How Do NFL Teams Restructure Contracts?
Contents
How do NFL teams restructure contracts? By following these best practices, you can ensure that your team is getting the most out of its players.
Introduction
In the National Football League (NFL), teams often renegotiate or “restructure” player contracts to create salary cap space. While most restructures are completed during the offseason, they can also happen during the season. Teams will also restructure contracts to convert a player’s salary into a bonus, which can create immediate salary cap relief.
When an NFL team restructures a player’s contract, it is usually doing so to free up salary cap space. The team will convert a portion of the player’s base salary into a signing bonus, which is pro-rated over the life of the contract and does not count against the salary cap in the current year. For example, if a player has a base salary of $1 million and a signing bonus of $500,000 in 2020, only $500,000 of his salary will count against the 2020 salary cap. In 2021 and beyond, however, his entire base salary of $1 million will count against the salary cap.
In some cases, teams may choose to restructure a player’s contract to convert all of his base salary into a signing bonus. This is often done with older players who are not expected to be with the team for the duration of their contracts. By converting all of their base salary into a signing bonus, these players can lower their 2020 cap hit while still receiving their full salaries in 2020.
Players may also agree to restructure their contracts to give themselves more guaranteed money. For example, if a player has $2 million in base salary and $5 million in signing bonus for 2020 but wants more certainty that he will receive his full $7 million in 2020, he may agree to convert $4 million of his base salary into signing bonus. This would guarantee him $6 million for 2020 (his original $2 million base salary plus his new $4 million signing bonus) while still giving him some upside if he remains with the team beyond 2020 (he would have an extra $4 million in 2021 and 2022 if his contract is not extended or terminated).
Restructuring contracts is common in the NFL and can be beneficial for both players and teams. It allows teams to create immediate Salary Cap space while still guaranteeing players a certain amount of money. It also gives players more guaranteed money while still allowing them some upside if they perform well or remain with the team beyond their current contract.
What is a Contract Restructure?
A contract restructure is when a NFL team and player renegotiate the terms of a player’s contract. This can be done to free up salary cap space, or to change the amount of guaranteed money a player is owed. Sometimes a contract restructure can be used as a way to avoid releasing a player outright.
Types of Contract Restructures
There are two types of contract restructures that an NFL team can do with a player. The first type is called a true restructure. A true restructure means that the player’s base salary is converted to signing bonus money, which is then prorated over the life of the contract for salary cap purposes. The second type of contract restructure is called a pseudo-restructure. A pseudo-restructure means that the player’s base salary is converted to a signing bonus for tax purposes only. The pseudo-restructure does not provide any salary cap relief for the team.
How Do NFL Teams Restructure Contracts?
NFL teams can restructure contracts in several ways, but the most common is by extending the length of the contract while reducing the player’s annual salary cap hit. This gives the team more short-term flexibility with the salary cap. It can also be used as a way to create more long-term cap space.
Why Do NFL Teams Restructure Contracts?
NFL teams restructure contracts for a variety of reasons. Sometimes it’s to create more salary cap space, or it could be to convert short-term cash into long-term cash. It could also be to lower a player’s salary in order to keep them on the team, or to reward a player for past performance with an immediate pay raise.
Whatever the reason, NFL teams have been increasingly restructuring contracts over the past few years. In 2017, there were 105 contract restructures league-wide, and that number jumped to 118 in 2018. So far this year, there have been 54 restructures league-wide.
How Do NFL Teams Restructure Contracts?
NFL teams can restructure a player’s contract to create salary cap space in a number of ways. The most common method is to convert a portion of the player’s base salary into a signing bonus, which can be prorated over the life of the contract for salary cap purposes. Other methods include extending the length of the contract or converting roster bonuses into signing bonuses.
It is important to note that while a team can create salary cap space by restructuring a contract, they cannot create more than $3 million in salary cap space in any one year by doing so. Also, any salary cap space created by restructuring a contract can only be used in future years, not in the current year.
Conclusion
In conclusion, NFL teams can restructure contracts in a number of ways to create cap space. Common methods include converting salary to signing bonus, extending the length of the contract, and converting roster bonus to signing bonus. Each team has their own way of approaching these restructures, but the goal is usually the same: to create cap space so that the team can sign free agents and stay under the salary cap.
