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The NFL Draft and the Salary Cap: A Refresher Course

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The NFL Draft and the Salary Cap: A Refresher Course

The NFL has set the salary cap at $177.2M for 2018.  Each team also has some rollover that adds to that amount to arrive at what is generally called a team’s effective cap limit.  Green Bay rolled over $3.934M, so our effective limit is $181.134M.  At present and until the first regular season game, the Rule of 51 is in place under which only the 51 highest base salaries (technically P5 compensation) count against a team’s effective cap limit.  The difference between a team’s effective cap limit and the 51 highest contracts is often referred to as a team’s salary cap space.  
 
The NFL also has several sub-limits relating to rookies, both drafted and undrafted.  These sub-limits are known as the Undrafted Rookie Reservation, the Year One Rookie Allocation (also known collectively as the rookie draft pool), the 4 Year Rookie Allocation, the 25 Percent Rule, and the Year One Formula Allotment.  I will look at these in turn only to the extent absolutely necessary for reasonable clarity.
 
There are no cap consequences to the Packers just for handing in the draft card to the Commissioner during the draft.  The NFL automatically assigns a cap charge of $480K for each player selected, which remains in place until such time as that player actually signs a contract.  The cap charge of $480K applies to the very first player selected in the draft and to Mr. Irrelevant, also known as pick #256.  Since the Rule of 51 is still in force until the first NFL regular season game occurs on September 6, and since the 51st highest paid player on Green Bay's roster earns $525K, the team's salary cap space will not budge by even a single dime as it selects 12 players. 
 
The NFL uses the Year One Formula Allotment under which each draft slot is assigned a maximum year-one cap charge amount for drafted players.  There is also a Year One Minimum Allotment.  The formula has been agreed to by the NFL and the NFLPA, and the formula is not disclosed to clubs, players, or agents.  The Year One Minimum Allotment is actually agreed to by the NFL and the Union in an annual Side Letter agreement.  Using the formula, the NFL simply imposes a maximum cap charge for each draft slot.  Adding up the imposed maximum cap charges for each of Green Bay’s 12 draft picks essentially yields the team’s rookie draft pool number, which this year is estimated by Sportrac at $9.365M.  
 
The maximum year-one cap charge was $1,702,117 for Kenny Clark, the 27th pick in the 2016 draft.  The 25 Percent Rule requires that the year-one cap hit cannot increase by more than 25 percent in year two.  25 percent of $1.702M is $425,529.  If one checks Clark’s contract data on Sportrac, the year two cap hit is $1.702M plus $425,529.25, or $2,127,646.  His cap hit for year three is $425,529 more ($2,553,176) and year four is again $425K more at $2,978,707.  Adding up those cap hits for the four-year contract results in Clark’s 4-Year Maximum Cap charge allocation.  If one did this for every draft pick in 2016, one would calculate Green Bay’s 4-Year Rookie Allocation.
 
The 25 Percent Rule also contains language that favors making a player’s year one base salary equal to the applicable NFL minimum salary.  In Clark’s case, that was $450K in 2016.  The year-one maximum cap charge minus the NFL minimum base salary ($1,702,117 minus $450,000 = $1,252,177) yields the amount necessary as a signing bonus proration.  $1,252K/year times 4 years equals Clark’s signing bonus.  That is the basis for slotting.    
 
Trading up or down in the draft has no salary cap space consequences until the players sign actual NFL contracts.  If a team trades a draft slot prior to the completion of the draft, the maximum cap charge amount per the Year-One Formula Allotment for that selection is assigned to the Club receiving the pick.  Sportrac estimates the maximum Year One Cap Charge for pick number 14 is $2.519M.  If Green Bay trades pick #14 and other picks to Indianapolis for pick #6 (which has a One Year max of $4.383M), Green Bay will be assigned the max year one and 4-year cap limits for pick #6, and Indy will be assigned the limits associated with pick 14 ($2.519M) and for the other picks we send to Indianapolis as well.  
 
Generally speaking, teams should have no trouble complying with the rookie draft pool due to slotting even if they trade up or acquire an extra first-round pick since they will be assigned the cap space associated with those picks for purposes of the rookie draft pool sub-limit.  Some teams that have little cap space under the general team limit of $177.2M (plus any amount rolled over) might have some issues if they trade up or acquire additional picks, such as by trading draft picks in 2019 for 2018 picks, but not with the rookie pool.  The cap charges for first-round picks are much higher than for later round picks.  Pick #45 should have a cap charge of just $1.144M versus $5.0M for pick #3 for example.
 
