Are free agents too expensive or will the $2 billion of 2018 salary cap space explode the scene

Discussion in 'Fan Zone' started by waldoputty, Mar 20, 2017.

  1. waldoputty

    waldoputty Well-Known Member

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    Something incredibly dramatic is going on in the NFL. Mainly due to the current TV contract, the annual salary cap is spiraling out of control. As a result, the conventional notion of cap space is essentially out the window.

    Here is based on cap space for all teams combined from 2014 to 2018. (http://www.spotrac.com/nfl/cap/2016/)
    2014 end of season cap space for all teams combined: $188 million
    2015
    end of season cap space for all teams combined: $263 million
    2016
    end of season cap space for all teams combined: $355 million
    2017
    current cap space for all teams combined: $728 million
    2018
    current cap space for all teams combined: $1.4 billion + 2017 rollover -> ~$2 billion

    It should be obvious to all that the old concept of cap space has drastically changed. The cap space for all teams combined has literally taken off from $188 million to $263 million to $355 million to $728 million currently (most of the free agency expenditures are probably done). Note that this is only for cap impact for this year, not the entire amount of the contracts signed. The NFLs will likely have a combined cap space of ~$2 billion in 2018, since the 2017 remaining cap space rolls over to 2018.

    To put this into perspective, $1 billion of cap space is equal to an annual basis of FIFTY (50) 5-year contracts with $20 million AAV, zero backloading and $50 million signing bonus. Or alternatively, $1 billion of cap space is equal to an annual basis of two hundred (200) 5-year contracts with $5 million AAV, zero backloading and zero signing bonus (to keep calculations simple).

    Are there that many expensive free agents? 95% of the top QBs are signed as well as most of the war daddies and top defenders...


    This perspective is important when discussing free agents, value, overpriced or not etc. In essence, the market is likely to enter a period of insane changes. IMO, the earlier you spend, the more salaries you lock then, the better off the Cowboys are. Instead of worrying about value of the 2017 free agents, think about their cost inflation in 2018. It could be mind boggling.

    Much has been said about the value of free agent contracts and how they are overpriced. Others have stated that prices are only going up and get on the bandwagon before it is too late. So is there a correct opinion?

    The argument of contracts being overpriced
    is relatively straight forward. Contracts for good players are rapidly escalating. Thus good players are being paid as stars, and such extravagant expenditures would run counter to prudent financial planning. Furthermore, funding such contracts through typical contract restructuring techniques push cap expenditures to the future and jeopardizes the future.

    The argument for spending now is less straight-forward. There are primarily five arguments. The first is the expanding cap accommodates high prices. The second is prices are only going up due to enormous cap spaces available. The third is prices are going even further up with the 89% salary cap cash floor. The fourth is the diminishing supply of good players. The fifth is the potential to time cap expenditures based on the cap floor and the likely and dramatic rise in salaries.

    The rising cap argument is the simplest. In particular, the supply of cap dollars are rapidly expanding in the current escalating cap environment to the tune of $10-$15 million per year. Thus, the rising caps cover for restructuring exercises as the contract dollars become cheaper over the life of the contract. Just like social security, the next generation supports the current generation etc. However, unlike social security, the cap is always going up so you dont have to worry about a small working class supporting the ever-rising number of elderly.

    The large cap space argument is based on the enormous supply of cap monies available. With more cap space, the prices for top available free agents will only go up and up. There are numerous teams in the NFL that really need to spend money in 2018. An incredible amount of money will be spent and needs to be spent: the 49ers have about $70 million in cap space in 2018 and the Detriot Lions may have $100 million of cap space. With 37 players under contract, lets assume Detroit plans to sign 20 real players. To use up $90 million, the Lions have to average $4.5 million cap impact per player for 20 players, or perhaps 3 players at $15 million AAV and 16 players at ~$3 million AAV, all with zero back-loading.

