Contract Bonuses

When a player signs an NFL contract, the key piece of his annual salary is the P5 amount, or what we know as the base salary. That’s the amount that the player actually earns in weekly installments throughout the NFL season. However, there aren’t many deals whose entire dollar amounts consist of the base salary. Generally, NFL contracts also include various kinds of bonus money, including perhaps signing bonuses, option bonuses, roster bonuses, or workout bonuses.

For salary cap purposes, this bonus money is counted differently than a player’s base salary, and also may or may not be earned, depending on what specific kind of bonus it is. To better understand exactly how these contract bonuses work, let’s break down the various types that can be included in a player’s contract….

Signing bonus:

The most common type of bonus, it’s typically reported at the time a contract is signed. While a player who receives an $8MM signing bonus on a new four-year contract generally receives that lump-sum payment up front, that $8MM actually prorates over the course of the deal for salary cap purposes. So it would count on the cap as $2MM per year, rather than $8MM in year one.

Signing bonuses prorate for up to a maximum of five years, so for a player inking a six- or seven-year deal with a $15MM signing bonus, that amount would count for $3MM against the cap for the first five seasons of the contract.

These prorated bonuses also represent guaranteed money, whereas other types of bonuses aren’t guaranteed at the time of the signing. That can make it tricky to release a player early on in a contract that included a large signing bonus. When a team releases a player, his remaining prorated bonus money “accelerates,” meaning it applies to his cap hit in the current league year. So if that aforementioned player who signed a four-year contract with an $8MM signing bonus is released in the second year of the deal, the remaining $6MM in prorated bonus money accelerates and counts against the cap for that season.

The effect of acceleration can be alleviated slightly by designating a player as a “June 1 cut,” or actually releasing the player after June 1. This allows the team to spread the so-called dead money remaining on a player’s contract over the course of two seasons rather than having it all apply to the current league year.

Option bonus:

An option bonus functions in a similar manner as the signing bonus, but applies to a later season. When the option bonus is due, perhaps in the second or third year of a contract, the team must commit to paying the full bonus if it intends to keep the player on its roster.

Using the above example of a player who signed a four-year contract with an $8MM signing bonus, let’s say that deal also includes a $3MM option bonus in the second year. If the team keeps the player, it will be on the hook for the new $3MM bonus, which will prorate and be worth $1MM per year in the remaining three seasons. So the last three years of the contract would each now feature $3MM in total annual bonus money — the initial $2MM per year due to the signing bonus, plus the new $1MM due to the option bonus.

Like the signing bonus, the option bonus represents guaranteed money once it’s picked up, so contracts that include both forms of bonuses become even trickier to release due to the increase in dead money.

Roster bonus:

Roster bonuses act as a sort of pay-as-you-go charge for teams. They’re not initially guaranteed, but must be paid at certain dates if the club intends to keep the player on its roster.

In many cases, a roster bonus is a lump sum due shortly after the new league year begins. For instance, Jets quarterback Mark Sanchez has a $2MM roster bonus owed to him next month if the team doesn’t release him by March 25. This form of bonus is fairly player-friendly, since even if the team doesn’t intend to pay it (like the Jets with Sanchez), it means the player will be released early in the league year, giving him plenty of time to catch on with a new team.

Another form of roster bonus is the per-game variety, which is more club-friendly. In that case, a player typically earns a portion of his roster bonus each time he remains on the team’s 53-man roster for a regular season game.

Roster bonuses contribute to a player’s salary, but unlike signing or option bonuses, the roster bonuses still remaining on a player’s deal when he’s released don’t need to be paid. So if and when the Jets release Sanchez, the team will be off the hook not only for his $2MM 2014 roster bonus, but also the $1MM roster bonuses he’s owed in 2015 and 2016.

Workout bonus:

Teams can’t force player to participate in their offseason workout program, so clubs will often include workout bonuses in contracts to encourage players to show up for those offseason workouts.

If a player has a 2014 workout bonus worth $100K, he earns that money by participating in the team’s offseason workout program, and that amount remains on his cap number for the season. However, if he chooses to forgo the workout program, he simply doesn’t earn that $100K, which is removed from his ’14 cap hit.

If a deal includes workout bonuses, they’re typically worth the same amount every year. So a player who forgos a $100K workout bonus this season could still be eligible for a workout bonus worth the same amount in 2015. As is the case with roster bonuses, teams aren’t on the hook for future workout bonuses if the player is released.

Bonus incentives:

While they’re less widely reported, bonus incentives can also be included in a player’s contract, allowing the player to earn additional salary if he meets certain criteria. These incentives are considered either “likely to be earned” or “unlikely to be earned,” depending on whether the player met the criteria the year before.

Because the designation of an incentive relies on the previous year’s performance, the likely/unlikely binary doesn’t always make sense. For instance, an incentive for a Pro Bowl berth could be considered likely to be earned if the player was in the Pro Bowl the year before. However, if a wide receiver missed a season due to injury, including an incentive for catching 20 balls the following season would be considered unlikely to be earned, since he didn’t reach 20 catches the previous season.

At the start of the league year, incentive bonus money counts against the cap as long as it’s likely to be earned. At the end of the year, a player’s cap number is adjusted to reflect which bonuses he earned and which ones he didn’t.

While differentiating these bonuses can be tricky at first, the best way to understand the differences between them is to study contracts that include several different forms of bonuses. For our purposes, let’s pretend a 2014 free agent signs a six-year contract worth an overall amount of $55MM. The breakdown is as follows:

The player’s annual base salary starts at $3MM and increases by $1MM each year. The deal includes a $10MM signing bonus, as well as a $5MM option bonus due in 2015. There’s also a $2MM roster bonus due on the fifth day of the 2016 league year, with $1MM roster bonuses due at the same time in 2017 and 2018. Throw in annual workout bonuses worth $500K and here’s what the contract would look like (click to enlarge):

Sample NFL contract

Because this player’s cap number doesn’t rise to eight figures until 2016, his $10MM guaranteed signing bonus ensures that the team wouldn’t create any cap savings by releasing him until at least the third year of the deal, even if none of his base salary is guaranteed. Even in ’16, the savings would be extremely limited — $6MM in signing bonus money and $4MM in option bonus money would accelerate, creating $10MM in dead money. In fact, assuming the option bonus is in fact exercised in 2015, those two prorated bonuses ensure there’s a significant amount of dead money in this hypothetical deal up until 2018, at which point the team would be on the hook for just $4MM if the player was released.

This is an example of a player-friendly contract, and it shows why a team may be reluctant to rely too heavily on signing or option bonuses, which limit the club’s cap flexibility. A more team-friendly contract may exclude those bonuses in favor of roster and workout bonuses, which don’t have to be paid unless the player remains on the roster.

For more information on how teams can create cap space by turning base salary into bonus money, check out our earlier piece on restructuring contracts.

Note: This is a PFR Glossary entry. Our glossary posts will explain specific rules relating to free agency, trades, or other aspects of the NFL’s Collective Bargaining Agreement. Information from Over the Cap was used in the creation of this post.

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