Undrafted free agency works differently.  The cap within the general cap is called the Undrafted Rookie Reservation.  For UDFAs, only the compensation that exceeds the NFL minimum for players with zero credited seasons ($480K) counts against the cap.  Generally, this means only the signing bonus, if any, paid to UDFAs counts against the rookie draft pool.  The amount of signing bonuses that any team can pay to UDFAs was $75K in 2011.  That $75K limit increases annually by the percentage increase in the Total Rookie Compensation Pool, which is roughly but not quite the percentage by which the salary cap increases each year.  The limit was $92,021 in 2016 and should be around $100K for 2018.  Teams have found a way to circumvent this limit: some teams have guaranteed the P5 or Base Salary of some contracts signed by UDFAs.  Teams have guaranteed as much as $100,000 in base salary for UDFAs.  Teams can sign UDFAs for more than the minimum of $480K as another inducement.  
 
One third of the Undrafted Rookie Reservation is added to the rookie draft pool.  Perhaps this is why Green Bay traditionally has not used more than a fraction of the available UDFA pool.  Another reason might simply be Green Bay’s reputation for giving UDFAs a shot at making the roster or PS, so bribing them with large signing bonuses is unnecessary.  Still, I’ve never understood why a team would risk losing a prospect they like over $10K.  
 
There is some negotiation involved in contracts, even if it isn’t much.  For instance, quoting Rob Demovsky’s May 5, 2015 ESPN article: “Last year [2014], the Packers' rookie pool cap number was $5,666,923 and they used every dollar of it, but they did not use their entire $31,168,077 total rookie cash allocation [4-Year Maximum Allocation]. The total value of their rookie deals last season was $29,900,575.” That is $1.267M less than Green Bay could have paid out to its 2014 rookie class over the course of 4 years.  Some players got less than the maximum: that could be due to leverage or some players may have opted for slightly higher guaranteed money and offset that with taking a little less base salary in the out years of the contract.
 
There should be no trouble complying with the rookie draft pool for drafted and undrafted players, even if we trade up.  Signing our draft picks should reduce our cap space by less than $3M or so.  Trading up usually results in larger reductions in cap space.  Acquiring even pick number 10 and its $3.227M maximum cap charge would reduce our cap space under the rule of 51 by $2.7M alone.
 
After the draft, I plan to look at our cap space under the Rule of 51 and to take a peek at our cap situation when that rule expires and all contracts count in September.
 
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Fan friendly comments only: off Comments (24) This filter will hide comments which have ratio of 5 to 1 down-vote to up-vote.

The TKstinator's picture

Nobody said there would be math.

Thegreatreynoldo's picture

I seriously thought about starting the piece with a warning: there will be math! [Math, not meth -fat fingers there for a second!]

The TKstinator's picture

Saul Goodman!
(Aka “it’s all good, man!”)

flackcatcher's picture

MY HEAD HURTS....... Seriously detailed tgr, thanks. Now going back to read it again. This is the result of the last CBA, I shudder to think what the cap is going to be under the next CBA. ( if there is one giving how much the owners and players and agents hate each other)

Thegreatreynoldo's picture

It is meant to be reassuring: we can afford to trade up under the rookie draft pool and to trade back or sideways for that matter. Our general cap is fairly decent, but obviously, if we traded way up and/or traded for a second first round pick, then making an offer for say Breeland or a couple of general fits like Jahri Evans, maybe a veteran Edge guy, etc., might mean things get a bit squeezed, but overall, pretty doable.

I've been wondering why the contract details for House still are unknown. It has been a while now since he signed his deal. I wanted just to update our cap space, but I needed to know House's numbers.

Edit: House signed for one year. Cap hit is $720K. It is a qualifying contract, so House gets paid $1.05M, but the cap hit again is just $720K. That's $70K less than Goodson, and $90K more than Brice, Evans and Hawkins. It is $165K more than Pipkens and Brown.

flackcatcher's picture

I was wondering about the cap flexibility issue TGR, thanks for answering it. The House contract is interesting. This might be the new normal for FA veterans moving forward. Still, I think the players and agents might not see the impact the current CBA is having on them. Talking about dropping off a cliff salary wise. Man oh man, those numbers are ugly......

Tundraboy's picture

I'll have to read this again after I get a good night's sleep and some serious coffee.

marpag1's picture

Thanks, TGR. Most of this I have heard at some point before, but it was nice to see it all gathered together in (somewhat) simple form. Helpful. Thumbs up!

croatpackfan's picture

You are my hero TGR...

