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How can teams best take advantage of the rookie salary cap?

by Chase Stuart on March 18, 2013

in Draft, Strategy, Theory

[Special thanks goes out to my Footballguys.com co-writer Maurile Tremblay for his help in co-authoring this piece with me. Any points with which you may disagree are almost certainly due to my error, and not Maurile's.]

The new NFL collective bargaining agreement that ended the 2011 lockout instituted some pretty big changes to the salary cap. When it comes to roster management, here are three ways the post-2011 NFL differs from how things were under the old CBA:

  • Rookies are now super cheap relative to their production, especially high first-round players (relative to their old cost)
  • Rookie contracts can not be renegotiated until three years after the player is drafted.
  • Over a four-year period, each team must spend 89% of the cap dollars available to them, and the league must spend 99% of the cap dollars available to the 32 teams.

Under the old system, contrary to popular belief, most (if not all) rookies were underpaid relative to their free market value. Then in 2011, the owners and NFLPA decided to rob the rookies to pay veterans even more money under the new CBA. Russell Wilson has three years remaining on his contract and will have an average cap figure of just $817,000 over those three years. Andrew Luck and Robert Griffin III will only cost their teams about 6 million cap dollars each per year from 2013 to 2015. The salary cap in the NFL in 2013 is $123M, making Luck and Griffin fantastic values, and Wilson perhaps the most valuable player in the league.

Wilson's paid in direct proportion to his height

Wilson's paid in direct proportion to his height.

What makes this especially juicy from the perspective of their general managers is that all three players are locked into their deals until 2015. Luck and Griffin actually are struck through 2016, as teams get club-options for a fifth year for the top picks. In Wilson’s case, after the 2014 season, he’ll be facing a contract that would pay him less than a million dollars in 2015 and then a possible franchise tag in 2016, meaning a maximum payout of probably 20 million dollars over two years (the tag in 2012 for quarterbacks was just under $15 million). That puts Wilson in a pretty poor position to bargain for a market deal: he’s going to sacrifice money in exchange for security. This means Seattle will get him for absurdly below-market rates in 2012, 2013, and 2014, and then will still have him on a very generous contract for the next few years after that.

In the case of Luck or Griffin, the Colts and Redskins essentially get a chance to use the tag twice; teams can turn the four-year rookie deals into a five-year deal by paying top-ten picks the average salary of the ten highest-paid players at their position; then the next year the franchise tag would be the average of the top five quarterbacks or a 20% increase on the salary from the previous year. So when they are up for renegotiation after year three, they’re looking at the team “forcing” them to stay for three years at roughly $42 million, with year one bringing just over three million. Luck and Griffin will have a little more bargaining power than Wilson, but not much. There’s no chance either player is going to play for $3 million in 2015 (remember, their cap hit will be a bit higher, but their base salaries will be around $3M in that season), so both will likely give up their freedom (which would be three years away, potentially) for security.

So rookies are severely underpaid. And players on second contracts are likely going to be underpaid, too, as they’re going to accept below-market deals to rip up their rookie contracts a year early. J.J. Watt, Von Miller, Aldon Smith, Cam Newton, and the stars of the 2011 draft are in the same boat, and next offseason is going to be very interesting. A player like Miller could be forced to play in 2013 and 2014 on his artificially low contract, then see the average of the top ten outside linebackers in 2015, and then conceivably face the franchise tag for three years in a row. That would give him under $60M over the next six years. My guess is all of Watt, Miller, Smith and Newton will hold out and/or sign new megadeals next off-season; in the end, all will sign deals that are either well below what they would earn on the free market or they will play NFL roulette, risking security for freedom and a chance to hit the open market.

So how should NFL teams navigate the waters of the new CBA? While players in their first contract (and players who restructure after year three) will offer more production per dollar than before, the flip side is that unrestricted free agents will offer less production per dollar than before. This makes draft choices more valuable, and it also makes it more important to hit on your draft choices instead of whiffing. The irony is thick: despite all the fear-mongering we used to hear about how important it was to hit on high picks because of the the huge amounts of cash teams used to pay to them, the new CBA doesn’t necessarily change that element at all.

