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24 Mar 2010

Under the Cap: Redskins Utilizing the Uncapped Year

by J.I. Halsell

After nearly three weeks, the team many suspected to be most likely to leverage the uncapped year has finally done so. However, contrary to popular thought, the Redskins didn't take advantage by signing Julius Peppers and Karlos Dansby all on the same day. Instead, the Redskins renegotiated the contracts of defensive tackle Albert Haynesworth and cornerback DeAngelo Hall.

As of March 11, the Redskins had a total team salary of $141.6 million. By virtue of the Haynesworth and Hall renegotiations of March 12th, this number is now roughly $170 million. To put this in perspective, the baseline salary cap in 2009 was $128 million. So what did the Redskins do?

In his infamous $100 million contract of 2009, Haynesworth had a $21-million option bonus. As part of the deal, the Redskins reserved the right to convert that option bonus to a signing bonus, and that’s exactly what they did. But they converted it with a slight twist. Not only did they convert the option bonus to a $21-million signing bonus, but they also added a voidable provision. In the provision, if Haynesworth pays back $26 million of his signing bonuses, then the 2011-2014 contract years void away. From a team salary accounting standpoint -- because the voidable is solely in the player’s control -- the proration of the signing bonus does not go into 2011-2014. That means all of the $21 million signing bonus counts in the uncapped year of 2010. As a result, Haynesworth’s team salary number in 2010 went from $8.8 million to a whopping $25.6 million. His subsequent team salary numbers are $6.4 million, $8.2 million, $10 million, $10.8 million, and $12.8 million, respectively.

Similarly, Hall had a $15 million option bonus in his contract 2009 contract. The Redskins converted this $15 million to a signing bonus and provided Hall with the voidable clause, whereby the entire $15 million, from a team salary accounting standpoint, stays in 2010. As a result of this maneuver, Hall’s team salary number went from $6.8 million to $18.3 million in 2010. His subsequent manageable team salary numbers are $5.3 million, $6.8 million, $8.3 million, and $9.5 million, respectively.

In a December ESPN.com article, I discussed Redskins GM Bruce Allen's creativity with the cap and contracts. The Haynesworth and Hall renegotiations illustrate that creativity. The voidable language added to the Haynesworth and Hall contracts is the same device included in the contract for center Jeff Faine that Allen in Tampa. Interestingly, Allen named the voidable clause the "I-4 Off-Ramp," named after the highway that joins Tampa to the rest of central Florida.

Some may point to the release of veterans Fred Smoot, Rock Cartwright, Cornelius Griffin, Randy Thomas, and Antwaan Randle El, among others, as a sign of the Redskins taking advantage of the uncapped year. The reality is that those terminations were relatively meaningless in terms of salary total. If those veterans (including Ladell Betts, Todd Collins, and Chris Samuels) had been on the team, they would have counted $30.8 million in team salary. As a result of their terminations, their dead money totals $30.5 million, a savings of $300,000. If anything, the uncapped year allows the Redskins to replace these players without being handcuffed by a salary cap, but these terminations are not nearly as significant as the Haynesworth and Hall renegotiations.

The conversion of bonus money to signing bonus is a fairly common practice in the NFL. One presumed advantage to converting an option bonus to a signing bonus is the concept of forfeiture. An option bonus is not subject to forfeiture, but a signing bonus is subject to forfeiture. Therefore, a team protects its interests in the event a player defaults on the contract (a la shooting themselves in the leg) by converting money to signing bonus. However, the interpretation of the amount of money open to recovery based upon the timing of the default is not clearly defined in the CBA.

One argument is that the forfeiture amount is prorated over the term of the contract. In the case of Haynesworth, if one were to prorate his $21 million signing bonus over 2010-2014, that equates to $4.2 million in each year. That said, if Haynesworth were to default prior to 2011, then $16.8 million would be subject to forfeiture.

The other argument is that forfeiture is calculated in line with team salary accounting proration. In the case of Haynesworth’s renegotiation, given the voidable provision, team salary accounting places all $21 million in 2010. Using the same example of a Haynesworth default in 2011, because all of the signing bonus was in 2010, there is no money available to forfeiture in 2011. This is an area of ambiguity that would more than likely have to be resolved in arbitration.

As I’ve previously written, given the uncertainty of what 2011 holds, clubs who take advantage of the uncapped year by incurring high team salaries in 2010 run the risk of possibly being penalized in 2011 as part of a new salary cap and CBA. Clearly, this is a risk the Redskins are willing to take -- or perhaps they know something the rest of us don’t.

