NFL Salary Cap 101 - Part 1

The NFL knows no off season. We are into free agency where money talks and fan rationality walks. Big contracts are flying around but why can’t your team participate? You want answers and you want them right now, so MZE has dug into the financial end of the game and is here to help. In part one of this three part series I explore the beguiling world of the NFL salary cap.

The NFL has a salary cap in place, which is an excellent policy, because theoretically it gives every team and equal opportunity to compete with each other by giving each team the same amount of money to spend on players. It’s like when you and your siblings all got the same allowance no matter how old you were or which one of you was better at kissing your parents’ asses to get what you wanted (nice try, Becky!).

It’s the job of the Collective Bargaining Agreement to set the cap for a season, which is a pre-negotiated percentage of league revenue. Overall, based on the current CBA, between 2015-2020 the players receive 48.5% of total league revenue. Back in 1994, the first year of the cap, each team had $34 million to spend on players. That number for 2019 will be $188.2 million. That’s a whopping 453.5% increase.

Now just because this money is available doesn't mean teams have to spend it all. It also doesn’t mean teams can go out and load up on every XFL castoff out there. There is a rule that teams must spend an average minimum of 89% of this money on player salaries over a four-year predetermined period. The current spending period runs from 2017 through 2020.  As an example, if a team wants to spend 85% of the cap over two years, it can. That also means over the last two years of the four-year period it has to spend at least 93% of the cap. So if you wanted to see which organizations want to maximize profit (looking at you, Bengals), you'd probably notice them flirting more with that 89% minimum. 

Spotrac has a great tool to see how teams allocate their cap dollars. Check it out here.

There’s some protection built into the cap for the players as well. A secondary requirement is that a minimum of 95% of the total salary cap for the 32 teams must be spent on player salaries. If it isn’t, the money is distributed among the players.  Must be fun being the accountant for the league, huh?
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Now how the cap gets calculated is a complex thing. There’s a formula used that takes into account all revenue streams for the league. Things like ticket sales, merchandise, television contracts, and seat licenses are all considered when make the annual cap determination. Players receive 55% of media revenue (i.e. television money), 45% of post season revenue and 40% of locally generated revenue (i.e. stadium naming rights).

So what happens if a team blows past the cap?  Well it all depends upon how the league sees the violation, but the penalties can be pretty strict. For example, the 2012 Washington Redskins took a $36 million hit to their cap space thanks to some creativity taken in 2010 with Albert Haynesworth's and DeAngelo Hall's contracts. That same year saw the Cowboys get hit with a $10 million cap penalty. That’s why teams employ ‘capologists’ now to ensure they’re conforming with league rules.

So that’s part one of the series. In part two we’ll talk about dead money, and no, it is not just a biography of Sam Bradford.

Until next time, make sure you cap your beer so it doesn’t go flat, keep your streams flowing inside the bowl, and collectively bargain to get a two-for-one drink night every chance you can.
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Yours in football,
MZE