NFL Free Agency 301
The Final Chapter of the best Free Agency Primer
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Today is the final day of your first year of Free Agency courses taught by me, Zach Lyons, professor of capology.
Today, I am going to break down a contract into minute detail, but also give you some insight into other offseason happenings and events you need to be made aware. Including: comp picks, June 1st designations, and of course restructuring vs extending a player.
Here’s what you’ve learned so far:
Free Agency 101 (Tuesday)
Dates to Know
Free Agency Glossary
Salary Cap Basics
Franchise/Transition Tags
Free Agency 201 (Yesterday)
AAV vs Cap Hit
Guaranteed Money
Signing Bonuses
Incentives
Dead Money
Cash Flow
Free Agency 301 (Today)
June 1st Designations
Restructuring vs Extending
Compensatory Picks
The Anatomy of a Contract
Today’s Glossary
Restructure: When a team converts part of a player's base salary into a signing bonus to create immediate cap relief. This does, however, increase the player's yearly cap hits thereafter by pushing more dead money into future years. Unless stated in the original contract, a team does not need a player’s permission to restructure.
Extension: When a team and player negotiate an extension, they add on extra years beyond the current year’s contract.
Compensatory Picks: Teams that lose more Compensatory Free Agents (CFAs) than they sign in free agency are eligible for compensatory draft picks the following year. A CFA is a player that was scheduled to become a UFA when free agency begins, not a player with an existing contract that was cut. Example:
Not a CFA (Cut by Titans): Zach Cunningham, Taylor Lewan, Randy Bullock, and Robert Woods
Is a CFA (if they’re not re-signed by Titans): David Long, Nate Davis, Dennis Daley
June 1st Designations
This obsession with released/traded players being designated a "Pre-June 1st" or "Post-June 1st" designation began with Julio Jones last year. Now it seems everyone wants every player to be cut with a “Post-June 1st” designation to save on their sunk cost in the initial year and gain a little bit extra in cap space.
Basically, a team can place a designation when cutting or trade a player on how to allocate the player's remaining guaranteed (AKA dead) money. Choosing this designation not only affects how the dead money is allocated, but when it's allocated. Let's break it down:
Pre-June 1st Designations: Any dead money left becomes a cap hit for the current year.
Post-June 1st Designations: Any dead money left becomes a cap hit spread out over the current year and following year.
You may be asking yourself how can a team cut or trade a player before June 1st but give him a Post-June 1st designation. Well, I'm glad you asked, because a team can actually categorize up to two players every year as Post-June 1st designations before June.
While there are a few teams every year that utilize this designation, very few teams actually do this every off-season, and there is a reason for that. The reason is in the fine print of the Post-June 1st rule.
The fine print: If you do this, you do not reap the benefits of the newly created cap space until June 1st.
Why is this good? You can use this money for the draft class or as a cushion for anything that comes up during camp or the season. Important to note, the Titans will likely only need about $4.5m or less, and probably less, of space to sign the draft class. This is due to the top-51 rule. If someone says they need $7.9-$8.6m kindly shake them, slap them, and say “No! Bad analyst! (or fan)”
Why is this bad? Remember, a team has to be under the salary cap to sign a player, so this technically would put off negotiations for certain free agents, and teams could risk losing out on top-tier talent if they are relying on this money.
Let's re-visit the Bud Dupree contract. Right now, all that is left that is fully guaranteed is $9.6m of his signing bonus and $1.25m guaranteed portion of his base salary. So, here’s how the June transactions would play out:
Pre-6/1 Release
2023 Dead Cap: $10.85m
2023 Cap Savings: $9.350m
Pre-6/1 Trade
2023 Dead Cap: $9.6m
Acquiring team takes unpaid base salary
2023 Cap Savings: $10.6m
Post-6/1 Release
2023 Dead Cap: $4.45m
$3.2m signing bonus + $1.25m 2023 portion of base salary
2024 Dead Cap: $6.4m
2023 Cap Savings: $15.750m
Post-6/1 Trade
2023 Dead Cap: $3.2m
Acquiring team takes unpaid base salary
2024 Dead Cap: $6.4m
2023 Cap Savings: $17m
Dupree obviously gives the team an extra $6.4m dollars in cap savings if he is cut with a Post-June 1st designation. That’s a lot of money, however, the Titans need money now, and they can’t call JG Wentworth to get it.
