Contract Incentives

When I broke down the concept of contract bonuses in a previous PFR Glossary entry, I touched briefly on the idea of contract incentives, but it’s worth taking a more in-depth look at that specific kind of bonus. Whereas a signing bonus is fairly straightforward in its payment and its cap structure, incentives can be used to manipulate a player’s cap hit, and will often alter that player’s cap number after the fact.

At the most basic level, contract incentives are designed to reward a player for his performance — in some cases, these financial rewards are linked to individual or team production, while other incentives can be earned simply by the player earning a spot on his team’s active roster from week to week. These incentives are divided into two categories: Likely to be earned (LTBE) and not likely to be earned (NLTBE).

Under the NFL’s definition, a likely to be earned incentive is generally one that was achieved the year before. So if a running back racked up 1,300 yards on the ground in 2013 and has an incentive in his contract that would reward him for surpassing 1,200 yards in 2014, that incentive is viewed as likely to be earned and counts against his cap hit from the start of the year. On the other hand, a back who has never surpassed 700 rushing yards in a season could have an incentive on his deal for 2014 that would reward him for rushing for 800 yards — such a bonus would be considered not likely to be earned, and wouldn’t count against the player’s cap number.

Because the player’s or team’s performance in a given season dictates whether or not the incentive is actually earned, the player’s cap number is sometimes altered after the fact. For instance, there’d be no change if a player met the criteria for a $50K LTBE incentive, but if he failed to earn that incentive, his team would be credited with $50K in cap room for the following season. Similarly, if a $50K NLTBE incentive isn’t reached, nothing changes, but if a player does earn that incentive, his club’s cap space for the following season is reduced by $50K.

A simple incentive linked to yardage or touchdown totals in a season isn’t too hard to track, but there are more convoluted forms of bonuses. Let’s say a player coming off an injury that limited him to six games played signs a contract that would pay him $500K in per-game roster bonuses. That player would be considered likely to appear in six games, but unlikely to appear in more beyond that. So, of his $500K in roster bonuses, $187,500 would initially count against the cap, as the LTBE portion.

Here are a few more notes on contract incentives and how they work:

  • Any incentive that is considered to be in the player’s sole control, such as weight bonuses, or his presence at workouts, is considered likely to be earned.
  • Any incentive in the first year of a rookie contract is considered likely to be earned.
  • Individual performance incentives can be linked to most basic statistical categories, such as yardage, yards per attempt, and touchdowns. However, more obscure stat categories typically aren’t allowed for individual incentives. For instance, a receiver couldn’t have an incentive tied to receptions of 20+ yards. Meanwhile, a defender could have an incentive linked to sacks or interceptions, but not to tackles for a loss.
  • In some cases, individual performances can also dictate the value of traded draft picks. For example, the future pick changing hands from the Bills to the Eagles will be dependent on the performances of Stevie Johnson for the 49ers and Bryce Brown of the Bills. Those players don’t necessarily have personal incentives in their contracts, but depending on how they perform, Philadelphia could pick up either a 2015 fourth-rounder, a 2016 third-rounder, or a ’16 fourth-rounder.

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 Russell Street Report, Over The Cap, and Salary Cap 101 was used in the creation of this post.

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