Money Matters: Football Finance 101 (Fantasy Football)

A common refrain you’ll hear on the Fantasy Footballers is “Follow the money.”

Football can be complicated, and football finance can be really complicated. You’ve probably nodded off reading about signing bonuses, guaranteed money, cap restructures, and the like. I know I have.

And yet, contracts are the ultimate way for NFL teams to declare their intentions, and that makes finance important for fantasy. No amount of OTA hype videos or ebullient coach-speak can make up for a weak fiscal investment in a player.

In this series, we’ll analyze the financial landscape across the NFL: spending trends, interesting contracts, and players/teams that you should update your fantasy football beliefs about. This article will focus on the basics, explaining simple structures and terms to lay the groundwork for the more complex analysis to follow. I did a lot of learning myself for this piece, from the NFL glossary to Spotrac, the gold standard for sports contract data. I also read up on FAQs, hypotheticals, and the nuts and bolts of contract guarantees. Let’s step through the major concepts now.

Football Financial Terms

Cap Hit — How much a team’s spending on a certain player is counted towards the ‘cap.’ This is the ceiling that facilitates all of a team’s decisions. The cap limit is set at about $225 million in 2023, which essentially means that teams can’t pay more than $225 million total across all players. Teams can face a number of penalties if they exceed the cap limit and do not reconcile it quickly, including fines, voided contracts, draft picks, etc. Of course, NFL teams engage in all sorts of financial wizardry — which we will discuss below — to legally maneuver around the cap in a given season.

Each year, a new cap limit is negotiated between the league and the players as a part of the CBA (collective bargaining agreement). Players generally want higher salary cap limits (and the league lower cap limits) because it means more money being paid out in contracts (more money that the league gets to keep). With NFL revenues increasing steadily over the past decade (with one exception that we will discuss below), the cap has generally increased over time. It’s basically doubled in the last decade and nearly increased 7x in the last 30 years.

The general merits of a cap limit are, of course, quite complex. Detractors argue that a cap limit is an undue interference and that the ‘free market’ should decide how much players are paid according to their on-field performance. Supporters of the cap argue that spending can get reckless when teams have unbridled competition (resulting in infamous agreements like the Bobby Bonilla contract*) and that it reduces league parity when rich teams can sign much better players than poor teams. This is the model for the MLB, which is the only major American professional sport to not have a salary cap. Interestingly, in the 2010 NFL, CBA negotiations broke down and no limit was agreed to. This was an ‘uncapped year,’ although the cap returned in 2011 and onwards.

Base Salary — Money earned during the season, paid out per game in checks that are 1/18 the size of the salary. This is the most ‘standard’ way to think about paying players; it’s also the type of salary that is restructured most often to make cap limits work (more on this below).

Signing Bonus — Money earned by simply signing a contract. Can be split across years (prorated) to count against the cap, so a $50 million signing bonus on a five-year contract can count as $10 million against the cap each year. These are fully guaranteed — more on this later — and can be prorated against the cap for a maximum of five years into the future. Signing bonuses are important tools in deal negotiations. Since they are simple, fully guaranteed money, they can be an important bargaining chip between the agent and the team. Lamar Jackson‘s recent deal constitutes a $72.5 million signing bonus, the largest in the league (surpassing Dak Prescott‘s $66 million signing bonus).

Roster Bonus — Money earned by being on the roster at a certain date. Teams can use this to avoid paying signing bonuses far into the future. If you trade/release a player before the roster bonus date arrives, you don’t have to pay. Once again, these are prorated, meaning a roster bonus of $10 million across four years would count as $2.5 million per year against the cap.

Option/Workout Bonus — These are similar to a roster bonus. Teams can choose to ‘pick up’ the option and pay the player. In addition, players earn money by attending offseason workouts, although usually not a large sum.

Restructuring — In the NFL, a common restructuring is converting a player’s base salary, which is due this year, to a signing bonus, which can be prorated across future years. So if a team owes a player $20 million this year and has no cap space, they can restructure by dropping their base salary to $5 million and pay the rest of the $15 million as a signing bonus over the next five years ($3 million per year). Note that this doesn’t ‘solve’ problems, you still have to pay the money in the future. Still, this type of move does often work because the salary cap has had a habit of increasing over time (basically doubled in the last decade). Of course, there’s still risk involved; the cap actually decreased in 2021 after COVID-19 hurt league revenues.