Follow J.I. Halsell on Twitter @SalaryCap101

Posted by: J.I. Halsell on 24 Mar 2010

33 comments, Last at 12 Mar 2012, 11:15pm by The Blog

Comments

1
by mike siewenie (not verified) :: Tue, 03/23/2010 - 10:57am

So any signing bonus given this year will all count against the cap.No proration? what happens if they get a cap will they have to go back and prorate the signing bonus?

3
by Temo :: Tue, 03/23/2010 - 11:05am

There's no pro-ration because it's player-voidable. In all other situations, presumably, you'd have to pro-rate the amount.

4
by J.I. Halsell :: Tue, 03/23/2010 - 11:06am

Not "any" signing bonus. These particular signing bonuses do not prorate due to the voidable provision.

"From a team salary accounting standpoint -- because the voidable is solely in the player’s control -- the proration of the signing bonus does not go into 2011-2014."

Where 2011-2014 represent the years the player can void. Salary accounting assumes player will void these years; therefore, proration does not go into the voided years.

If he chooses to not void the years, the signing bonus still remains in 2010.

J.I. Halsell
Salary Cap Analyst | "Under the Cap"
Twitter | @SalaryCap101

2
by PatsFan :: Tue, 03/23/2010 - 11:04am

That's the $128 million dollar question, I'd think.

Clearly the Skins are betting any future cap won't be retroactive like that.

On the other hand, I get the impression, say, the Patriots think it will.

Putting together a new CBA is going to be wild. Not only will you have the owners and players at loggerheads, but I think there's going to be some serious internecine combat on the owners' side of the table.

5
by Temo :: Tue, 03/23/2010 - 11:09am

Under 2009 salary cap rules, the signing bonus would not be pro-rated due to the player-voidable part. However, this contract would not be possible in 2009 because it would be too much money all in one year to count against your cap.

I don't see how the league could go back and punish the Redskins for exceeding the cap in 2010 even if the salary cap comes back in 2011. And they certainly wouldn't retroactively change this signing bonus to pro-rate, since there are very good reasons why doing that with a player-controlled voidable clause would be bad.

6
by chrisjm15 :: Tue, 03/23/2010 - 11:29am

I don't think that the Patriots think the Cap will be retroactive.
I just think Robert Kraft is cheap!

11
by Ghost In The Shell (not verified) :: Tue, 03/23/2010 - 12:41pm

How can anyone say that Kraft is cheap? Maybe efficient, but certainly not cheap.

7
by Jimmy :: Tue, 03/23/2010 - 11:30am

What the Patriots think is going to happen will probably become clearer when they conclude their renegotiations with Mr Brady.

27
by The Other Ben Johnson (not verified) :: Wed, 03/24/2010 - 3:42pm

I think Snyder's negotiating strength in the "serious internecine combat" you mention might be the "they know something we don't" mentioned in the above article. Snyder seems like a guy who is not at all interested in revenue sharing. So making sure the new CBA is non-retroactive sounds like a concession he could draw from the other owners. It's just one year, and it's not like the Redskins are going to win it all. They'd need Rock Cartwright for that, according to FO. They have a great shot to win it all in 2011 based on the "Redskins Win Labor Issue Year Super Bowls" Theory. It's science.

29
by Roy (not verified) :: Sun, 03/28/2010 - 6:31pm

"Snyder seems like a guy who is not at all interested in revenue sharing"

It just so happens the current framework and existing "revenue sharing" plan that
has been in effect for a couple of years now was voted for and endorsed by Dan Snyder when the Owners ratified the plan...

32
by t.d. :: Tue, 03/30/2010 - 7:34am

This is because there are enough non-shared revenue streams that the Redskins are the most- or second-most valuable franchise, already (not sure if Jerry's pleasure palace has moved the Cowboys past them). On the other hand, Dallas and New York have just opened lavish new digs, so if the 'skins had an advantage, it might have expired

8
by Dean :: Tue, 03/23/2010 - 11:39am

Does anybody think either of these players would return that much money for another shot at being a UFA? I think that they contracts they have now - especially Hall - would be more than any of the other 31 teams in the league would be willing to pay him. Think about it; would you pay Hall $15 million to sign and then $33.2 million over 5 years in salary over and above the $15? That's the contract Hall has in his pocket.

30
by Roy (not verified) :: Sun, 03/28/2010 - 8:30pm

...who cares about the contract..they just cut them..no guarantees

The Redskins either have a couple of great pro-bowls on the roster...or they don't..welcome to free agency..
By taking in all of the bonus money in 2010 the GM can do what he wants with no dead capspace looming over the team's head ... pure genius and very creative on Allen's part...(given the past behavior on both player's part)..