Don’t get me wrong, it is possible that they cut him with a June 1st designation, but I really wonder what the true benefit is. You don’t need that extra $6.4m in cap space for the draft class. You don’t really need it going into the season, because you’re probably not spending a lot on high priced free agents anyways.
The biggest thing is the dead money. It’s better to get all of the dead money out of the way in 2023. As it sits, the more money you have available and off your books in 2024, the better your chances are at making the moves necessary to go attack roster construction and contend for a Super Bowl.
In the end, having $15.75m is nice, but having it several months down the road isn’t as great as having $9.35m now.
Side note: A player can also help a team out and designate his retirement as a Post-June 1st retirement, but remember, no salary cap benefits come until June 1st.
Restructuring vs Extending
This is an always interesting topic to dive into, because the team under Jon Robinson has done a lot of this, but it has also put them in a bind when it comes to contracts and salary cap.
Restructuring a contract is exactly how it sounds in simple terms. You're either moving money around to alleviate cap hit in the current year. There are two different types of restructures, and here is how I would describe those to people:
A simple restructure converts base salary into a signing bonus. The team then gets to spread out the cap hit equally among the remaining years of the contract. In most cases, teams do not need a player’s permission to do a simple restructure.
A maximum restructure converts base salary into a signing bonus. The team then gets to spread out the cap hit equally by extending the years of the contract or can add void years. Because this is considered a renegotiated contract, teams do need players consent.
We are going to use everyone’s favorite quarterback and talk about Ryan Tannehill. Through no fault of his own, Tannehill has a $36.6m cap hit in 2023, with two void years totaling $9.2m.
What are void years? Void years are dummy seasons added to the end of the contract. A base salary restructure into a signing bonus can be pro-rated over all the remaining years of a deal up to five years, so by adding years, you can spread out the cap hit across more seasons.
If the player with void years retires or is not re-signed, those void years will accelerate to count during that next season. So, for example, if Tannehill isn’t re-signed or extended this year, and he hits the free agent market. The dead cap hit for both 2024 and 2025 accelerate into 2024.
Here’s how it looks:
2023:
$36.6m cap hit
$27m base salary
$5m signing bonus
$4.6m restructure bonus
$18.8m dead money
$5m signing bonus (final year)
$13.8m total in restructure bonus (current year + 2 void years)
2024 Void Year: $4.6m cap hit | $9.2m dead money
2025 Void Year: $4.6m cap hit | $4.6m dead money
How did this get so complicated? Well, Robinson converted $23M of 2021 salary into bonus, clearing $18 million of cap with Tennessee in 2021 to make way for Julio Jones. Here’s how that process looked:
2021 Contract details before Julio
$24.5m base salary
$5m signing bonus
$29.5m cap hit
2021 Contract details after Julio
$1.5m base salary
$5m signing bonus
$4.6m restructure bonus
$23m signing bonus (restructure bonus)
3 years left on original contract, plus 2 void years
$25m divided by 5-years = $4.6m per year
$11.1m cap hit
Essentially, what that did was in 2022 and 2023 raised the cap hits on Tannehill’s original deal by $4.6m each year but added $23m in dead money. So, if Tannehill isn’t re-signed or he retires, in 2024 it’s a dead money hit of $9.2m.
Now, what makes Tannehill appealing as a trade bait or even a potential extension candidate is that beyond what’s left of the guaranteed money ($18.8m), he has $27m to work with.
Now obviously, a restructure wouldn’t make sense for the Titans or another team, but an extension would. I talked about it in the Ryan Tannehill Vs… series numerous times, but here is a reminder of what a potential extension could look like.
Sure, you still have to carry him for two more years, but it is at much better cap hits, and buys your franchise more times. However, this clearly shows the harm a restructure can do if the player you’re making room for (Julio Jones) doesn’t pan out.
The Saints are constantly in cap hell and bad contracts because they restructure. Eventually, they will have to pay the piper, it’s just of matter of when not if.
Compensatory Picks
Compensatory picks are pretty simple. First thing you need to know is that our friends over at overthecap.com explain how compensatory picks are calculated in an easy-to-understand manner. You can also do the smart thing and just use their compensatory pick chart to let them do all the thinking for you.
