BACK-LOADING NEW AND EXISTING CONTRACTS
A common method used by NFL teams for lessoning the salary cap hit of certain years is back-loading contracts. This is why you see many star players restructuring their existing large contracts, and also is an attractive way of adding expensive free agents onto the team without immediate financial consequences. While it helps tremendously in the present time, their always comes a time to pay the piper on these deals. In this structuring process, the current year or first few years of the deal carries an annual salary that is greatly lowered compared to its latter years. To compensate for this decrease, the player is given a signing bonus that typically makes up for the reduced amount. It allows the team to spread the bonus out over the remaining life of the contract, and the player gets all the money up front.
A recent example of this cap-friendly transaction involved Tony Romo. In 2011, Romo restructured the final three years of his existing 6-year contract. His salary cap hit then became $5,840,000 in 2011, $14,030,000 in 2012, and $14,230,000 in 2013. It’s clear to see how much this restructure helped the Cowboy’s salary cap savings in 2011, to the tune of $8,190,000. For Tony’s willingness to readjust and his substantial decrease in salary in 2011, he received an $8.19 million signing bonus up front. While this bonus is spread out on the salary cap over the final three years of Romo’s contract, he received all of the money up front bringing his income in 2011 back to $14,030,000. Thus Romo lost no funds in any year from the restructure and the Cowboys received much needed relief.
Back-loaders Beware: What Comes Around Goes Around
The back-loading scenario is relevant to the 2012 Dallas Cowboys as it provides an attractive option if making a play for a high-profile, costly free agent. However, proponents of back-loading beware. Much of the recent contract restructuring and back-loading in Dallas comes to a head in 2014. Let’s take a look at some of the Cowboys star players with back-loaded contracts that should still be valuable pieces of the puzzle in 2014. And more importantly, focus on the top five players with significant salary increases from 2012 to 2014. Of note, these are player salary figures only and not the total cap hit as those numbers become fluid annually with other bonuses, etc.
Player 2014 Salary 2012 Salary $ Increase
DeMarcus Ware $12,250,000 $ 4,500,000 $ 7,750,000
Miles Austin $ 5,500,000 $ 1,150,000 $ 4,350,000
Gerald Sensabaugh $ 4,000,000 $ 1,000,000 $ 3,000,000
Doug Free $ 8,000,000 $ 6,000,000 $ 2,000,000
Marcus Spears $ 3,000,000 $ 2,000,000 $ 1,000,000
When 2014 rolls around, the five players above, without any further contract re-adjusting, will cost the Cowboys $18,100,000 more for their services than in 2012. And even with more contract adjustments or even release, the remaining balances from their hefty signing bonuses must still be accounted for against the salary cap. Certainly, Stephen Jones will work his magic in creative ways to lessen the cap hit on 2014; however, clearly there’s an unusual amount of wiggling that will be needed to get things in order. So when seeking to acquire any high-priced free agents this off season, it’s important to remember 2014 is already looming mighty large on the landscape before adding new paper to the pile.
Alright armchair general managers, time to dust off the calculators, check our frustrations at the door, and get to work building a champion…so much to be done, so little time and money available. Nobody ever said the NFL off-season is for the meek and faint of heart.