    Furthermore, the 89% floor is particularly looming. There are many teams currently far behind in their floor spending. For example, look at the 2017 cash spending chart below, it is clear the bottom 10 teams are putting themselves into a bind in terms of meeting the 89% floor. With a salary cap for 167 million, the bottom 10 teams' cash spending in 2017 range from $119 million to $135 million, that is a whopping 20% to 30% below the cap or 10% to 20% below the 89% floor. One would ask how can they get away with that? The answer is that the 89% floor is applied in a 4 year window. The current window runs from 2017 to 2020. So you have the bottom 10 teams starting way behind the 8 ball. Furthermore, of those 10 bottom teams, 3 of them (Packers, Seahawks, Ravens) are ironically also in the top 10 teams in 2018 cap commitments with already $135-$137 million committed. What does that mean? It means the amount of cash they can expend in 2018 is going to be limited by their cap, further compounding their salary floor situation. Obviously, they can use the signing bonus trick to mitigate that, but only to a certain degree. Come 2019 and 2020, the floor issue is going to come to roost. The end result will probably massive expenditures to meet the floor requirement by a good number of teams. They NEED to spend the money or just lose it. The end result would be even more inflation and even worse value for signing good players. Finally, one may ask the question - "the cash floor existed before, why will this 4 years be worse?" The reason is because all teams are now out of cap hell, and with the escalating cap, they have trouble catching up in spending. So the issue may well snowball. This has never happened before.
    The fourth reason to spend now is the continued drop in the number of high quality free agents and probably the extinction of elite free agents.
    With the rapid expansion of dollars available, all teams are out of cap hell. Furthermore, the top 3 teams in 2017 cap space all currently STILL have more than $50 million in space, ranging from the 49ers at $71 million to with Jacksonville at $53 million. As we know, the unused cap space rolls into next year... This amount of cap space is unprecedented. Even the 10th ranking team in cap space has $28 million. No team will lose their top players due to cap space any more. Thus, the quality of top free agents will keep dropping. The time to strike is now while many GMs are still suffering from sticker shock and also suffer the difficulty of explaining to the current players why the new guys cost so much.

    The fifth argument is about timing expenditures to avoid the pains of the cash floor situation. With the imminent climb of salaries, a new equilibrium will result particularly IF TV revenues flattens in the next TV contract. If a team is strategic in its planning, it could lock up its players and key free agents in anticipation of this possible 2019/2020 salary floor debacle. This would buy 3-4 good years of serious contention in sync with the primes of Dez and Zeke, our two fastest and most important depreciating assets. In the Cowboys' case, it could also mean signing its 2016 class at least 1 year before they are due before the 2019 season by taking advantage of its huge 2019 cap space available.

    Here is where the concept of value and of the new cap reality could converge. To maximize our near-term and mid-term chances, sign a couple top FAs while they are still available and before prices go even higher. But don't cap out so that you can sign the 2016 class before the 2019 season or perhaps even during the 2018 season. This way you can get mutually beneficial deals for the good players from the class whomever they end up being. The team would get very good value, while the players will be set for life, get really rich much sooner than they expected and mitigate their injury risk.

    Team Active Cash Spending Total Cash Spending Cash to Cap Ratio
    Browns $164,733,609
    Panthers $163,361,841
    Redskins $157,146,728
    Jaguars $156,745,340
    Chiefs $156,284,939
    Dolphins $156,222,698
    Lions $156,087,855
    Cardinals $153,172,725
    Vikings $152,771,051
    Giants $152,512,830
    Cowboys $149,266,011
    Eagles $148,360,883
    Broncos $147,393,156
    Bears $146,599,451
    Patriots $144,765,987
    Falcons $143,838,883
    49ers $142,027,297
    Rams $141,914,145
    Bengals $138,943,661
    Chargers $137,982,965
    Saints $137,463,545
    Steelers $135,867,345
    Buccaneers $135,392,660
    Titans $134,964,024
    Packers $133,973,784
    Seahawks $133,429,304
    Raiders $132,127,335
    Bills $130,220,408
    Ravens $127,860,561
    Colts $125,610,882
    Jets $123,172,323
    Texans $119,203,323
    Table is from: http://overthecap.com/cash-spending/
     
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  2. okstateCowboy

    okstateCowboy Well-Known Member

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    So what you're saying is that Crawford's contract is a bargain?
     
  3. Bcrav4

    Bcrav4 Active Member

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    Great topic! I was looking at the cap space for all the teams the other day and i realized that there is no way they can spend to the floor based on what FAs are available without massively overpaying mediocre players.

    This rising cap is interesting too because owners cant just sit on their hands and make money anymore, they have to constantly be seeking to significantly increase their revenue streams year over year or they will actually start losing money.
     
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  4. FuzzyLumpkins

    FuzzyLumpkins The Boognish

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    You are only looking at UFA and have incorrectly said they were done. There are all the RFA and guys in the final years of their contracts to consider.

    The floor is also not calculated annually. It is a tally over several years. You have a one year incomplete snapshot.

    Really all you have done is say: big numbers! The NFL hires accountants and economists to look at this and your notion that this "problem" is something they have not considered is laughable. As for the Cowboys if they are about to give Martin a $30+b SB.

    The takeaway here is that our team is not one of the teams that is going to have to distribute the floor/expenditures difference to their rosters. Oh and they ship on the team spending big on FA has sailed so just let it go.
     
