Tommy Collins
Footballguy
Original poster: bumbles247
I wish I had this ready a few days ago but hopefully it will still do some of you some good.
This thread is created for the purpose of informing the many unlearned posters that the sky really isn't falling. Therefore, my numbers may be technically off a bit, but my examples should still be valid.
A lot has been made over the last few days about the guaranteed money given to Chris Kelsay.
This thread is NOT about whether he is any good or not. If you want to argue that point please do so in one of the many other threads on the subject.
There seems to be some confusion among many of you about the differences between signing bonus (guaranteed money) and guaranteed base salary (also guaranteed) and their relationship to the salary cap - as well as Ralph's lucidity.
First of all, let's get this straight - signing bonuses are amortized over the life of the contract for salary cap purposes only. The player recieves the money as soon as he signs on the dotted line, but the amount charged against the cap is spread out. This results in a (sometimes overbearing) buildup of unusable cap space over time.
And yes, despite what one particular poster (who is fond of the phrase "self imposed restriction") keeps trying to tell people, the bonus does count - all of it - at some point or another against the cap.
Homework assignment: Go find a Bills cap site and see how much used cap space for 2007 is actually bonus money already given to players in previous years.
Now let's talk about guaranteed base salary. Many people say that this can't done because NFL contracts aren't guaranteed and never have been. But what that really means is that ALL NFL contracts aren't guaranteed under the CBA like they are in other sports. There is no rule preventing an owner from guaranteeing base salary if he wants to.
Mario Williams contract with Houston is one example. Another, off the top of my head was the contract given (also by Houston) to kicker Kris Brown who was an RFA with Pittsburg. The Steelers declined to match the offer mostly becuase it contained guaranteed base salary in the 3rd and 4rth year. So yes, it has been done. http://www.nfl.com/nflnetwork/story/10023999
So here's a couple examples. We'll use a 4 year contract with $14 million in guaranteed money.
Player A gets a typical backloaded contract with a $14 million signing bonus (remember, that's actually paid up front but amortized against the cap). Player B gets a contract with no bonus but $14 million in guaranteed base salary. I realize we don't know the numbers of Kelsay's contract so my model is for example only. All numbers are given in millions of dollars and are seperated by years. Green = non guaranteed base salary, Blue = guaranteed base salary, Red = signing bonus cap figures.
1st yr 2nd 3rd 4rth
Player A: 1.0/3.5 2.0/3.5 3.0/3.5 4.0/3.5
Player B: 6.0/0.0 5.0/1.0 3.0/3.0 0.0/6.0
There are many questions as to why a contract would be given to player B. So let's try to answer a few.
Isn't it risky? What if player B gets injured?
Yes it is risky. If player B blows his knee out in year 1 and never plays again, the Bills would be on the hook for 6 mil, 5 mil and 3 mil respectively ($14 mil spread over 3 years).
However, player A's contract is also risky. If player A has the same injury, the Bills would still be on the hook for the $14 mil bonus they already gave, plus they would have to pay the players salary until he becomes healthy enough. Even if player A goes on injured reserve for all of year 1, he still counts 4.5 mill towards the cap. And if he reaches a settlement or simply isn't good enough after his injury by year 2 and he gets cut, the last 3 years of his amortized bonus are accelerated to year 2, giving the Bills a whopping 10.5 mil cap hit. Player B's base salary would not be accelerated. The salaries would still be paid in the year they become due (a settlement could be reached that might possibly accelerate a cap hit, but it wouldn't be forced on the team).
Moving down the line, let's see what happens if the same injury occurs before year 3. Acording to our model, player A goes on IR and costs the team 6.5 mil (cap figure - 3 mil actual plus 3.5 sb) in year 3 and another 3.5 mil against the cap in year 4. Player B would cost 6 mil in year 3 and nothing in year 4. Therefore, as time passes the injury's affect on the team's salary cap is actually lessened in the case of player B.
Also worth pointing out is that by constantly giving contracts to player A teams build up unuseable cap space in future years. Did anybody do their homework assigned above? The answer is about $20 million. That's $20 million the Bills have against their cap in 2007 that they can't use, all resulting from signing bonuses paid to players in previous years. Other teams have even more. Washington is around $30 Million. So signing bonuses given to players like player A have an ultimately negative affect on the cap regardeless of the players production, whereas player B's contract only has a negative affect if he is injured or cut.