Bure9620's picture

Very nice evaluation Russ Ball, I mean TGR.

LambeauPlain's picture

The complexity of a business relationship is directly proportionate to the number of lawyers involved.

The NFL is filled with lawyers on both sides. Job security for the Bar.

Andrew Lloyd Peth's picture

Informative article, very well-written, but the bottom line is this team has nowhere near the cap space needed to turn around, and Draft Day movement will hardly affect it.

I've resigned myself to the inevitable: We can't have a big impact player like Vea, Chubb, Nelson, Ward, Edmunds, James, or Fitzpatrick, and we can't afford the trade-up to get them.

...so we'll stand pat and settle.

My only hope is we trade down from 14 to move up substantially in the following rounds. There's just too much Ted-damage for Gut to fix.

If only we had lost one more game. Sigh.

Spock's picture

TGR, I always appreciate the work you put in to explain this stuff! Great job, as usual! Thanks.

DD's picture

Very complicated article to read at once and absorb. Now we can all slerp better. Trust me, the Pack has a plan.

Finwiz's picture

If you actually read that entire article, you no doubt had too much to "slerp", or you needed to "slerp" a bit afterwards to relax your mind.

TLDR

Seems like quite a few around here don't understand the concept of "brevity being the art of wit".

Quite a bit of delusion of grandeur around these parts with "wanna-be" writers thinking they missed their calling.
And to think they do this for nothing, it all just screams, 'I don't have a life'?

WKUPackFan's picture

The correct quote is: "Brevity is the soul of wit", originating from Hamlet.

marpag1's picture

It's lost on Wiz, I'm sure. He thinks Hamlet is a small ham.

Finwiz's picture

This is hardly the place for Hamlet.
Problem is, many here believe they're Shakespeare, trapped in a sportswriters body.

marpag1's picture

True. But it's better than being a jackass trapped in a jackass' body.

WKUPackFan's picture

That sums him up perfectly.

Thegreatreynoldo's picture

No Fin, I don't think I missed my calling. If I could make the cap entertaining and informative, that would be something. I think you should acquit me of writing clickbait articles at any rate! I've always wanted to read more articles on the financial side the NFL, but that interests a smaller audience, so I learned on my own.

As to the needs-a-life charge, I hope to improve that now that my youngest child is old enough to be left home alone and is more accepting of the notion of me socializing and even dating again. I closed my business when I became a widower, took a regular job and became a single parent. Now that my youngest is no longer a middle-schooler, we'll see what I can make happen!

cheesycowboy's picture

Nice work James. Do another on the five we keep under that scenario and that will get us through until Thursday.
Well done.

Thegreatreynoldo's picture

I saw a guy post a comment on another site about abusing one of the draft simulators. He kept trading back, and back some more until he accumulated 85 draft picks, including 4 3rd rounders, 22 4th rounders, 35 5th rounders, and 24 sixth and seventh rounders. [I think he got tired of all the mocks being posted.] So I wondered if that could be done under the cap?

I think it could be done (but I haven't done the math). The rookie draft pool would be no problem. Handing the cards to the Commissioner wouldn't decrease our cap space by a dime. They could even all be signed for about $6M in decreased cap space. The roster maximum is 90, so they could all be signed, though we'd have to release about 60 current players - all but 5.

Thegreatreynoldo's picture

The link is to an article about the Rookie Redistribution Plan (despite the name, there is also another component called the Veteran's Performance-based plan as well). As indicated, these two plans compensate players for their snap counts and it also factors in their total pay. Even Daniels got a $1,000 or so under the plan recently, but the rookie part is more important. In 2016, Gunter earned $306K in extra compensation for playing so many snaps while earning so little on his contract. Here is the kicker: these plans and the money received by the players do not count against the cap. The NFL funds it, and the Union disburses the money outside the cap. See the link for payments under the program to packer players last year. Even AR got $5K.

There is another clause that is cap-related. Rookies who play 35% of the snaps in their first three seasons get a salary escalator for their fourth season, but it only applies to rookies drafted in rounds 3 through 7. Players drafted in the 1st and 2nd rounds, and UDFAs, are not eligible. RR's salary and cap hit ballooned to $1.9M for 2017 (it isn't guaranteed and I considered him on the bubble due to the cost). This year Jake Ryan qualified and his cap hit ballooned to $2.02M for the upcoming season. For that reason, I consider Ryan to be on the bubble, but that depends on who we draft.

http://www.espn.com/blog/green-bay-packers/post/_/id/44060/blake-martine...

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