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  5. rkell87

    rkell87 Well-Known Member

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    He actually addressed the cap floor not being tallied annually in detail and explained how it could affect teams. He also addressed large signing bonuses like what Martin will get as a way to meet that requirement. He never said that teams haven't considered this problem so I can't see why you would laugh at him. Basically he put a lot of thought and effort into generating conversation in this very dull point in the offseason and you acted like an *** and didn't comprehend half of what he said.
     
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  6. FuzzyLumpkins

    FuzzyLumpkins The Boognish

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    I didn't read the whole thing. I admit it. It's not a very compelling read tbh.

    You acting like he has not taken every chart from overthecap and spotrac he can find over the past month to bloviate an argument that boils down to the Cowboys should spend big in FA is amusing though.

    Him mentioning the window does nothing to detract from the one year snapshot being unrepresentative of the situation teams are in. He certainly did not argue that.

    The bottomline remains the same. The Cowboys are not going to be affected by the cap floor.

    And the draft is a month away. There is plenty of football to talk about right now.
     
  7. bkight13

    bkight13 Capologist

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    The NFL wants to grow revenues to 25m.....this will be a huge problem if salaries stay at 50% of revenues

    I think they are going to have to expand the rosters to 60 to deal with the extra money and inflation

    Teams will stop rolling over 50m+.......they aren't required to roll it all over

    Teams will use Roster Bonuses instead of Signing Bonuses that are pro-rated......Roster Bonuses only count in the year they are paid.....teams wlll use straight line accounting which may help the trade market since there will be less accelerated dead money

    DAL will be flush the next couple years and have to buy at least one or two FAs........Martin doesn't count either........he will be another salary cap ATM
     
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  8. waldoputty

    waldoputty Well-Known Member

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    We are talking $2 billion dollars. I dont know how many RFAs/UFAs you have that would approach that much money. I suspect you cannot account for 10%-20% of the $2 billion dollars.

    I showed 2014-2018. How is it unrepresentative. Any one with any technical or economics background can see a classic hockey stick in effect here. Since the cap rolls over each year, this things is snowballing. The end of year cap space from 2014-2016 is increase by $80-$100 million each year. This thing may blow up.

    The floor is calculated every 4 years as stated. How much of the $2 billion or so of 2018 cap space do you think will be used.

    $1 billion of cap space is equal to an annual basis of FIFTY (50) 5-year contracts with $20 million AAV, zero backloading and $50 million signing bonus. Or alternatively, $1 billion of cap space is equal to an annual basis of two hundred (200) 5-year contracts with $5 million AAV, zero backloading and zero signing bonus (to keep calculations simple).

    How many of the $20 million (or even $15 million) AAV contracts do you think is given out per year? I dont know, but I presume it is no where near 50 of them. Not sure if there is even 10 of them. How many $5 million AAV contracts do you think there is per year? I doubt there is 200 of them. Not sure there is even 100 of them.

    Yes, I have a problem with the FA strategy because I think it is irrational. But most of the free agent disagreement on this board because people cannot agree on what is a good value.

    I always knew that the supply of money was increasing thus driving the cost of contracts up. However, I had no idea of the magnitude of the money flow. When I looked at the dollars involved, it dawned on me that it could be a big mess in 2019 and 2020. In fact, the earlier we sign our players and free agents, the better. I cannot start to think what fair market price is.

    Of course the Cowboys will not have a floor issue. Cowboys were not named on my list. If the other teams have a floor issue, you can bet it will affect the Cowboys. If 10 teams are stuck spending like crazy, you can bet free agents (including our own free agents) may gone into insane levels.

    I still have not figured out a way to model it. May be @bknight13 would have some intuition.
     
  9. waldoputty

    waldoputty Well-Known Member

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    you mean 25 billion?
    why would teams stop rolling over 50+m - just to look less rich?
    i already assumed basically straight line accounting.
     
  10. waldoputty

    waldoputty Well-Known Member

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    Thanks.
    I started out looking at how quickly salary will move up.
    Just started playing with the actual numbers today and was shocked with the order of magnitude.
    Yes between the rising cap and the spending floor, it will take some getting used to.
    They seem to be playing catch up since the majority of salaries are already committed.

    I dont think they will lose money with the way salaries are supposed to be ~50% of revenues.
     
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  11. rkell87

    rkell87 Well-Known Member

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    I didn't read your whole reply, I admit. Discussing anything with someone who's just spouting their opinion without considering the other persons point isn't very compelling tbh
     
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  12. waldoputty

    waldoputty Well-Known Member

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    appears to me that is the case.
    but lets wait for bknight13 and couple others to weigh in.
    they know more about the rules than i do.
     
