NFL CBA Series: Deferred Compensation
Deferred salary is compensation earned at a certain time or in a prior League Year that is to be paid at a later time. This money counts towards the cap in the year it is secured. The money will be charged at present value as calculated by the Discount Rate provided by the Wall Street Journal or the Federal Reserve (CBA, 1).
Deferred salary is exactly what it sounds like: players receive money for services already rendered for previous seasons. A team and player can agree to defer any type of compensation.
As Section 6 of Article 26 states regarding the amount of allowable deferment, “A Player Contract may provide for deferral of no more than 50% of the player’s Salary up to and including a total of the first $2 million, and may provide for deferral of no more than 75% of the player’s Salary in excess of $2 million (147).” Teams often are fine with deferred money as they help the team’s current cash flow.
When the game checks stopped coming during the 2011 NFL Lockout, some players’ long-term lenses served them well. By agreeing to defer salary installments, these players were still receiving checks during the Lockout.
Players who still had deferred payments remaining included former first-round draft choices Mario Williams ($4.25 million), Jason Smith ($3.837 million), and DeMeco Ryans ($2.5 million) each received substantial deferred payments.
Teams were legally obligated to pay these players because the work had already been performed, and teams may be obligated by the NFL to put some of this money into a segregated account, with deposits of the “present value, calculated using the Discount Rate, less $2,000,000 of deferred or guaranteed compensation owed by [the] club (CBA, 148).” However, with the lack of other outgoing payments at the time, it’s doubtful this is too troubling to teams. Deferred payments are a great alternative method of payment, and the advantages and benefits, for both team and player, of deferred compensation can’t be understated.
During the NFL’s 2011 Lockout, which the Agreement ceased, other players were borrowing money at very high interest rates due to their lack of income. These players’ loans ranged from $30,000-$250,000 with interest reaching 30%.
Former Minnesota Vikings, now Baltimore Ravens, tackle Bryant McKinnie took out a $4.3 million loan from New York sport lending company Pro Player Funding, and he is feeling the consequences of agreeing to a loan that was “very high risk, with high interest rates and a clause that allowed [Pro Player Funding] to call in the entire amount due if [McKinnie] missed one payment.”
All contract info compiled from spotrac.com
All stats from NFL.com
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