We're still a week away from Super Bowl LI. The Atlanta Falcons and New England Patriots are busy plotting how to win the National Football League championship, and the sports pundits are incessantly analyzing and predicting which team will hoist the Lombardi Trophy. Meanwhile, though, the brain trusts of the league's other 30 teams are already strategizing about next season and beyond. At the center of their focus is the mind-bending, arithmetic game-within-a-game known as the NFL salary cap.
On the surface the salary cap, as in other professional sports leagues, is the maximum amount of money teams can spend on their players' contracts in each year. Below the surface, however, hitting that number is a tempestuous process, one that some teams, such as the Patriots and Falcons, have a history of doing better than others.
The front-office practitioners within every NFL franchise, as well as the cottage industry of ardent followers that swirls around it, rightfully claim that "capology" — as they like to call it — is a 365-day occupation. They obsess over current NFL rosters, examining each team's unrestricted and restricted free agents, players who might be waived/released or retire, signing draft picks, setting money aside for future injuries, looking into possible trades, and ways to restructure contracts in order to become salary-cap compliant.
But the financial and logistical maneuvering really kicks into gear around now, with upshifts of free-agent signings in March, then goes full bore with the college-player draft in April. "They know what they're doing," said Adam Schefter, an NFL analyst for ESPN, "and they've projected their cap strategies years in advance."
The league sets the final cap number in early March, but most capologists are now estimating that it's going to be about $168 million, up from $155.27 million last year.
Nonetheless, that's a fluid number, because some teams will spend less than the cap and others will spend more. How teams do that voodoo has evolved into an art and science ever since the NFL adopted its salary cap in 1993, a system updated most recently as part of the 2011 collective bargaining agreement, or CBA, with the NFL Players Association.
So how do they arrive at that $168 million cap? It's complicated, according to Jason Fitzgerald and Vijay Natarajan, co-authors of "Crunching Numbers," a book that dives deep into the subject. "The salary cap is brought together by computing the yearly unadjusted team cap number plus any previous year cap carryover," they state in the introduction, "which is then added to or lessened by any adjustments needed. This gives us an adjusted cap figure." And that's the salary cap. … Well, sort of.
The CBA doesn't stipulate any year-to-year changes to the cap rules. Rather, Fitzgerald and Natarajan told CNBC.com, "every year, teams can carry over money from the previous year." If teams don't carry that unspent money over from one year to the next, however, they lose it.
For instance, the Cleveland Browns didn't spend slightly more than $50 million from their cap this season, so they'll have that extra amount to spend for in 2017 — which is a good thing, considering the Browns finished a league-worst 1–15. To begin turning things around, they've just signed their star linebacker and free-agent-to-be, Jamie Collins, to a four-year $50 million contract, of which $26.5 million is guaranteed, meaning that even if Collins is traded, released or otherwise leaves the Browns, he'll earn those extra millions.
There are several other factors that go into calculating the salary cap. The CBA includes a formula, tied to total league revenues, that is used to calculate player costs. League revenues are divided into three revenue buckets. The largest is what the NFL earns from multibillion-dollar contracts with television and radio networks, such as CBS, NBC, Fox, ESPN and Westwood One, with 55 percent of that going to players, 45 percent to the owners.
Next is money from the league's various other media and marketing branches, including the NFL Network, NFL.com and NFL Films, with 45 percent going to players. Finally, players get another 40 percent from each team's local radio contracts and home-game ticket sales and concessions. Subtract from that total 47.5 percent of what's called the joint contribution credit, which the NFL uses to fund things such as healthcare of retired players and medical research.
Once the league arrives at the unadjusted salary cap, then teams make adjustments to the individual caps, arriving at the adjusted cap. Besides cap carryover, the other major ingredient is the incentive adjustment. Incentives are achievements written into individual contracts, including things like play-time percentages or a prescribed number of yards rushed for running backs, passing yardage for quarterbacks and sacks for linebackers.
After each season is over, Fitzgerald and Natarajan explain in "Crunching Numbers" that the league determines which incentives each team actually paid and compares that figure to the estimates that were charged against the salary cap. If a team's incentives paid are higher than the cap amount charged, the following season the team's cap is adjusted downward. If the incentives paid out were less, the team receives an upward credit.
While that provides a basic overview of how the salary cap system works, teams and players will get a much clearer picture beginning in March. Until then, CNBC.com will play amateur capologist and then follow up with a closer look at how things might shape up in the march toward Super Bowl LII.
— By Bob Woods, special to CNBC.com
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