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

[Nightman]

your only penalty situation is not rational.
why not take that $1m per player hit and invest it on an additional player or 2?

It is not my penalty..... it is the NFL Rule

 

[waldoputty]

It is not my penalty..... it is the NFL Rule

i meant why be in a position to take a 1M hit per person when you could have spent it to get a player?
use it for something useful instead of being punished?

 

[Toruk_Makto]

i meant why be in a position to take a 1M hit per person when you could have spent it to get a player?
use it for something useful instead of being punished?

Because maybe you had to commit to a multi year deal with a player? And it wasn't as simple as giving a million dollars to some random player? Let's assume rational actors ok?

 

[waldoputty]

Because maybe you had to commit to a multi year deal with a player? And it wasn't as simple as giving a million dollars to some random player? Let's assume rational actors ok?

rational actors - sure.
you can frontload a contract like crazy.

 

[Toruk_Makto]

rational actors - sure.
you can frontload a contract like crazy.

You have to want to do that, have the cash and liquidity to do that and have a player who is fine with a frontloaded but no long term security deal. Guess what? A lot of players are not...that.

 

[waldoputty]

You have to want to do that, have the cash and liquidity to do that and have a player who is fine with a frontloaded but no long term security deal. Guess what? A lot of players are not...that.

sure
you have to have liquidity since you would have to pay the penalty anyway, right?

i am not sure how much the $ is.
say 2 yr contract with total of 10M and the player is worth 3M per year

is this salary structure allowed?
yr 9m yr
2 1m guaranteed

 

[xwalker]

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
Commanders $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/

1. Divide the 2 billion by 32 if you want it to have any meaning to other people. That number is 62.5 million.

2. Determine the total number of players under contract in 2018 and divide by 32.

3. Subtract the average number of players under contract from 53. That is basically the number of players that will get the 62.5M; although, there will be more players than that because some will be on IR (i. e. There will be more than 53 per team).

4. You need to subtract the practice squad cost from the number calculated in #1.

Once you've done these steps, then you can show how many players there are to sign and how much money is available to sign them.

If there are 50 players per team to be signed, then the 2 Billion in cap space would only be 1.25M per player.

If there are only 5 per team to be signed, then it's 12.5M per player.

Summary: The number 2 Billion is meaningless unless you know how many players need to be signed.

A person with 2B in the bank is very rich, but if you split it with everyone in China, then each person gets less than 2 dollars.

 

[waldoputty]

1. Divide the 2 billion by 32 if you want it to have any meaning to other people. That number is 62.5 million.

2. Determine the total number of players under contract in 2018 and divide by 32.

3. Subtract the average number of players under contract from 53. That is basically the number of players that will get the 62.5M; although, there will be more players than that because some will be on IR (i. e. There will be more than 53 per team).

4. You need to subtract the practice squad cost from the number calculated in #1.

Once you've done these steps, then you can show how many players there are to sign and how much money is available to sign them.

If there are 50 players per team to be signed, then the 2 Billion in cap space would only be 1.25M per player.

If there are only 5 per team to be signed, then it's 12.5M per player.

Summary: The number 2 Billion is meaningless unless you know how many players need to be signed.

A person with 2B in the bank is very rich, but if you split it with everyone in China, then each person gets less than 2 dollars.

too tired for that.
according to spotrac, there were ~460 FA in 2017 but ~520 FA in 2018.
quality does not look very different from 2017 assuming the best few will be franchised (or signed otherwise) again.

 

[BotchedLobotomy]

This has "bubble burst" written all over it. At some point the NFL revenue bubble is going to burst. NFL fans at some point, are going to stop throwing the vast amounts of discretionary income towards the NFL. The first crack in the bubble we have seen the past few years is the NFL ratings starting to take a dip.

 

[xwalker]

too tired for that.
according to spotrac, there were ~460 FA in 2017 but ~520 FA in 2018.
quality does not look very different from 2017 assuming the best few will be franchised (or signed otherwise) again.

You really need to do it before continuing to focus on 2 billion in cap space.

There is always going to be big cap space in distant years due to less players under contract. This would be true even if the cap stayed the same every year.

 

[waldoputty]

You really need to do it before continuing to focus on 2 billion in cap space.

There is always going to be big cap space in distant years due to less players under contract. This would be true even if the cap stayed the same every year.

Most of the teams have quite a few players and you have to add on the drafted players.
So the job is to weed out the irrelevant ones, but I dont know enough to do that type of analysis.
I dont know the other teams' players to see which are fillers and which are players that are really cheap.

 

[xwalker]

Most of the teams have quite a few players and you have to add on the drafted players.
So the job is to weed out the irrelevant ones, but I dont know enough to do that type of analysis.
I dont know the other teams' players to see which are fillers and which are players that are really cheap.

You just need to know how many are under contract. Even if those players are fillers, they take up cap space.

Example Team A:
1. 33 players under contract (20 spots open from a cap perspective).
2. 40M in cap space.

