All right, you're a salary cap veteran now. You've learned your lesson about amortization, you've dug your team out of the salary cap hole you put it in, and you're bound and determined not to let it happen again.
So, what's your plan? How are you going to put a competitive team on the field and keep your salary caps of the future healthy? Well, there's no one way to accomplish that feat, but if you've already determined amortization is dangerous, then you've probably also noticed salary is the safe way.
They are exact opposites. Bonus amortization pushes money into the future. Salary brings it into the present. Remember, amortization is money paid now that's spread out evenly over the length of the contract; salary is money paid now that must be declared in full in the year it's paid. A balance must be achieved.
Capologists refer to salary caps heavy on amortization as "soft caps," and salary caps heavy with salary as "hard caps." High in salary, low in amortization is a formula that protects a team's future, and you've decided that's what you want to do. No more win now, pay later. You've decided you want to win now, pay now.
The advantages of salary money are distinct. A player with a contract high in salary and low in amortization can't hold his team hostage. Given that scenario, the team holds the leverage. They can cut that player at any time and, despite the "dead money" that is his remaining amortization, usually realize a savings over the cap figure they've assigned that player.
Oh, by the way, players whose contracts are high in salary are also generally regarded to be high in motivation.
Let's go back to our make-believe player with the five-year contract that included a $5 million signing bonus. The contract provides for salaries of $1 million, $2 million, $3 million, $4 million and $5 million. After the third year of his contract, it's very apparent the guy's a real stiff. He's gotta go. Can our cap handle it?
You betcha.
His remaining amortization is $2 million and his salary in 2004 is $4 million. He is scheduled to be a $5 million cap hit, which includes his salary and one million dollars of prorated bonus amortization. When we cut him next week (Feb. 24 is the first day that's allowed), his remaining amortization accelerates into '04, which means our cap is going to take a $2 million amortization hit, but we're going to save his $4 million salary. That means his release will produce a $3 million cap savings.
Way to go. You did a great job structuring that contract. Now here's a little pop quiz for you: What if you had cut the stiff a year ago? Would there have been a cap savings?
Always remember, you pay it, you claim it. In the case of bonus amortization, it's money already paid, and that means it has to make its way through the team's salary cap. Salary that hasn't been paid simply disappears, and its amount is credited to the team's cap.
Yeah, baby, that's the way to do it. No more signing bonuses for my players. Salary only, guys.
Well, that's a great idea, but you might have a tough time selling that concept to your players' agents. They like their players to get their money up front. Agents like their players to have the leverage; at least in the early years of their players' contracts. And as long as the remaining amortization is greater than the scheduled salary, the ball is in the player's court.
So you have to find a way to persuade the agents to do it your way. You have to find a way to negotiate leverage in your favor. What we're talking about is the structure of that contract. Your responsibility as your team's cap manager is to find a way to maintain flexibility, and that's accomplished with contracts that are high in salary and low in amortization.
Right away, agents sensing your pursuit of that contract formula are going to play hardball. You've drawn a line in the sand and they're going to do the same. They may not even consider such a contract, but if they do, salary is going to be outrageously high and the length of the contract is going to be very short.
But don't despair. This can get done. There are ways of giving the agents what they want, and still get the kind of structure that safeguards your team's future.
Roster bonus right away springs to mind. Signing bonus must be divided evenly over the life of the contract, but roster bonus must be declared in full in the year it's paid. So, roster bonus is good for you and good for the agent. He doesn't care what you call it, as long as his player gets his money now.
Remember Mike Peterson's contract? The Jaguars gave him a $2 million signing bonus and a $2 million roster bonus. That put $4 million in Peterson's hands when he signed with the Jaguars last March, but less than $1.7 million of it was pushed into the future.
For all intents and purposes, roster bonus is salary. Any money paid to a player that must be declared in full in the year it's paid is the equivalent of salary. What are those monies? Well, let's go back to the first installment of "Salary Cap 101," when we built the foundation of our education.
Reporting bonus must be declared in full in the year it's paid. So must workout bonus money and Likely To Be Earned (LTBE) incentive money, which can be made payable for the most minor of achievements. The agent understands your goal is two-fold – to put money in his player's hands while at the same time protecting your team's future salary caps – and he's likely to work with you. He's protecting his client. You're protecting yours.
Don't forget the ultimate salary tool; the franchise tag. If you have it available to use, it's a means of 100 percent salary compensation.
"It reflects the current cap charge," Jaguars salary cap boss Paul Vance says of salary money, "so you have less borrowing or investment that has to be realized in the future. You simplify the rest of the planning.
"If you have to cut the player, you don't have 'dead money.' It's pay as you go," Vance added, but he was quick to caution: "I think you have to make more complicated distinctions than that."
You bet you do. But the use of salary and roster bonus money is a means of protecting your team's future, and you'll always be glad you did.
By the way, the answer to the pop quiz question is "no." There is no cap savings. It's a wash: Three million dollars of remaining amortization is washed away by $3 million of credited salary.
