NFL CBA Series: Signing Bonus Proration

joe-flacco
Signing bonuses and other amounts with the same designation do not have to count directly against a team’s salary cap in the League Year they are paid. These amounts can be spread over the life of a Player Contract up to a maximum of five years (Art. 13, Sec. 6, I, 93).
Though the team can pay the player the entire payment at once, for salary cap purposes the figure is reduced to make a large signing bonus manageable under the cap. The Packers would have had to gut a good portion of their roster to afford Aaron Rodgers’ $35 million signing bonus this season. The same goes for the Ravens and quarterback Joe Flacco.
To demonstrate how proration works for salary cap accounting, let’s evaluate Flacco’s recent contract bonuses. He signed a six-year, $120,600,000 contract with a $29 million signing bonus, a $15 million option bonus in 2014, and a $7 million option bonus for 2015. Here is a chart of every year of his contract:
Year P5 Salary Signing Bonus Other Bonuses Cap Hit Dead Money

Year

P5 Salary

Signing Bonus

Other Bonuses

Cap Hit

Dead Money

2013

1,000,000

$5,800,000

N/A

$6,800,000

$29,000,000

2014

6,000,000

$5,800,000

$3,000,000

$14,800,000

$38,200,000

2015

     4,000,000

$5,800,000

$4,750,000

$14,550,000

$36,400,000

2016

18,000,000

$5,800,000

$4,750,000

$28,550,000

$25,850,000

2017

20,600,000

$5,800,000

$4,750,000

$31,150,000

$15,300,000

2018

20,000,000

N/A

$4,750,000

$24,750,000

$4,750,000

So, all of Flacco’s P5 salaries count against the Ravens’ cap for their given season. His signing bonus is spread over five years—the maximum amount allowed—at $5.8 million per year. In 2014, a $15 million option bonus triggers. Since this is also treated like a signing bonus, the team can also prorate the cap hit over the remaining five years. This bonus eats up another $3,000,000 per year of cap space beginning in 2014.

Rookie # 5 Joe Flacco in Ravens Training Camp ...

(Photo credit: Wikipedia)

If a $7-million option bonus in 2015 is picked up (it will be), this money will also be treated as a signing bonus, but since there are only four years remaining in the contract at that point, it can only be distributed over those four years. This adds an extra $1.75 million to each year, which brings his “Other Bonuses” section up to $4.75 million over the final four years.
There are also a few other things to point out about incentives.
If a player can terminate a year(s) in his contract my reaching certain performance incentives, the team can prorate the contract over such years. However, if the player meets the incentives and voids his contract, the remaining unamortized signing bonus accelerates and is fully charged against the cap.
Any voidable year which the terms of the early termination are directly in the player’s control is excluded from proration. So, if a player has a five-year deal with a voidable last year that is in his control, the team can only prorate his “signing bonus” for the first four years of the contract.
If a contract is renegotiated to include another signing bonus, the new bonus is prorated over the remaining years the previous contract and the additional years (if applicable).
Another way teams utilize this technique is through restructuring. It not an unlikely occurrence for a team to find themselves over the cap prior to the start of the new League Year. One way teams circumvent the cap is converting a portion of a player’s P5 Salary into a signing bonus. This allows the team to spread more money from the contract and lessen the current year’s blow.
Though this is a nice loophole for present relief, this type of restructuring increases the cap number for a player in later years and pushes more guaranteed money into the future. This makes the team accountable for more money if the player is released with prorated money remaining.
Essentially, proration is like a salary cap credit card. You can purchase a player’s services now and pay that money back over time.

All contract figures compiled from Spotrac.com
All stats from NFL.com
Photo credit: photobucket.com

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