Teams that draft well will not have to replace as many drafted busts with veteran free agents. That means they’ll have a higher ratio of first-contract players to free-agent acquisitions, and will therefore get more production per dollar overall. Since total dollars are relatively fixed, that means they’ll get more production overall — more wins, more playoff appearances, more Lombardis. If you miss on your high draft picks, you’re going to have a difficult time making up for that by paying five times as much for the same production from a veteran. Add in a salary floor that all teams must abide by, and the price of free agents is likely to soar over time as the number of bidders in the market increases (no team will sit on the sidelines for long).

From the team perspective, here are some thoughts on how to improve their chances of winning:

  • In theory, teams could increase their college scouting budgets. Drafting correctly is now more important, so the point where the marginal cost of additional scouting is equal to the marginal benefit shifts upwards. I say in theory because I personally am dubious that there is any marginal benefit to be gained my increasing scouting budgets; in fact, I halfheartedly endorse Doug’s old post about quitting scouting entirely.
  • Teams should be more willing to trade players for picks (and less willing to trade picks for players): a player’s trade value as measured in draft picks should decrease. Trading Percy Harvin for a first round pick sounds less exciting than it would three years ago, while trading Darrelle Revis for a first round pick doesn’t seem as risky.
  • Teams should be more willing to trade one pick this year for two picks next year. Most NFL fans would probably say that the market for future draft picks is already screwed up — the implied discount rate is way too high, likely because coaches and general managers have an irrational desire to “win now.” But since draft picks are worth more, the effect of the error is magnified. It’s even better now than before to trade a #1 this year for two #1s next year, and even worse than before to trade two #1s next year for a #1 this year.

Of course, in many ways, a general manager’s approach to building and maintaining a roster should largely be the same under the new system: Draft as well as you can, sign your draft picks to contracts dictated by the rookie pool, and spend the rest of your allotment on the best free agents you can afford. Hitting on draft picks is a greater benefit than before, while whiffing on draft picks is a bigger bummer than before (hence the theoretical argument on increasing college scouting budgets). The other possible effect we might see on roster composition generally is that teams might hold onto a marginal fourth-round pick a year or two longer (instead of cutting him) than they otherwise would have because of the greater upside in value *if* he ends up panning out. That effect will be small, if it is discernible at all, but theoretically it could keep a few marginal young players in the league an extra year or two — which means that a few marginal old players could be dismissed a year or two earlier.

The salary minimums have increased, so in some ways, the new CBA will help out the bottom-tier players. But I don’t expect salary increases to be distributed evenly: most likely, the best free agents are going to command the vast majority of the free agent money. The most irreplaceable players should see the biggest increases, and we saw a bit of that with Joe Flacco‘s contract. But it seems particularly likely that the splashy new free agents — players like Mike Wallace, perhaps — will be the most overpaid.

But despite all of the above, it doesn’t mean teams should avoid free agency. In the search for value, sometimes the ultimate goal can be obstructed. Doug and I had a theory that if there was a SABRnomics of football, those analysts would consider the best possible roster a team that used 50% of its cap space and went 9-7. In reality, each team should try to use as close to 100% of their cap space as possible: the goal is to secure the most wins, not to get the most value.

A good cornerback on a $2M deal is more valuable in the abstract than a very good corner that costs $8M a year. But that’s not necessarily the case for a team that’s well under the salary cap. If the assumption is you need to spend all your salary cap dollars, the goal for a team should be to overspend in some areas. The question, of course, is where? Peyton Manning has a cap number of $20M this year. If the Seahawks want to be as good as the Broncos, they need to use the extra $19M they’re not spending on Russell Wilson to build the rest of the roster. If they don’t spend up to the cap (generally, of course — there are reasons in certain years not to do so) then the Seahawks give up the advantage of having Wilson for cheap.