Another question. What if the player is a bust and has to be cut before the 1st year?
Well, in the case of player A, he already has his $14 mil, and if the Bills want to cut him they would incur a huge cap hit in year1. In player B's case, they would still be on the hook for $14 mil but the actual dollars and the cap hit would be spread out over 3 years.
Neither is desireable but it raises a very good point.
Cap reasons aside, there is a huge difference between giving out $14 million in February and giving out $14 over the course of 3 years. I'm not an accountant or an actuary, but I do know that this is huge. And for people who claim $14 mil guaranteed for Kelsay is too much, keep this fact in mind. I know if I won the NYS lottery and it was a $100 million dollar jackpot I would have to get my money spread out over 25 years. If I chose to take a lump sum I would only be given something like $30 million.
Player B's guaranteed money uses the same principle. If you can wait for the money to come in, the Bills can ultimately give you more of it and at the same time not mortgage the future. Remember that $20 million from your homework assignment? If all players had contracts like player B, that $20 million would be off the books in a matter of a couple years, giving the team $20 more dollars in actual cash to pay players. And they would be able to pay the money out as it flowed in. A very ideal situation.
Here's what I mean. Even though the Bills are worth around $750 million, that doesn't mean that money is lying around in a piggy bank. So it's February and a player want's $14 mil. Season tickets haven't even been paid for yet. So where does that money come from? Well, it's known as an out of pocket expense. Ralph has to find it somewhere and reclaim it several months later.
Another poster here likes to go around saying "At the beginning of the season the NFL cuts Ralph a check for $109 million (the current cap figure)."
This isn't true. Actually, nobody currently knows all the details of revenue sharing because they are still being worked out. But since TV money is still by far the biggest source of revenue, we'll use that for our example.
There was a time when the NFL recieved their TV money up front. The player strike in 1982 put an end to that. The networks were not happy that the product they had paid for wasn't produced so they began the practice of giving out the money over the course of the season.
Homework assignment: If you don't beleive me go find an article on the 1987 strike and you will see that the reason the NFL kept playing games that season with replacement players was because if they didn't produce games, the TV companies weren't going to give them their money.
So what this ultimately means is that if Ralph gives a player (or several players) a bonus in February, he doesn't really recover that money until September - December. But using the player B model the money doesn't have to go out until it comes in - and that goes for next years money and the year after that. Player salaries are paid weekly during the course of the regular season, coinciding with the influx of TV, and to some extent, ticket, merchandise and other souces of income.
It's a lot easier to pay money out as it comes in, and it doesn't cost as much, nor does it dig into future cap space.
And the timing of Kelsay's contract is probably no mistake either. If someone offered you $100 today, but said that if you could wait three weeks he could guarantee you $130, what would you do? I know a lot of people who would snatch up the $100, but I know a lot more who would wait for the $130 as long as it was guaranteed.
So all of a sudden, 3 days before free agency the news of a player getting a contract with a seemingly inflated amount of guaranteed money comes out, every free agent who had previously told his agent "don't bother talking to Buffalo" has just reached for his phone.
Say what you want, but I'll bet the Kelsay signing got the attention of every player agent out there.
So if this is such a good idea, why haven't owners been doing it all along?
This is where I can only speculate. Time will tell if I'm right.
As mentioned before, other sports have guaranteed contracts. This is something the NFL is very afraid of, and if they start guaranteeing contracts on a regular basis they fear it would set a precedent which might ultimately result in the players demanding guaranteed contracts in future CBA negotiations.
Think about it. If owners started giving guaranteed contracts regularly, eventually there would be a high enough percentage of them that agreeing to make them all guaranteed wouldn't be too much for players to ask for. And the fact that other sports already have them would only reinforce their position.
It's no secret that Ralph is at odds with most of the other owners. We are now seeing what he meant by not mortgaging the future - cash to cap - if you will.
He is basically saying, "Okay, I played along and didn't give out guaranteed contracts because we all thought, collectively, that it would ultimately be a detrimental practice. I only gave guaranteed money as bonuses. Well, since you guys don't want to play fair any more with your new, lopsided rules, F U!, I'm going to do what it takes to keep my team in business."
Ralph's physical reactions have slowed considerably. But he is far from senile.