9
by GentlemansAgreement (not verified) :: Tue, 03/23/2010 - 11:45am

I don't doubt that Allen is creative in cap management. The only thing is ... there is no cap, and spending all of the money in 2010 is not exactly creative. Other teams notice that option as well, but won't necessarily do it, since it involves a big risk - all the money is gone instantly. Sure, Allen's contract is better than paying it as 2010 base salary (not possible / 30 percent rule) or option bonus, since that money can never be recovered (even in case the player screws up post 2010). That's why I don't understand why Haynesworth would accept such a renegotiation - signing bonus could be recovered if the player is suspendend, option bonus and 2010 base salary could not (well, the latter apparently if he screws up in 2010). Is that correct, and why would Haynesworth agree?

And, honestly, that is not creative. Allen did this renegotiation probably because a) it was planned in 2009 if there was no cap in 2010 and b) Allen probably would never have guaranteed such big amounts to such a player anyway. The money was lost anyway. The only task was to book the losses in 2010.

And the latter point is a huge difference between what Allen is doing with this contract and what other teams are doing.

10
by Joseph :: Tue, 03/23/2010 - 11:58am

And your point in the middle paragraph is EXACTLY why Bruce Allen should be commended, and what seems to be the point of this article--the money was already spent! So put that money where it WON'T count against the salary cap.

Re: the salary cap, I think it comes back--but I don't see any way where players and owners agree that these type of transactions which are taking place would be retroactive. Any of the teams that are doing these cuts/conversions are not going to vote for it--and I've heard of too many teams doing similar things to think that they would vote for it.

12
by Jason14 (not verified) :: Tue, 03/23/2010 - 12:43pm

Interesting to see the Skins do this. I wondered if alot of teams would attempt to take advantage of the uncapped year and it looks like Washington did just that. Id be curious to know if other teams are doing it, specifically with any rookies from last season. I know it was reported that Mark Sanchez would either get a 10+ salary advance or a lump sum 18.7 million payout this year. The advance would be pro-rated, but Im assuming if the Jets chose the big payout it would not be, which would save the team a few million in cap room down the line.

13
by jbrown (not verified) :: Tue, 03/23/2010 - 12:47pm

More importantly, does this make Haynesworth virtually undraftable in Madden this year? I'm sure I'm not the only one who is curious about the uncapped effects on a video game...

14
by Temo :: Tue, 03/23/2010 - 12:51pm

If you really wanted to have an authentic game experience, wouldn't you turn off the salary cap option this year?

15
by jbrown (not verified) :: Tue, 03/23/2010 - 1:12pm

You could I guess but it would feel like cheating (even if it isn't). I'm just curious whether that will be a "feature" this year and how it's handled in the fantasy draft. In the past they have always capped each pick (usually around $19 mil to start and goes up/down depending on who you pick), and Albert would fall way above the norm...so the thought of him being unpickable until the 3rd round or so (after you make a few cheap picks) was kinda funny to me

16
by IanWhetstone :: Tue, 03/23/2010 - 1:12pm

Wow, that's some really interesting stuff. Definitely the strongest tool for leveraging the uncapped 2010 into future cap advantage that I've seen pop up so far.

17
by Shanafan (not verified) :: Tue, 03/23/2010 - 2:59pm

Couldn't the Redskins have done this accounting move without the player voidability option?
Didn't the Vikings sign antonio winfield several years ago to a longterm deal and "choose" to apply the entire $10 million signing bonus in the first year?
Or are the rules different for signing bonuses that kick-in because of a re-worked contract?
I never thought that pro-rating a signing bonus was mandatory, but simply that everyone did it for salary cap relief.

18
by Lola was a dude (not verified) :: Tue, 03/23/2010 - 5:45pm

I kind of had a similar thought. It would seem like there are other ways that teams use to jockey cap money around from one year to another that don't involve this voidability option.

I wonder if the explanation isn't a little more obvious. Implicit in this whole transaction is the notion that the Redskins aren't too worried about Haynesworth or Hall actually exercising the option. This is most likely because they know there's very little chance that these players would command that much money on the open market. Translation -- they're over-paid. I wonder if the Redskins aren't throwing this option out there because they actually wouldn't mind if it DID get exercised. It's a way to move some cap money around, and hey, if one of these guys is dumb enough to let them off the hook on one of these contracts, so much the better.

21
by Temo :: Tue, 03/23/2010 - 9:45pm

If you want to apply an entire $10M signing bonus for the first year, you just do it in the form of regular salary. There's really no difference, since a contract pretty much says that you're going to use a player for at least one year and doesn't make sense otherwise.

