The NFL offseason is well under way as we are now in day two of the legal tampering period. Teams have already started making headlines as players prepare to trade in their old helmets for new ones.
The signing of new players often comes after a period of resolving the contracts of old ones through releases, trades, pay cuts, or restructured deals. In this article, I want to talk about contract restructures. Restructures can be a misunderstood instrument used by teams to free up money to either become cap compliant or engineer enough space to add an impact player to their club.
To understand restructures, one must understand the structure of an NFL deal. In the simplest case, an NFL contract includes money distributed under the following broad categories:
- Paragraph 5, or base salary
- Prorated bonus money
- Roster bonus
- Per-game roster bonuses
- Workout bonuses
- Other bonuses
The bonuses, outside of roster bonuses, are fairly straightforward. They are incentives that a player earns when they take part in offseason workouts and games within a season. Incentives, based on things like making the Pro Bowl or playing a certain number of snaps, are generally added to a player’s base salary. For the sake of this article, we will ignore those.
Paragraph 5 (P5) salaries, referred to as base salaries, are salaries earned by players. This salary is generally paid out weekly during the season. For many (but not all) players, this figure is guaranteed and counts towards only that year’s cap. For non-elite players, base salaries are a large part of their season-long earnings. For elite players, though, it is often a small fraction of their yearly earnings. For example, Patrick Mahomes’ P5 salary in 2022 was $1.5 million dollars, which was just 380k more than that of his backup, Chad Henne ($1.12 million).
Prorated bonus money is, except for the year that the signing bonus was applied, money that has already been paid to the player. The salary cap hit for the team is spread across the shorter of five years or the length of the contract. For example, if a player signs a five-year deal with a signing bonus of $5 million dollars, the bonus is prorated as a $1 million charge against the cap for five years. Five years is the limit to the number of years that a team can prorate a signing bonus. If a deal is less than five years, the bonus is split equally among those years.
Roster bonuses are lump sum bonuses paid to the player when they are on the roster at some predetermined point in the league year. These bonuses are generally not guaranteed ahead of time, but in some cases (see the Patrick Mahomes contract), they are guaranteed a year or two in advance. This is often referred to as a “rolling guarantee”.
The majority of NFL contract restructures come from converting P5 salaries or roster bonuses into signing bonuses and prorating the money across the remainder of the contract rather than just the season at hand. For example, consider a player with the following 2023 contract details on a contract that expires at the end of the 2025 season:
- $15 million P5 (fully guaranteed in 2023)
- $6.62 million prorated bonus
- no roster bonus, other bonuses, or guarantees the rest of the contract
The cap hit for this deal would be $21.62 million, which is the sum of the P5 salary and the prorated signing bonus. The team effectively cannot cut this player because they have guaranteed the $15 million P5 salary and three times the rest of the per-year prorated bonus of $6.62 million ($19.86 million) that was already committed in the first year. Cutting this player would accelerate that entire charge to 2023’s cap at a dead cap hit of $34.86 million, which is larger than the original cap hit!
Thus, there are no savings to be had from cutting this player. The team can save some money, though, by restructuring the player’s deal. If the team converts – and in most cases, the team can do this without the player’s consent – the $15 million P5 (minus the league-minimum salary) into a signing bonus, which is money the player was already guaranteed to make, the $15 million would then be spread three ways (one way each for the remaining years on the deal). Thus, the new 2023 ledger looks like:
- $1 million P5 (guaranteed)
- $11.29 million prorated bonus (the original $6.62 million plus $4.67 million newly prorated)
- no roster bonus, other bonuses, or guarantees the rest of the contract
This is a cap hit of $12.29 million that saves the team over $9 million in space for the 2023 season.
This seems like free money, but it is not.
The roughly $9 million in new space is split in half and guaranteed for both 2024 and 2025. If the player were to fall off significantly in 2023, then that $9 million is going to go to:
- a player whose on-field performance is less worthy of that money than it was in 2023, or
- a dead cap charge paying for a player no longer on the roster.
Now, many will argue that because the cap goes up each year, that money – in real terms – is less in 2024 and 2025 than it would have been if spent in 2023. Remember, against the cap, that money has already been paid out to the player. This is true and explains why, in many cases, a restructure is a fine move for a team to make. But it also gets to the crux of this piece, which is a broad framework for when a restructure makes sense:
A restructure makes sense if the projected performance of the player – using age curves, scheme fit, and past performance as a guide – either increases over the lifetime of the deal or decreases slower than the cap value of the new cap hits in subsequent years.
For example, above is a graph for a player whose on-field value is $15, $16, $15, $13, and $10 million respectively from 2023 to 2027 while being owed $12.5 million each year against the cap (assuming the cap rises eight percent per year) in 2023 dollars. Thus, even though the player is declining relative to an increasing cap, their decline is still less than that of the value of a cap dollar in 2023 terms. Assuming that a team’s cap is under control and they do not have to convert any current monies to future commitments, this is a great deal for the team.
What if after the first year they find themselves in a cap crunch and have to convert $11.5 of the $12.5 million into a signing bonus and prorate it over the duration of the deal?
Here we see the issue; not only has the team pushed back $2.875 million in guarantees into subsequent years, but it is also done so in such a way that by the end of the deal the player no longer operates as a surplus. Another restructure in 2025 would yield an even bigger deficit in future years and so on:
This is a very theoretical construct, and there are several ways to arrive at or massage a statistical solution for a player’s on-field value that makes a restructure palatable. In general, if a player’s on-field performance, when translated to dollars, does not decline that sharply over the course of a deal, a restructure is probably fine. If a player is injury-prone or on their third contract, it is probably riskier to assume they will bring surplus value in the years after a restructure. The added guaranteed money because of the restructure makes moving on from the player – which nets you zero on-field value for the duration of the deal – harder and harder with each move.
There are some players, Tom Brady being one of them, who largely defied age curves during their career until the very end. For others, Father Time eventually hit in a big way:
With Tom Brady retiring for good, it brings us to the end of an era of this type of quarterback play that feature Brady, Peyton Manning, Drew Brees and Ben Roethlisberger play at high levels pic.twitter.com/bdUJGObgd6
— SumerSports (@sumersports) February 2, 2023
In general, age curves come in all shapes and sizes as my former colleague at PFF, Timo Riske, documented here using my WAR estimates:
Investigating positional aging curves with PFF WAR | NFL News, Rankings and Statistics | PFF
Riske found that trench players and quarterbacks tended to take longer to age and would hence be better gambles as restructures than wide receivers and running backs who age rather quickly.
Just like many things in football, restructures are not inherently good or bad. They are a tool that teams use to obtain resources during one time horizon at the expense of those in a different one. The math can work in your favor if the player being restructured is good enough to overcome the increase in cap charges or, in the case of some teams in the league, you care more about winning now than winning later.