Understanding the NFL Salary Cap - A Guide of How It Works

Kyle Lindemann breaks down the NFL salary cap detail by detail as the 2023 NFL free agency approaches. Why is it such an important part of free agency and contracts?

There's a common belief among many that the NFL salary cap isn't real and is just a myth. I am writing this piece today to explore in depth that it isn't a myth. In the paragraphs below, I will explain why the salary cap is real but also how it has changed over the years to become the complicated beast that it appears to be on the outside.

As we are now into the NFL offseason, free agency will officially begin next month and teams will be able to start signing players. All teams have to be under the salary cap by March 15 once the official 2023 NFL league year begins. Right now, the salary cap is set at $224.8 million per team and nearly half the league is over the 2023 cap. Expect to see plenty of teams restructure current players' contracts or begin releasing them before March 15.

Back in 2011, the new CBA (collective bargaining agreement) between the NFLPA and the NFL allowed teams to carry over unused cap space from one year to the next. In previous years, it was always a "use it or lose it" type of system. With players getting larger guarantees in their NFL contracts each year, we are beginning to see higher dead cap numbers than ever before. More on the NFL's salary cap will be explained below.

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Why is the NFL Salary Cap Important?

Every year, the salary cap is set based on shared revenue from all 32 NFL teams as well as the league office. With new TV deals such as the one with Amazon Prime recently being signed, revenue has continued to go up for the NFL each year, which has helped the salary cap continue to go up each year. In 2021, the salary cap declined from $198.2 million down to $182.5 million, but that was largely due to the NFL being affected by the Covid-19 outbreak. Many stadiums were left half-empty during the 2020 season, which caused revenues to dip, and many teams were left scrambling.

If the salary cap didn't exist, we would likely see every major player on a team like the Dallas Cowboys and it would be much more difficult for the Green Bay Packers of the world to compete each year. The salary cap provides a more competitive balance league-wide and stops teams from becoming too stacked over time. If there was no cap, then the large markets would inevitably dominate the smaller markets in terms of payroll.

Top 10 Teams in Salary Cap Space for 2023

The following teams rank in the top 10 of available salary cap space for 2023, according to data from Over The Cap.

• Chicago Bears: $94.4 million
• Atlanta Falcons: $56.5 million
• New York Giants: $46.9 million
• Las Vegas Raiders: $48.3 million
• Cincinnati Bengals: $35.6 million
• Houston Texans: $37.6 million
• New England Patriots: $33.7 million
• Seattle Seahawks: $31 million
• Baltimore Ravens: $24.2 million
• Arizona Cardinals: $14.6 million

The following teams are currently over the projected salary cap for 2023 by $10 million and have until March 15 to get under:

• Cleveland Browns: $13.4 million
• Los Angeles Rams: $14.1 million
• Buffalo Bills: $16.3 million
• Miami Dolphins: $16.3 million
• Los Angeles Chargers: $20.5 million
• Tennessee Titans: $20.9 million
• Jacksonville Jaguars: $22.7 million
• Minnesota Vikings: $23.2 million
• New Orleans Saints: $54.9 million
• Tampa Bay Buccaneers: $55 million

Does the Salary Cap Actually Matter?

In the short term, the answer is no. In the span of just one year, teams can do all sorts of moving money around on the balance sheets to get under the cap figure. What makes it difficult is when teams continually do it over and over again, just delaying player bonuses seemingly until they retire. Teams can continue to stretch out a player's contract to clear space in the short term but it can cause some major problems down the road if it is done repeatedly. A good example of this is the Bucs getting stuck with $35 million in dead cap once Tom Brady retired and more will be explained on that below.

A team like the Saints had been able to get by during the Drew Brees era by pushing cap space back and drafting well. Since rookie contracts are on a wage scale, most players don't make too much money on their rookie contracts. Now that Brees is retired and New Orleans is looking for a long-term answer at quarterback, continuing to delay the inevitable hasn't made much sense for the front office.

How Do Teams Clear Cap Space?

One popular way that NFL teams can clear cap space during the offseason is by converting a player's base salary into a signing bonus. This is the most common loophole that teams tend to exploit to get under the cap. One thing required is an owner with plenty of cash on hand who can issue the signing bonus at the time of restructuring in order to lower the current cap number. This tactic has become famous by New Orleans Saints general manager, Mickey Loomis. Despite the conspiracy theories, this option is available for all 32 teams.

Bonuses are typically part of a player's contract that is fully guaranteed. If a player receives a five-year deal with $50M guaranteed, the bonus is spread out over five years at $10M per year when it comes to the salary cap. After winning the Super Bowl in the 2020 season, the Tampa Bay Buccaneers signed Tom Brady to an additional extension where void years were added to his contract. This put Brady's cap hit at a measly $10.5M in 2021 and $11.8M in 2022, which allowed the team's Super Bowl window to remain open. Now that Brady has retired, the Bucs are stuck with $35M in dead cap for 2023. This $35M was the portion of Brady's contract that was deferred to later years, and now that he has retired, the bill has come due.

Dead cap refers to the portion of a player's bonus that still counts against the team's salary cap even though that player is no longer with the team. This usually happens when a player is released, traded, or retires when they still have bonus money that has not yet been counted against the salary cap. The reason teams have bonus money in contracts is to stretch those figures back to later years, but the money never technically disappears as far as the salary cap is concerned.

The Importance of June 1 For Cap Purposes

June 1 is importantly related to the salary cap because when players are traded or released after June 1, the team has the option to spread the cap hits between two seasons instead of one. This is the reason why the Packers trading Aaron Rodgers this offseason is partially complicated. If he is traded, Green Bay will face a $40.3M dead cap penalty, which would nearly be the highest in NFL history. This dead cap hit would amount to 18 percent of the Packers' salary cap for 2023. If they are able to trade him after June 1, then they can spread half of it out between 2023 and 2024.

For the record, don't expect Rodgers to be moved after this date as the Packers would likely want some 2023 draft capital in order to move on from their future Hall of Fame quarterback. A more likely example of a player who could be a post-June 1 cap casualty would be New York Giants wide receiver, Kenny Golladay. Rather than take a $14.8M dead cap hit all at once, the Giants could split it between 2023 and 2024.

How NFL Contracts Are Structured

It's important to understand the way that many NFL players' contracts are set up.

One thing that attracts a player to sign with a new team during free agency is the amount of guaranteed money. This is typically the signing bonus that the player will receive in the new deal, but the catch is usually all of that money is fully guaranteed. The good news for teams is they can spread it out over the life of the player's contract instead of all at once, but if they move on at all from the player before his contract is up, there will be dead money that will count against the cap.

Here are the five largest dead hits in NFL history and all came via trade:

• Jared Goff - Rams: $22.2 million
• Julio Jones - Falcons: $23.2 million
• Russell Wilson - Seahawks: $26 million
• Carson Wentz - Eagles: $33.8 million
• Matt Ryan - Falcons: $40.5 million

Conclusion

If the NFL's salary cap was a complete myth, then the New Orleans Saints would not have let Trey Hendrickson, Terron Armstead, and Marcus Williams sign elsewhere. Contrary to popular belief, the cap hits never disappear, they are just often stretched out over time to lessen the blow, but eventually, they come due.

The salary cap can be an overwhelming and confusing topic for many football fans. Hopefully, this article provided you with a basic understanding of the salary cap and how it works. As free agency is set to begin in the next month, it is important to know certain nuances of the salary cap and what decisions your favorite team may have to make in the future.

If you enjoyed this article or have any more salary cap-related questions, feel free to get at me on Twitter. May your favorite team fare well in free agency this offseason.

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