Understanding the NFL Salary Cap & Implications for the Bills

The National Football League’s salary cap has been getting much more attention lately than it has in previous years. All 32 GMs will have to get creative to maneuver a tricky salary cap situation over the next few seasons. Fortunately for the Buffalo Bills, they have one of the best contract crafters in the game. Brandon Beane inherited this team in an awful cap situation with a handful of irresponsible contracts that handicapped his ability to hit the ground running building his roster from day one. Even through the shedding of terrible contracts and the negative impacts of taking on dead cap, Brandon Beane has put together rosters that have made the playoffs in three of his four years as General Manager. His hard work opened the door for the team to take on big contracts from superstars like Stefon Diggs as well as resign his own to record-setting deals. Four years and one executive of the year award later, Beane will have his biggest test yet. He will be tasked with keeping the core of the roster together and adding key pieces to put the Bills over the top, all while dealing with a shrinking salary cap.

This is the first piece that I will be doing in a salary cap series that will span the offseason. In this introductory piece, I wanted to explain some of the salary cap language and the implications for the Bills for potential readers who aren’t up to date with the NFL’s spending limit. Let’s dive in.

What is the salary cap?

The NFL’s salary cap limits how much money teams can spend on contracts. This is meant to equal the playing field, so small market teams like the Buffalo Bills can compete with large market teams like the Los Angeles Chargers. There is a maximum that teams can spend up to, and there is also a minimum that teams must spend. The minimum is 89% of whatever the salary cap is for that given year. The salary cap has been on a steady increase over the last decade, but that streak will come to an end this year. For the 2020 NFL season, the salary cap was $198.2 million, and given how the cap has grown every year, the anticipated cap was around $210 million for next season.

However, the fiscal fallout from the COVID-19 pandemic will result in a monstrous decrease in the cap than what was expected. For much of the year, league executives believed the 2021 cap would be set around $175 million, which would decimate rosters around the league of teams who were already cash strapped to begin with. Over the weekend, ESPN’s Adam Schefter reported that the cap is expected to be slightly higher than many expected, around $180-181 million. That will help things a little, but every team will be forced to cut back.

Key salary cap language

Here are some popular terms that are related to the salary cap and NFL contracts.

Base Salary – This is the amount of money that players will be paid for being on the team during the year. It is the bare-bones amount before anything else is added in, such as bonuses and guaranteed money. The base salary is important to consider because it can be manipulated in any way that the team and player agrees to, and will often be manipulated based on the team’s current cap situation. For example, consider a player that is due $12 million in base salary over three years. While it may seem obvious to divide them into equal base amounts, which would be four million per year, it could just as well be ten million the first year and then one million in year two and one million in year three. As long as the base salary amount equaled $12 over those three years, a GM can structure the salary however he would like. If a player is cut with term still left on his deal, then the player would lose any remaining base salary amounts, since he would not be playing for that team during those years. The team would not incur a penalty for lost base salary; it would actually be savings for the team.

Guaranteed Money – Guaranteed money is important to understand if you are to get a handle on salary cap lingo. This is what the player will be paid and what the team is on the hook for no matter what. A team could give a player $50 million guaranteed, and if they cut them after one year, they will be paying off the remainder of that $50 million for years to come. Have you ever heard of teams paying for players that are no longer with them? That is because of guaranteed money. The term that is used for that situation is dead cap, which we will cover next. There are three types of guaranteed money in the NFL. The first is fully guaranteed–which is exactly as it sounds. Everything in the contract the player is owed, even if they are cut. The second is money that becomes guaranteed if the player is on the roster at a certain date. You’ll remember this is how Doug Whaley structured Tyrod Taylor’s contract a few years ago. While it was a multi-year extension, the Bills could have gotten out of the deal with a minimal cap hit before a certain date when the rest of the guaranteed money locked in. Third, there are injury guarantees, which protects a player’s guaranteed money if he is injured and released from his contract.

Dead Cap – Dead cap occurs when a team cuts a player that they still owe guaranteed money to. Since the team guaranteed that money, they have to pay it out. For the most part, teams do not get to decide how they want to pay it out after the fact. That is determined when the contract is signed and based on how the money was spread out when the deal was agreed to. Due to the fear of dead cap, you rarely see teams backload a deal with guaranteed money unless they are certain that the player will be around for the entire contract. Nothing is worse for a GM than not being able to afford a free agent that could help their football team in the present because they are still playing a large chunk of money to a player that is no longer in the building. The financial mess that Brandon Beane inherited from Doug Whaley had a lot to do with dead cap. Entering Josh Allen’s rookie season, the Bills had nearly 70 million in dead cap space from the likes of Marcell Dareus, Eric Wood, Cordy Glenn, Kelvin Benjamin, and Tyrod Taylor. Needless to say, the wizard that is Brandon Beane has completely fixed the dead cap situation that he inherited.

Signing Bonus – The signing bonus is meant to sweeten the deal for prospective free agent singings and is a form of guaranteed money. The signing bonus is paid all at once to the player, but the effect it has on the salary cap is different. Teams can pro-rate the signing bonus across the life of the contract, up to five years. For example, if the Bills sign a player for four years and gives them a $40 million dollar signing bonus, while the player gets the $40 million at signing, the cap hit (for just the signing bonus) would be as followed:

Year 1 – $10 million
Year 2 – $10 million
Year 3 – $10 million
Year 4 – $10 million

Simple math, $40 million divided by four years is $10 million per year. The $10 million would then be added to a player’s base salary and any other bonuses when calculating the total cap hit for that year. If the Bills cut the above player after year three, they would still have to pay the $10 million towards the cap that is owed in year four. While they would save on the player’s base salary (because he isn’t playing on the team), the signing bonus would be considered dead money.

Workout/Roster Bonus – There are two separate roster bonuses that are paid out if players meet certain requirements. For a workout bonus to be paid out, the player must attend required offseason workouts. A roster bonus is paid out if a player is on the roster at a specified date. Typically, these bonuses are not guaranteed, and similar to base salary, if a player is cut then they would lose any workout or roster bonus money. The team would not incur any dead cap from workout and roster bonuses. This would be a cap saving for the team. When players are cut, it is usually before the date that the roster bonus is due in the offseason.

Where the Bills stand

If the cap is indeed at 180 million as Schefter reported, the Bills would be sitting about one million over the salary cap for the 2021 season. With free agents like Matt Milano, John Feliciano, and Darryl Williams hanging in the balance, the Bills will need to create a lot of cap space in a short amount of time to keep those players, especially Milano, around. I mentioned earlier the outstanding job that Brandon Beane did with the dead cap number. Going into next year, the Bills have under three million in dead cap. That number will increase with some of the veterans that the Bills will need to release this season, but that is a fantastic number in a year where quite literally every dollar counts.

Next week, I will take a look at some of the veteran players that the Bills should consider moving on from in order to gain cap space. Maneuvering the salary cap this offseason is a task that will separate good GMs from great GMs. Let’s hope Brandon Beane is on the right side of the competition when the dust settles next September; he has not given us any reason to doubt him yet.