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Thursday, March 7, 2013
How do contracts work? Glad you asked

By Mike Sando

David from Sacramento is looking for a primer on how NFL contracts work as teams head toward free agency and mandatory compliance with the $123.9 million salary cap.

"I hear teams releasing players to stay/get under the cap, but what happens to the players contract?" David asks. "Does the contract disappear? Does the team releasing the player have to pay anything, ever, through the life of the original contract? If a player is guaranteed $25 million, but only got $10 million before being released, does the releasing team owe that player the $15 million that has not been paid?"

Sando: Good question, David, and your timing is appropriate.

First off, beware of the word "guaranteed" when reading media reports about players signing new contracts. Agents are the sources for most of these stories. They need to recruit clients. They benefit when media reports overstate contract terms. They will sometimes count first-year base salaries as "guaranteed" simply because they're convinced the team will not release the player before that salary is paid. Also, some money can be guaranteed against injury and/or skill, which matters if the player is released following an injury or when healthy enough to play.

If a team releases a player before paying part of that player's guaranteed salary or guaranteed bonus, the team still must pay that money. This doesn't happen very frequently, however. In most cases, the player has already received all guaranteed money by the time he's released. The remainder of the contract vanishes.

David Akers
Although he was recently released, David Akers' contract counts $556,668 against the 49ers' salary cap in 2013.
For example, David Akers signed a three-year, $9 million contract with the San Francisco 49ers before the 2011 season. The team paid a $1.7 million signing bonus to Akers. That money was guaranteed. He received it up front. The 49ers also paid $1.3 million in salary to Akers for the 2011 season, plus another $3 million in salary to him last season. Akers was scheduled to earn the remaining $3 million via salary for the 2013 season, but he will not get that money because the 49ers released him Wednesday.

So, the three-year, $9 million deal Akers signed wound up being a two-year deal for $6 million, plus a relatively small amount earned through incentives.

The amount a player's contract counts against the salary cap in a given year represents base salary plus prorated portions of bonus money. Any bonuses paid for being on a team's roster ("roster bonuses") count in full during the year they are paid.

For Akers, who did not have a roster bonus this offseason, the salary-cap charge would have been $3.56 million in 2013 had he remained on the roster. That figure represented the $3 million in base salary plus a one-year share of that $1.7 million bonus. The $3 million salary came off the books when the 49ers released Akers. However, the one-third share of $1.7 million still counts because Akers received that money. As a result, his contract counts $556,668 against the salary cap in 2013 even though Akers isn't on the roster.

This is what teams refer to as "dead" money. Too much dead money kills a team's chances to compete. The amount San Francisco absorbed in Akers' release is manageable.

Sometimes we'll see players sign deals filled with large salaries in the final few years. These salaries allow the player to feel good about signing what sounds like an especially lucrative deal. However, the team can often avoid paying those inflated salaries by releasing the player before the money is due.

Signing bonuses and other guaranteed money provide protection for the player.

Seattle's Matt Flynn provides one example. While the Seahawks have cap room to carry Flynn's $5.25 million salary and $7.25 million cap number, those figures do not represent great value for a backup. Flynn has some security against release, however, because the $6 million signing bonus he received is counting $2 million against the cap in each of the three years of the deal. Flynn also has $2 million in 2013 base salary guaranteed.

So, if the Seahawks were to release Flynn, they would still be on the hook for that $2 million in guaranteed salary, which would count against their cap. They would also have to account under the cap for some of the $6 million in bonus money paid earlier. One-third of that $6 million counted against the 2012 cap. The remaining two-thirds would count against the 2013 cap if the Seahawks released him. That means Flynn's contract would count $6 million against the 2013 cap even if Seattle released him. The price for keeping Flynn on the roster is an additional $1.25 million in cap room -- not much in the bigger picture.

Rules do allow teams to defer bonus-related cap charges for one released player each offseason. In the case of Flynn, Seattle could push the $2 million in prorated bonus money for 2014 into the 2014 cap. Taking that route would reduce Flynn's cap charge from $6 million to $4 million in 2013 if the Seahawks released him now. But they would have to account for the remaining $2 million next year.

In St. Louis, meanwhile, the Rams realized $7 million in cap relief when Steven Jackson voided his contract. That figure represents the amount Jackson would have earned in base salary had he remained on the team. There is no prorated bonus money to contend with at this time because the Rams chose to absorb the scheduled 2013 hit last season. The $7 million salary was not guaranteed, so Jackson will not receive that money.

Arizona will almost surely seek 2013 cap relief from Kevin Kolb's contract. Kolb is scheduled to earn $9 million in salary. He's also scheduled to receive a $2 million roster bonus later this month. The team also must deal with $2 million in annual prorated bonus charges for 2013, 2014 and 2015. Releasing Kolb would clear from the books his $9 million salary and $2 million roster bonus. However, the team would have to account for $6 million in prorated bonus charges, either all at once or with $4 million deferred to next year.

Releasing Kolb could reduce his scheduled 2013 cap charge of $13.5 million to either $2 million or $6 million, depending upon how the Cardinals chose to proceed.