The idea behind comp picks is to reward teams for drafting and developing players well. When those players go on to new teams without being replaced by big free-agent signings, the team that drafted those players is rewarded with additional draft capital.
Basically, any team that loses more compensatory free agents than they sign (in terms of total contract value) will receive one or more compensatory picks based on the difference in the following year's draft.
Most important thing to know: Only players with expiring contracts count. Cut players do not.
The Titans do not have any compensatory picks this year and won’t get any for any cuts or releases they make. So, players like Lewan, Cunningham, Woods, and Bullock don’t count. Neither do retiring players.
However, if they do not re-sign Nate Davis or David Long, and those two guys get paid big bucks elsewhere, there is a high-percentage chance they get some compensatory picks.
The formula is super complicated, and to be honest, further explaining would just be me quoting the articles I linked above or in the resources section below. Ultimately, it's best to just let someone else do all of the work when it comes to projecting comp picks.
Anatomy of a Contract (& a Tweet)
In general, NFL Media on Twitter does a disservice to fans when it comes to announcing contracts. In order to be first, they give you the bare minimum and use a bunch of words and numbers that don't really matter.
I get it. Everyone needs to be the guy that breaks the contract news. It's just that it can causes a panic or leads people to misunderstand the value of the contract. As a reminder, let's take a contract and examine the various parts:
Years - Pretty obvious, but the length of a contract in terms of NFL seasons
Overall Money - Just the total sum of the full-length of the contract
AAV: Average Annual Value, AKA overall money divided by years.
Base Salary - The salary for the player that doesn't include incentives or bonuses
Signing Bonus - An amount a player receives upfront from the team. In terms of cap hit, the signing bonus amount is typically dispersed equally over the years of the contract
Guaranteed Money - What the team has agreed the player is owed no matter what, but sometimes with a caveat
Incentives - There are two different types of incentives, but typically they are statistical or award-based goals a player needs to meet in order to be paid a certain amount of money.
Dead Money - Not the same as the cap hit, but it's the amount a team has to carry if they cut a player before the end of his contract.
Cap Hit - The amount of the contract that counts towards the current year's salary cap.
The best example is to break down a current deal. For the purposes of using dead money as an example, let’s use someone in the last year of their contract.
Back in 2021, Denico Autry signed a 3-year, $21,500,000 contract with the Tennessee Titans, including a $6,000,000 signing bonus, $9,000,000 total and fully-guaranteed, and an average annual salary of $7,166,667.
That's a mouthful, so let's break it down:
Years: 3
Overall Money: $21.5m
Base Salary:
2021: $1.1m,
2022: $6.15m,
2023: $6.75m
So the total of his base salaries is $14m
AAV: $7,166,667
Signing Bonus: $6,000,000. Paid upfront
Pro-rated over three years with $2m each year counting towards the cap hit
Guaranteed Money: $9m fully-guaranteed
$6m signing bonus
$1.1m base salary for 2021
$1.9m of the 2022 base salary
Incentives - He has a per game active bonus
$29,511 per game
He was active for 12 games in 2022
12 games (LTBE) x $29,411 = $352,932 counts as cap hit
If active for 17 games, he gets paid $500,000
Dead Money
If cut, the team will keep $2m of dead money on the books
That is the final year of pro-rated signing bonus amount
They’ll save $7,102,932 in cap space
Base Salary: $6,750,000
Per-Game Bonus: $352,932
That is a pretty simple contract. I chose that because I wanted to illustrate key points. There are more complicated contracts we could dive into, and if you have questions feel free to reach out!
Let’s break down a tweet from an initial contract signing announcement.
Remember this deal? Not only was it a bad contract, but this is a bad tweet. This is the typical contract tweet. You get years, money, confusing max deal added, and a vague amount of guaranteed money.
So, we don’t know the cap hits. We don’t know if that is fully guaranteed or total guarantees. We also don’t know how he maxes it out to a $76m contract. Super vague.
Again, it’s understandable, just remember that it’s always better to just let the numbers filter out later on down the line, instead of going crazy about certain things. Also, always remember, Cap Hit =/= AAV
Resources For You
Preferred Salary Cap/Contract web site: Spotrac.com
Franchise/Transition Tag Amounts (Projected)
Twitter Accounts: @spotrac, @Jason_OTC, @corryjoel
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