From the team perspective, the goal might be to sign some quality veterans to one- or two-year deals. You may have Russell Wilson and Richard Sherman and Russell Okung for pennies on the dollar right now, but that won’t last long, and you want to make sure you’re still in great shape once you restructure them. Of course, the best veterans aren’t likely to take those one-year deals.

Can Broncos opponents take advantage of how much Denver pays its quarterback?

Can Broncos opponents take advantage of how much Denver pays its quarterback?

But you are seeing some of this take place in the NFL right now. Seattle signed Cliff Avril and Michael Bennett to cheap, short-term deals. That’s smart management. And because they have so much freedom over the next couple of years, they were able to take on the big Harvin contract. Even though they gave up a lot, from a salary cap perspective, that’s an admirable move for a team that currently has a championship window wide open.

The Colts had such a great draft in 2012 and so few veterans on the roster that they were able to go out and add LaRon Landry, Gosder Cherilus, Donald Thomas, Erik Walden, and Lawrence Sidbury. Landry and Cherilus are nowhere near the most valuable Colts, but they now have two of the highest four cap values on the team. It might seem silly to pay them that much, but it’s not silly if the alternative isn’t too pay anyone anything.1 The Redskins, of course, were hit with massive cap penalties by Commissioner Goodell, otherwise they surely would have joined this spree. They’re fortunate enough as it is to have a potential superstar quarterback and star running back on very cheap deals.

I’ll be curious to see what teams like the Bengals, Browns, Eagles, and Jaguars do over the next few years. All four have significant cap room, which means they’ll need to spend a lot of money over the next three years to avoid hitting the minimums. Cincinnati has a history of not paying out big contracts, so how they spend their cap dollars will be particularly interesting to track. Cleveland made some noise by adding Paul Kruger, Desmond Bryant, and Quentin Groves, but the Browns are paying out such little money to their skill position players2 that they have lots of room to spend over the next few seasons.

On the other hand, teams like Philadelphia (especially in a 2014 world without Michael Vick‘s contract) and Jacksonville have a lot of holes to fill and new management in place. Both teams have many acquisitions this off-season (Roy Miller, Justin Forsett, Geno Hayes, and Alan Ball in Jacksonville, Connor Barwin, Cary Williams, James Casey, Isaac Sopoaga, Patrick Chung, Bradley Fletcher, and Kenny Phillips in Philadelphia), but only Barwin signed to a big deal. I like the hirings of Chip Kelly and Dave Caldwell/Gus Bradley, and I think everyone supports the idea of going bargain-shopping in free agency, but both organizations will need to do more than draft well if they want to excel over the next five years. They’re going to have to spend a lot of money, and they’re going to need to do it wisely. For teams with lots of cap room and lots of overpriced options on the market, the best general managers will have a plan for how to allocate those extra resources.

  1. Technically, the Colts could also roll the unused cap space into the next year, but at some point, that isn’t a very attractive option, either. []
  2. Cleveland’s cap hits for their top quarterback, top running back, and top two wide receivers in 2013 totals $8.6M. []

{ 20 comments… read them below or add one }

Richie March 18, 2013 at 1:10 pm

Over a four-year period, each team must spend 89% of the cap dollars available to them, and the league must spend 99% of the cap dollars available to the 32 teams.

How does this work? If any one team only spends 89% of the cap, then wouldn’t some other team need to spend 109% of the cap to balance them out? Is it possible to spend 109% of the cap?

Reply

Chase Stuart March 18, 2013 at 3:15 pm

If the league doesn’t spend up to 99%, the money is basically “returned” to the players.

Reply

Richie March 18, 2013 at 3:22 pm

So basically, if any team doesn’t spend 99% that money will definitely be coming back to the players. Do you know the mechanism for that? Does it just mean the cap (or the cap floor?) goes up by that much more in the following year?

Reply

Richie March 19, 2013 at 1:22 pm

Maybe this site is common knowledge, or maybe there are other good sites.

But just in case anybody is interested, I found a cool site to look up NFL contracts and their salary cap implications: http://www.spotrac.com/nfl/new-england-patriots/tom-brady/ (Although I think Brady’s dead money in 2017 should be $6 million, not $60 million.)