Tyler Lockett is one of the recent high-profile contract restructures. He converted $8.5 million of his base salary into a signing bonus, which now will be spread out across the next few years. The Seattle Seahawks still have to pay it, just not now: Lockett’s base salary in 2023 is just $1,165,000, and the Hawks have a bit of wiggle room in terms of cap space. Why doesn’t every player do this? Many do agree to these team-friendly restructures, but a dollar today is still worth more than a dollar tomorrow, and players prefer to get paid now.

Guarantees — When a contract is signed, pretty much anything outside of the signing bonus is not 100% committed to be paid unless explicitly specified. Guarantees need to be negotiated into the agreement for (1) skill — if a player is released because they are no longer good enough to justify the contract, (2) injury — if a player is released because they are hurt, or (3) cap — if a player is released because the team is maneuvering their cap situation.  In common parlance, ‘guaranteed contracts’ might only be guaranteed for injury, however ‘fully guaranteed’ means guaranteed for all three!

For example, Jakobi Meyers‘ three-year, $33 million salary is often referred to as having $21 million guaranteed. But only half of that — $10.5 million — is fully guaranteed. The rest — $5.5 million in both 2024 base salary and 2024 roster bonus — are injury guaranteed until the third league day of 2024 (at which point they become fully guaranteed). So if the Las Vegas Raiders release Jakobi due to either skill or cap issues, they are not on the hook for that $10.5 million. These are unlikely outcomes in just a year’s time, of course, I’m just illustrating with an example.

Incentives — Just as they sound: players can earn extra money by hitting certain targets. The New England Patriots are well-known for folding incentives into contracts, and that’s no exception for their newest WR JuJu Smith-Schuster. JuJu gets a bonus of $58,000 per active game, $750,000/$1.5 million for eclipsing 950/1100 receiving yards in 2023, and similar yardage incentives in 2024-2025. Tight End Mike Gesicki, another new Patriot, also signed an incentive-laden contract. In addition to yardage and reception incentives, he has playing time incentives (i.e., he can earn $500,000 if he plays 80% of the snaps).

One of the most extreme incentive-rich contracts went to Taysom Hill a few years back. The deal guaranteed just $21.5 million, but could have potentially been worth up to $100 million if Hill hit all of the incentives. These were designed to kick in if he was the team’s primary quarterback. For example, if he had a certain passer rating, number of attempts, passing yardage, etc. Spoiler alert — he didn’t.

Dead Cap — Money that is still owed to a player if the player is traded or released. This is referred to as ‘dead money’ because you are paying a player who is no longer contributing to your roster!

One recent example is the Minnesota Vikings‘ release of Dalvin Cook, opening up $9 million in cap space that was intended (but not guaranteed) to go to the RB. However, they still have to pay $5.1 million to Cook: $2 million in guaranteed base salary and $3.1 million from the $15.5 million, fully guaranteed signing bonus that was prorated over his five-year contract. They’ll complete the signing bonus payments next year with another $3.1 million payment. They get to spread these payments out because Dalvin was released after June 1st.

Franchise Tag — This article wouldn’t be complete without talking about the famous (or infamous) franchise tag! Each team gets one tag per season. If they ‘tag’ a player, then they get to sign that player to a contract for the following year. The contract must pay well: either the average of the five largest amounts at that player’s position from the last five years or 120% of the player’s salary last year (whichever amount is greater). This might be worth it for a player like Saquon Barkley, who the New York Giants tagged this year. The $10 million they will pay Saquon from the tag is likely to be less than the price if they competed against other teams to sign a top RB, plus, they don’t have to commit to a long-term deal, which is especially important in case Saquon underperforms this season.

If the tag is non-exclusive, players can negotiate with other teams. For example, Saquon could negotiate with the Dallas Cowboys to try to reach an agreement. If the Cowboys offer Saquon a contract, the Giants would be given the option to match the contract or let Saquon go. If the tag is exclusive, then players aren’t allowed to negotiate with other teams; these are less common since they can harbor ill will.

Stay tuned for the next article in this series. If anything in this article didn’t make sense, let me know on Twitter!

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*Bobby Bonilla was cut by the New York Mets in 1999…but he still had $5.9 million owed to him (i.e., dead money). Bonilla’s agent negotiated for an insanely deferred payout. In 2011, the Mets would start paying Bonilla $1.19 million per year until 2035. This came out to an 8% interest rate on the original $5.9 million owed, for $29.8 million total!

Why would the Mets agree to such a crazy contract? Partly because 2011 was so far away from 1999, and GMs are often about clearing up cap space now. More importantly, though, the Mets were very confident that their investments would outpace the 8% interest rate. Unfortunately, they were investing with a man named Bernie Madoff. And the rest, as they say, is history.