  13. rkell87

    rkell87 Well-Known Member

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    You forgot to switch accounts here I think lol
     
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  14. waldoputty

    waldoputty Well-Known Member

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    BK

    here is another complication.
    lets use detroit as an example, they are going to be ~$100million below the cap.
    to prepare the cash floor, they probably have to spend most of their space- right.
    they have 33 players under contract in 2018 and lets say 5 of them dont really count.
    so they are down to 28 players.
    lets assume 6 draft picks kept, so 34 players.
    for 2018, they need to get 19 players.
    assume another 6 from draft picks, you are down to 13 players.
    so assume they spend 80m aav on 13 players - which is almost insane but would be 'necessary'.
    then what happens in 2019?
    they may be down to 16 of their original, with 6 2017 draft picks, 6 2018 draft picks and the 13 players they took on, so they are up to 41 players. add 6 draft picks, they are up to 47.
    how much do they have to spend? at least 20-30 million.
    that is for 6 players. so 3-5 million AAV each

    does this sound right?
     
  15. waldoputty

    waldoputty Well-Known Member

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    lol it has been a long day after a 6 hour drive ...
     
  16. FuzzyLumpkins

    FuzzyLumpkins The Boognish

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    So you're a hypocrite who struggles to change the narrative when someone admits to their mistake.

    You double down on the same narrative petulantly instead. Good job.
     
  17. FuzzyLumpkins

    FuzzyLumpkins The Boognish

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    The 'big mess' results in teams paying the NFLPA the difference between expenditures and the floor. It's inconsequential beyond that and teams are not exactly close to the red.

    They could have in theory brought in better players but as you admit yourself the UFA talent pool is ****ty when compared to the league at large. There is certainly no benefit to them driving up salaries. If you want to claim collusion I wouldn't blame you. We know for a fact the clubs do that.

    The cap has continued to expand but prices have not gone up commensurately. The corners you were drooling over didn't get an appreciable pay raise over previous years. The pass rushers certainly didn't break records. You get some outliers like the GIants paying Vernon last year but they are not the norm.

    You concede that the floor hasn't affected the Cowboys the past several years. That much is obvious. You assert that there will be a run by teams to meet the floor but cap expansion is hardly unique. It's been 7% or more every year since 2011.

    The last accounting period teams were willing to pay the difference. Why should this one be any different? The only difference I see is that the Cowboys are about the get a veteran pro bowl caliber QB salary of the books in the next couple of years. The Cowboys do spend to the limit so you will likely see them maximize their cap.

    I predict you will get what you want in coming years but most teams don't have the compulsion to maximize their cap that the Cowboys do. It only costs them money and they already have that in spades. For every Jerry Jones there is a Jerry Richardson, Mike Brown, and Alex Spanos.
     
  18. waldoputty

    waldoputty Well-Known Member

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    I was unaware teams would be willing to pay the difference. I dont understand why. If they planned better, they could at least put the $ in the restructuring bonus of contracts. i guess part of it is that it is very complex and i dont even know how to start to model it because it involves negotiating with players in free agency etc.

    The floor should not affect the Cowboys. Even if they try to save $, it would not be more than 10%.

    Having gone through this exercise, I have actually changed my mind a bit. I am not so sure we can afford 3 top FAs because the rise in salaries may be so dramatic in 2019 and 2020 that we may have trouble signing our own class of 2016. This salary floor event may be much much large than the previous one. And that is because the cap escalation in the few years have cleared up the cap hell, and now the rapid expansion of the cap may be expand faster than salary catch up. I really cannot start to forsee how bad it will be. BK may have a better feel for it.

    We can sign a couple good FA next year but that is about it. They probably need to sign class of 2016 very early if they want a severe discount. Early as in during the 2018 season, so at least they would have more than 1 more season to see who is worth it.
     
  19. FuzzyLumpkins

    FuzzyLumpkins The Boognish

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    Cap expansion is not a new phenomenon and you are expecting a spike in salaries that is not what happened before. Team expenditures have lagged cap expansion for years and the situation is not going to "blow up" on teams forcing their hand any more than it did in 2013 at the end of the first window.

    You are making the mistake of thinking that NFL owners value the same thing that you do. When it comes to player salaries there is a lifetime of history of them doing everything in their power to suppress the market and keep costs down. Combine that with FA expenditures not correlating to wins and they are not going to inflate contracts for the sake of spending money.
     
  20. rkell87

    rkell87 Well-Known Member

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    If you say so, like I said I didn't read it
     

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