There's my latest two cents. Let the ripping begin.
http://boards.buffalobills.com/forums/thread/1521781.aspx
I wish I had this ready a few days ago but hopefully it will still do some of you some good.
This thread is created for the purpose of informing the many unlearned posters that the sky really isn't falling. Therefore, my numbers may be technically off a bit, but my examples should still be valid.
A lot has been made over the last few days about the guaranteed money given to Chris Kelsay.
This thread is NOT about whether he is any good or not. If you want to argue that point please do so in one of the many other threads on the subject.
There seems to be some confusion among many of you about the differences between signing bonus (guaranteed money) and guaranteed base salary (also guaranteed) and their relationship to the salary cap - as well as Ralph's lucidity.
First of all, let's get this straight - signing bonuses are amortized over the life of the contract for salary cap purposes only. The player recieves the money as soon as he signs on the dotted line, but the amount charged against the cap is spread out. This results in a (sometimes overbearing) buildup of unusable cap space over time.
And yes, despite what one particular poster (who is fond of the phrase "self imposed restriction") keeps trying to tell people, the bonus does count - all of it - at some point or another against the cap.
Homework assignment: Go find a Bills cap site and see how much used cap space for 2007 is actually bonus money already given to players in previous years.
Now let's talk about guaranteed base salary. Many people say that this can't done because NFL contracts aren't guaranteed and never have been. But what that really means is that ALL NFL contracts aren't guaranteed under the CBA like they are in other sports. There is no rule preventing an owner from guaranteeing base salary if he wants to.
Mario Williams contract with Houston is one example. Another, off the top of my head was the contract given (also by Houston) to kicker Kris Brown who was an RFA with Pittsburg. The Steelers declined to match the offer mostly becuase it contained guaranteed base salary in the 3rd and 4rth year. So yes, it has been done. http://www.nfl.com/nflnetwork/story/10023999
So here's a couple examples. We'll use a 4 year contract with $14 million in guaranteed money.
Player A gets a typical backloaded contract with a $14 million signing bonus (remember, that's actually paid up front but amortized against the cap). Player B gets a contract with no bonus but $14 million in guaranteed base salary. I realize we don't know the numbers of Kelsay's contract so my model is for example only. All numbers are given in millions of dollars and are seperated by years. Green = non guaranteed base salary, Blue = guaranteed base salary, Red = signing bonus cap figures.
1st yr 2nd 3rd 4rth
Player A: 1.0/3.5 2.0/3.5 3.0/3.5 4.0/3.5
Player B: 6.0/0.0 5.0/1.0 3.0/3.0 0.0/6.0
There are many questions as to why a contract would be given to player B. So let's try to answer a few.
Isn't it risky? What if player B gets injured?
Yes it is risky. If player B blows his knee out in year 1 and never plays again, the Bills would be on the hook for 6 mil, 5 mil and 3 mil respectively ($14 mil spread over 3 years).
However, player A's contract is also risky. If player A has the same injury, the Bills would still be on the hook for the $14 mil bonus they already gave, plus they would have to pay the players salary until he becomes healthy enough. Even if player A goes on injured reserve for all of year 1, he still counts 4.5 mill towards the cap. And if he reaches a settlement or simply isn't good enough after his injury by year 2 and he gets cut, the last 3 years of his amortized bonus are accelerated to year 2, giving the Bills a whopping 10.5 mil cap hit. Player B's base salary would not be accelerated. The salaries would still be paid in the year they become due (a settlement could be reached that might possibly accelerate a cap hit, but it wouldn't be forced on the team).
Moving down the line, let's see what happens if the same injury occurs before year 3. Acording to our model, player A goes on IR and costs the team 6.5 mil (cap figure - 3 mil actual plus 3.5 sb) in year 3 and another 3.5 mil against the cap in year 4. Player B would cost 6 mil in year 3 and nothing in year 4. Therefore, as time passes the injury's affect on the team's salary cap is actually lessened in the case of player B.
Also worth pointing out is that by constantly giving contracts to player A teams build up unuseable cap space in future years. Did anybody do their homework assigned above? The answer is about $20 million. That's $20 million the Bills have against their cap in 2007 that they can't use, all resulting from signing bonuses paid to players in previous years. Other teams have even more. Washington is around $30 Million. So signing bonuses given to players like player A have an ultimately negative affect on the cap regardeless of the players production, whereas player B's contract only has a negative affect if he is injured or cut.
