Restructuring Contracts

When an NFL team finds itself short on cap flexibility and in need of some space, one of the most effective short-term fixes is to restructure a player’s long-term contract. While cutting or trading players can often be solutions as well, a contract restructure allows the team to keep its roster intact while also providing immediate cap relief.

The base salaries of NFL contracts typically aren’t guaranteed, but players can receive guaranteed money in the form of signing bonuses. While those bonuses are considered to be up-front payments, for cap purposes they can be spread out over up to five years of the contract. For instance, if a player were to sign a four-year deal with a $12MM signing bonus, that figure would prorate equally over the four years of the contract, amounting to a $3MM cap hit per year. If a team were to release that player one season into the deal, the club could avoid paying most of the player’s annual base salaries, but would still be on the hook for the remaining bonus money, along with the cap total for that money.

As such, the most common form of contract restructuring involves converting a portion of a player’s base salary for a given year into a new signing bonus. That bonus can then be spread out over several years, moving it away from the current season. This is exactly the sort of agreement the Cardinals and Larry Fitzgerald reached this week. Here’s a breakdown of what the rest of Fitzgerald’s contract looked like before the two sides agreed to restructure it (click to enlarge):

Fitzgerald contract pre-restructure

Taking into account his $12.75MM base salary along with $5.25MM in bonuses, Fitzgerald’s cap number for 2014 was $18MM, an untenable figure for the Cardinals. However, by significantly reducing his base salary for the coming season, Fitzgerald was able to assure himself a spot on the roster, as well as assuring that nearly all of that base salary became guaranteed.

It’s not 100% clear whether Fitzgerald reduced his base salary all the way down to the veteran’s minimum of $955K, but various reports have suggested he bumped that 2014 salary down to $1MM, which is close enough. That would work out to a new $11.75MM bonus, and those are the figures we’ll use to determine his new contract structure, which should look something like this (click to enlarge):

Fitzgerald contract post-restructure

As the final column in that chart shows, restructuring a contract by converting base salary to a signing bonus creates immediate relief ($9.4MM in this case), but also creates problems in future years. A year from now, it seems likely that the Cardinals will have to make another move with Fitzgerald, either cutting him or restructuring his deal again to reduce a $23.6MM cap number for 2015.

There are ways a player can remain under contract with a team while also helping to create or maintain both short-term and long-term cap flexibility. A player agreeing to take a pay cut, for instance, could allow a team to reduce his current cap number without necessarily moving that money further down the line in the contract. However, that generally happens in situations in which the team’s leverage outweighs the player’s leverage.

In most cases then, a restructured contract that sees base salary converted into bonus money is the simplest short-term fix for a club. The bill will come due eventually, but restructuring a deal allows a team to put off a more significant decision for at least one more year.

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 Joel Corry and Over the Cap was used in the creation of this post.

View Comments (0)

Leave a Reply

Your email address will not be published. Required fields are marked *

 Notify me of followup comments via e-mail.