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Bob April 29, 2013 at 2:18 am

If you’re looking for a cap site, I highly recommend the following:

http://overthecap.com/

Cheers.

Reply

Trich March 19, 2013 at 7:31 pm

What some teams with cap space are doing are restructuring deals for players they want to keep and front loading the contract so that it’s cap friendly in the long term. See Patrick Willis’s contract as an example. The teams that draft well are going to continually do this so they keep their homegrown players around.

Reply

Danny Tuccitto March 20, 2013 at 8:04 pm

This question is out of ignorance, not contrarianism (if that’s even a word). You kind of just throw this out there without any citation, link, or explanation, and (unless I missed it, which is certainly possible) don’t return to it: “Under the old system, contrary to popular belief, most (if not all) rookies were underpaid relative to their free market value.”

Cite/link/explain for my edification?

Reply

Danny Tuccitto March 20, 2013 at 8:07 pm

Only thing I can think of is that it’s a statement about the logarithmic distribution of pay under the old system, which had most every draftee getting pocket change compared to, say, the top 10 picks?

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Chase Stuart March 21, 2013 at 4:23 pm

No doubt, the very top picks were getting “screwed” far less than everyone else, but there was still a screwjob going on there. Think what Andrew Luck would have fetched on the open market. It’s really hard to imagine how huge a number it would have been. As people are fond of pointing out when talking about the Brian Urlachers, Ed Reeds, and Wes Welkers of the world, NFL teams play based on what you will do for them in the future, not what you have done for them in the past.

Reply

Chase Stuart March 21, 2013 at 4:22 pm

I think it’s essentially common sense. If the rookies were expected to provide less value than they were being paid, the owners wouldn’t have signed them to those contracts.

If the NFL thought that without a draft the salaries paid to rookies would be lower — or if the NFLPA thought so (since it only cares about its current members) — they would have abolished the draft. We never heard a peep out of either the NFL or the NFLPA about abolishing the draft and making each player a free agent, because it would have lead to escalating salaries (bad for owners) and lower salaries for vets (bad for the NFLPA).

We also never saw a team voluntarily trade say, the 2nd pick for the 6th pick, finding the latter to be more valuable.

Reply

Michael Schuttke April 5, 2013 at 1:03 pm

Cleveland may only be spending $8.6 million on starting skill-position players but where are they lacking most (at present)? In my opinion, it is at QB. However, this brings up the proverbial chicken-egg question of would better ________ (receivers, running backs, lineman, etc.) benefit the QB more or does the QB benefit said units more? Intuitively, I think we all answer that question by saying QB is primary, in which case Cleveland is lacking at present. Therein, do they keep hitting the reset button at the position or do they spend on the parts around a Brandon Weeden in hopes he develops more? Further, what if they do that and he improves only to a mid-level/replacement level QB and the team ascends to .500-level…but then they are out of the running to draft a Luck/Griffin caliber player? Last year, after their failed trade up to the #2 slot, I advocated strongly that they take Resell Wilson in either the second or third-round. This appears genius now but one has to then wonder how does Wilson do in Cleveland rather than a Seattle team that was very stocked with talent and running a system tailored to his strengths (while minimizing weaknesses). One would hope Cleveland’s coaching staff could have equaled the system benefits but this post makes one wonder about QB performance/development relative to how cap dollars are allocated around the position.

I realize that’s a lot but any thoughts Chase (or anyone)? Great post by the way and keep up the great work!

Reply

Chase Stuart April 5, 2013 at 4:14 pm

Thanks Michael. Glad you enjoyed the post.

I don’t think there’s a right answer to your question. I don’t think hitting the reset button every couple of years makes sense, but I also have my doubts that Weeden is the right answer. I think the team should try to build around him and see how he could do with a competent supporting cast. But I’m not expecting him to ever turn into a top-10 quarterback, either.

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Michael Schuttke April 5, 2013 at 1:05 pm

Excuse the typo of Russell Wilson. This was all typed at lunch on my phone.

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