If you want to apply an entire $10M signing bonus in the second year (or 3rd, or 4th), with the balance distributed in the 1st year you do what the Redskins did.

They signed guys last year, applied the first year of pro-rated signing bonus to that year (as required, since they had to fit under the cap), and then turned around and applied the balance remaining this year, with 0 left in future years. (In actuality, it's an option bonus, but yea otherwise this is it)

22
by IanWhetstone :: Tue, 03/23/2010 - 11:32pm

The Redskins could not have done so in this case because they are constrained by the 30% Rule from bumping salary too much on a deal that carries from 2009 into 2010, as these ones both do. But signing bonuses don't count toward 30% Rule calculations, and the player-voidable years prevent the signing bonus money from prorating into future years. It's a pretty creative cap trick.

19
by foosballs (not verified) :: Tue, 03/23/2010 - 8:19pm

Too bad the Danny doesn't invest as much time and energy into figuring out how to scout better as he does on how to pay "better."

20
by bobisimo (not verified) :: Tue, 03/23/2010 - 9:26pm

I think hiring Allen and Shanahan answers your criticism of the owner's scouting ability.

23
by tuluse :: Wed, 03/24/2010 - 6:55am

When they've actually drafted players they've done a good job. The problem is with how wasteful they've been with draft picks the past 10 years.

31
by Roy (not verified) :: Sun, 03/28/2010 - 9:00pm

Schuler..Ramsey...Campbell three QBs as first round picks since the last SB win..
have more to do with defining the organization..as a whole..than anything else

24
by Never Surrender (not verified) :: Wed, 03/24/2010 - 10:57am

For as poor as personnel management has been over the last ten years, the Redskins have had the finest cap management in the league. Since 2000, every major commentator has said at least once that the Redskins were facing cap hell — a cap hell which always remained 2 years away and, in the final analysis, never came. In that same time, teams with great personnel management (e.g., Baltimore) have faced major team reconstruction due to cap concerns.

If we can just get our personnel management down — translation: if Dan Snyder finally learns what it means to be a good owner — then the Redskins will become a force again. I like the foundation that's been laid; nothing to complain about with Shanny / Allen so far.

Nice article and breakdown, Mr. Halsell.

25
by joshmartin :: Wed, 03/24/2010 - 12:59pm

Couldn't have said it better myself. The Redskins will likely never get the credit that is due to them for managing the cap all these years, while gaining a competitive advantage with their "cash-richness". However they deserve every bit of criticism they receive on the player acquisition front.

I truly believe that a team that is cash-rich, manages the cap, and has a great pro scouting department could succeed by emphasizing free agency over the draft. This was the Redskins strategy for years. It's that last part at which they sucked, and in fact few teams have demonstrated any consistent success. It seems like for every free agent or trade bust, you could in retrospect say "if only that had signed Player X instead of Player Y."

26
by Jimmy :: Wed, 03/24/2010 - 2:14pm

Part of the reason the Redskins never reached the cap hell some projected for them is that they never had good young players to re-sign. If you have four or five quality starters hitting free agency it can cause a great deal of trouble to your cap. This is the quandry that has hit Baltimore and you can never really know which players are going to be great so there will always be some suprises that scupper good cap management. This hasn't been a problem for Danny boy as the Skins rarely have a plethora of quality young players as they don't have any draft picks. Not having to pay a good QB also helps.

I remember pointing out a couple of years ago that when the rules changed allowing cap hits for players who get cut to be allocated over two years (and they moved the date at which this salary cap device was available forward from June) that it became almost impossible for a team to not have an escape route from cap purgatory provided they had enough money to spend and didn't mind wasting some of the previously alocated money. That was without an uncapped year. Now Danny and Jerry are dumping salaries in the uncapped year (the Cowboys have an absurd salry total this season) and the only other team who seem to be making use of the uncapped year are the Bears who have always had a (well earned) reputation for being cheap.

28
by Bowl Game Anomaly :: Thu, 03/25/2010 - 1:09am

The Redskins have avoided cap hell through crafty management but they have also benefited from a greatly increased cap level due to increases in revenue and the definition of how the cap is calculated. Also, there was one offseason when the Redskins failed to retain Antonio Pierce and Fred Smoot who were considered rising stars at the time- not exactly cap hell, but it's not like the team was free to spend as they pleased either.

33
by The Blog (not verified) :: Mon, 03/12/2012 - 11:15pm

The risk has now come to fruition as a 36 million dollar penalty to their salary cap spread over 2 years. Nice work Messrs. Snyder, Allen, et. al. (sarcasm intended)

Excellent work Mr. Halsell (with all sincerity)