBA (much the same way that Deion charges are allocated). This would increase the salary cap charges in the current years and also increase the "rookie cap".

The NFL management council contended that these bonuses needed to be reallocated to capped years and the NFLPA said that nothing needed to be done with these bonuses. The ruling came in favor of the NFLPA. Now that the Teams and Agents know how these bonuses will be treated for salary cap purposes, you will see more rookies signed.

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