Another question. What if the player is a bust and has to be cut before the 1st year?
Well, in the case of player A, he already has his $14 mil, and if the Bills want to cut him they would incur a huge cap hit in year1. In player B's case, they would still be on the hook for $14 mil but the actual dollars and the cap hit would be spread out over 3 years.
Neither is desireable but it raises a very good point.
Cap reasons aside, there is a huge difference between giving out $14 million in February and giving out $14 over the course of 3 years. I'm not an accountant or an actuary, but I do know that this is huge. And for people who claim $14 mil guaranteed for Kelsay is too much, keep this fact in mind. I know if I won the NYS lottery and it was a $100 million dollar jackpot I would have to get my money spread out over 25 years. If I chose to take a lump sum I would only be given something like $30 million.
Player B's guaranteed money uses the same principle. If you can wait for the money to come in, the Bills can ultimately give you more of it and at the same time not mortgage the future. Remember that $20 million from your homework assignment? If all players had contracts like player B, that $20 million would be off the books in a matter of a couple years, giving the team $20 more dollars in actual cash to pay players. And they would be able to pay the money out as it flowed in. A very ideal situation.
Here's what I mean. Even though the Bills are worth around $750 million, that doesn't mean that money is lying around in a piggy bank. So it's February and a player want's $14 mil. Season tickets haven't even been paid for yet. So where does that money come from? Well, it's known as an out of pocket expense. Ralph has to find it somewhere and reclaim it several months later.
Another poster here likes to go around saying "At the beginning of the season the NFL cuts Ralph a check for $109 million (the current cap figure)."
This isn't true. Actually, nobody currently knows all the details of revenue sharing because they are still being worked out. But since TV money is still by far the biggest source of revenue, we'll use that for our example.
There was a time when the NFL recieved their TV money up front. The player strike in 1982 put an end to that. The networks were not happy that the product they had paid for wasn't produced so they began the practice of giving out the money over the course of the season.
Homework assignment: If you don't beleive me go find an article on the 1987 strike and you will see that the reason the NFL kept playing games that season with replacement players was because if they didn't produce games, the TV companies weren't going to give them their money.
So what this ultimately means is that if Ralph gives a player (or several players) a bonus in February, he doesn't really recover that money until September - December. But using the player B model the money doesn't have to go out until it comes in - and that goes for next years money and the year after that. Player salaries are paid weekly during the course of the regular season, coinciding with the influx of TV, and to some extent, ticket, merchandise and other souces of income.
It's a lot easier to pay money out as it comes in, and it doesn't cost as much, nor does it dig into future cap space.
And the timing of Kelsay's contract is probably no mistake either. If someone offered you $100 today, but said that if you could wait three weeks he could guarantee you $130, what would you do? I know a lot of people who would snatch up the $100, but I know a lot more who would wait for the $130 as long as it was guaranteed.
So all of a sudden, 3 days before free agency the news of a player getting a contract with a seemingly inflated amount of guaranteed money comes out, every free agent who had previously told his agent "don't bother talking to Buffalo" has just reached for his phone.
Say what you want, but I'll bet the Kelsay signing got the attention of every player agent out there.
So if this is such a good idea, why haven't owners been doing it all along?
This is where I can only speculate. Time will tell if I'm right.
As mentioned before, other sports have guaranteed contracts. This is something the NFL is very afraid of, and if they start guaranteeing contracts on a regular basis they fear it would set a precedent which might ultimately result in the players demanding guaranteed contracts in future CBA negotiations.
Think about it. If owners started giving guaranteed contracts regularly, eventually there would be a high enough percentage of them that agreeing to make them all guaranteed wouldn't be too much for players to ask for. And the fact that other sports already have them would only reinforce their position.
It's no secret that Ralph is at odds with most of the other owners. We are now seeing what he meant by not mortgaging the future - cash to cap - if you will.
He is basically saying, "Okay, I played along and didn't give out guaranteed contracts because we all thought, collectively, that it would ultimately be a detrimental practice. I only gave guaranteed money as bonuses. Well, since you guys don't want to play fair any more with your new, lopsided rules, F U!, I'm going to do what it takes to keep my team in business."
Ralph's physical reactions have slowed considerably. But he is far from senile.
There's my latest two cents. Let the ripping begin.
http://boards.buffalobills.com/forums/thread/1521781.aspx
info, so I may need this
