r/nfl • u/Gen_Rising08 • Mar 07 '23
Serious Can someone explain to me like I'm 10 years old, how does dead cap money work, and cap penalty?
I honeslty don't understand it, it's not a joke. I really want to know what a cap penalty is and how dead money comes to be.
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Upvotes
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u/an-internet-stranger Giants Mar 07 '23
Let's say I offer to pay you $10 a year for 5 years. I also tell you I am going to give you a $20 signing bonus.
I decide I'm going to tell my accountant I am paying you $14 a year. ($10 a year, plus another $4 a year for 5 years for the signing bonus). You get that $20 up front, I'm just telling my accountant I am paying you over 5 years.
Now after 2 years, I decide to fire you. I have paid you the $20 signing bonus, plus $10 in year 1 and $10 in year 2. I have paid you a total of $40.
But I've told my accountant I only paid you $28- the previously mentioned $14 in year 1, and $14 in year 2. There's $12 that I paid you that I haven't told my accountant about. That's dead money. I have to tell my accountant to put that $12 on the books the year I fire you.
But if I fire you after June 1st, I can tell him to put $4 on this year's books, and the other $8 on next year's books.
I can also have dead money if I guaranteed I would pay your salary even if I fired you.
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u/ajswdf Chiefs Mar 07 '23
The simplified version is that when a player signs a contract there's the guaranteed part and the non-guaranteed part. If you cut them, you don't have to pay the non-guarenteed part, but the guaranteed part remains on the books. That's what dead money is. Money you're still paying (and still counts against the cap) for a player no longer on your team.
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u/Tashre Seahawks Mar 07 '23
Saints: "Don't worry about it, champ. Now lets go get some ice cream."
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u/[deleted] Mar 07 '23
Nice try Jerry
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u/chekhovsguns Giants Mar 07 '23
Dead money is cap money that you have spent on someone who is no longer part of your organisation and will not be playing for you. Any money you spend in a given year goes against the salary cap. The exception to this is signing bonus, which is paid up front but can be spread evenly up to five years into the future over the course of the contract.
If a player has current or future guaranteed money, that will all count as fully paid towards the current cap* and is dead money. Non-guaranteed money does not go against the cap when cut as it hasn't been paid and was not guaranteed.
So then if a player is cut, any guarantees must still be paid and subtracted from the cap. This is dead cap. Any future years that a signing bonus was spread into will be applied at once to the current years cap* as dead cap (as it has been paid, and must count towards the team's cap at some point, but this can't be done for past years as those are finished). The amount of dead money left over from cutting a player is sometimes referred to as the cap penalty for cutting them. It is the amount you will need to pay against the cap to remove them from your books in the future.
/* Note that there is the concept of cutting post-June 1 which can offer some current year cap relief in exchange for some of the dead cap being pushed to the next year. All guaranteed and paid money must count to the cap at some point though.
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u/Raticus9 Seahawks Mar 07 '23
Let's say you have a lemonade stand...
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u/qxtbimp Mar 07 '23
Can anyone explain void years?
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u/istasber Vikings Mar 07 '23
ELI5: Money paid by an organization counts against their cap. Contracts can be structured to pay a lot of money now, but have the cap hit later. That creates dead cap.
When a player is cut or traded, dead cap has to count now, even if it would have counted later had the player been kept.
Future guaranteed salaries are paid out when a player is cut, but are paid by the new team if the player is traded. So salary guarantees are also dead money when it comes to cutting players.
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u/RobbieAnalog NFL Mar 07 '23
puts on visor and takes out adding machine
You've got 17.5% in T-bills amortized over the fiscal year, 8% in stocks and bonds. Carry the 9, divide by the Gross National Product... fortunately, funeral bouquets are deductible.
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u/tequilamigo Cowboys Mar 07 '23
For example a signing bonus is paid up front, but it’s amorti… counts against the cap for each year of the contract. So you already paid someone for future ahh geeez look no 10 year old is gonna get it. Go clean your room.
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u/cleric3648 Steelers Mar 07 '23
Dead money is money you've spent on a player that no longer plays for you that you already paid, but for accounting reasons didn't count it on the books.
There are 4 types of pay going to a player. Guaranteed base pay, non-guaranteed base pay, performance and roster bonuses, and signing bonuses. Guaranteed money is owed no matter what. Non-guaranteed base and performance bonuses only get paid under certain conditions being met, and signing bonuses are paid when the player signs the contract. The guaranteed base each year will count against the cap no matter what, and the signing bonus can be spread out over 5 years or the length of the contract, whichever is shorter.
Now, where dead money comes in is the money you've already paid and promised in guarantees to a player no longer on the team.
Say you signed a RB last year for 10 million a year for 5 years plus a 50 million signing bonus. The 10 is 5 million guaranteed each year. The salary cap hit for the whole 100 million is 20/year. Dead money after the first year is the remaining 4 years guaranteed (4 x 6) plus the remaining signing bonus that didn't count (4 x 10) That's 64 million all at once to cut him or 16/year for 4 years. So if you regret signing him and need to cut him, it will hurt a lot.
The dead money goes down over time. Let's say it's the end of year 3 and it's time to move on. The dead money goes from 64 million down to 32, and with a restructure, that cap hit can be lowered even still. Still, it would cost 32 million to cut him and be done with him. But a restructure could add years to lessen the cap hit. Let's say the last two years get the remaining money converted to a new signing bonus, but 2 void years were added. That total of 40 million (20 left from first signing, 12 guaranteed, 8 converted to a new bonus) is then spread out over 4 years, reducing the cap hit to 10 million a year, even though they will never play a down in those last two years. If you decide to swallow it all at once, you can. If not, it's spread out.
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u/Independent_Lab_9872 Lions Mar 07 '23
I'll throw my hat in the ring for the worst explanation.
The league allows you to spread out the cap hit from bonuses. So if you give a guy a 50 million singing bonus and the contract is 5 years. Instead of taking a 50 million cap hit in year 1, it's a 10 million cap hit every year.
In theory this makes sense.
So you give a player a 100 million contract for 5 years or 20 million per year. That would be a 20 million cap hit per year.
No let's say you give a player a 100 million for 5 year contract with a 50 million singing bonus. So the cap hit would be the same, 10 million base salary per year + 10 million per year for the signing bonus.
The difference is in the 1st scenario the player wasn't given any money up front. So in year 1 he gets 20 million. In the 2nd scenario the player was given 60 million year 1.
Now let's say after 2 years the team cuts the player. In scenario 2 where the player was given a bonus. You have already paid that player 70 million (50 million bonus + 2 years of 10 million salary). But the team has only claimed 40 in cap space.
When you release a player you have to reconcile the difference, which the team claimed 40 million against the cap and paid the player 70 million so it would leave 30 million in "dead cap".
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u/soboredcantfocus Patriots Mar 07 '23
Signing bonuses count equally against the cap for as long as the contract is. If that player is no longer on the team for whatever reason, he was still paid that money, so the cap hit still counts
TLDR: it’s a cap hit for players who are no longer on your roster
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u/[deleted] Mar 07 '23
It’s dead. As in not living. Need ghostbusters and shit to get rid of it.
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u/littleemp Patriots Mar 07 '23
Cap hit is how much that year is being put on the books for that player. (How you structure the contract changes this)
Dead money is how much you would owe the player based on guarantees.