Example Team B:
1. 48 players under contract (5 spots open).
2. 35M in cap space.

Which team has more cap space?

 

[waldoputty]

You just need to know how many are under contract. Even if those players are fillers, they take up cap space.

Example Team A:
1. 33 players under contract (20 spots open from a cap perspective).
2. 40M in cap space.

Example Team B:
1. 48 players under contract (5 spots open).
2. 35M in cap space.

Which team has more cap space?

I understand your math.
but what you are suggesting to calculate is the ceiling.
what we need is the floor.
that means going from the cash flow.
it would also take a week of analysis is figuring out which players will be kept.
i will figure out a reasonable analysis.

but it will probably be based on how many decent players before all the scraps.

will try to figure out the various websites that already add up the # of players for me.

 

[Nightman]

I understand your math.
but what you are suggesting to calculate is the ceiling.
what we need is the floor.
that means going from the cash flow.
it would also take a week of analysis is figuring out which players will be kept.
i will figure out a reasonable analysis.

but it will probably be based on how many decent players before all the scraps.

will try to figure out the various websites that already add up the # of players for me.

teams aren't going to pay scrubs 2m and aren't going to throw money away on JAGs

the rookie wages are locked in and 1/2 the team is on their rookie deal

teams will have to hide cap space with no signing bonuses that are pro-rated...they will use large base salaries, roster bonuses and straight line accounting ....... they will not roll over as much ....... they will eat more dead money and will extend more drafted players

 

[yimyammer]

teams wlll use straight line accounting which may help the trade market since there will be less accelerated dead money

I'm starting to think this is a smarter way of managing the cap because you also maintain leverage over players and have flexibility because a team is not backed into a corner with players contracts and forced to keep them because of said contract/dead money.

Imagine if Dallas could have eaten Romo's signing bonus in the first 2 years of his contract, didn't restructure and deliberately made later years smaller salaries. Trading him would be much easier, or even keeping him as a backup for that matter.

In order to do this, a team has to get in front of the cap with a substantial amount of cap dollars so they can start to spend big each year and have this option going forward. I'm not sure Dallas sees any value in this strategy.

I'm too lazy to work up a mathematical model to prove my theory so of course I could be dead wrong as well

 

[Nightman]

I'm starting to think this is a smarter way of managing the cap because you also maintain leverage over players and have flexibility because a team is not backed into a corner with players contracts and forced to keep them because of said contract/dead money.

Imagine if Dallas could have eaten Romo's signing bonus in the first 2 years of his contract, didn't restructure and deliberately made later years smaller salaries. Trading him would be much easier, or even keeping him as a backup for that matter.

In order to do this, a team has to get in front of the cap with a substantial amount of cap dollars so they can start to spend big each year and have this option going forward. I'm not sure Dallas sees any value in this strategy.

I'm too lazy to work up a mathematical model to prove my theory so of course I could be dead wrong as well

it is a terrible way to run the cap......it is extremely inefficient

you are paying more early in the contract when the cap is a lot lower

we are able eat to a 25m cap charge this year without touching Dez, TCrawford or Witten

we are basically wasting over 25m in unspent cap space and still accounting for Romo's largest cap hit ever

 

[waldoputty]

teams aren't going to pay scrubs 2m and aren't going to throw money away on JAGs

the rookie wages are locked in and 1/2 the team is on their rookie deal

teams will have to hide cap space with no signing bonuses that are pro-rated...they will use large base salaries, roster bonuses and straight line accounting ....... they will not roll over as much ....... they will eat more dead money and will extend more drafted players

you are right.
this numeric exercise is going to take some time to figure out.
i think i will do the cash flow calculation first using committed cash - that does not take more than 15 minutes to mess around on the spread sheet.

trying to figure out which player gets how much is going to be tougher.
the big names i know, but the mid level players on other teams - i just dont know - i guess i can use their previous salaries.

 

[waldoputty]

I'm starting to think this is a smarter way of managing the cap because you also maintain leverage over players and have flexibility because a team is not backed into a corner with players contracts and forced to keep them because of said contract/dead money.

Imagine if Dallas could have eaten Romo's signing bonus in the first 2 years of his contract, didn't restructure and deliberately made later years smaller salaries. Trading him would be much easier, or even keeping him as a backup for that matter.

In order to do this, a team has to get in front of the cap with a substantial amount of cap dollars so they can start to spend big each year and have this option going forward. I'm not sure Dallas sees any value in this strategy.

I'm too lazy to work up a mathematical model to prove my theory so of course I could be dead wrong as well

No math theory.
However, think of it in a simple analytical way.
Dallas has huge cash flow compared to most other teams.
Thus it can give huge bonus and eat money as much as it needs as long as cap and floor allow.
So the more flexibility the better because it gives Dallas more options to crush the small market teams.

 

[Nightman]

No math theory.
However, think of it in a simple analytical way.
Dallas has huge cash flow compared to most other teams.
Thus it can give huge bonus and eat money as much as it needs as long as cap and floor allow.
So the more flexibility the better because it gives Dallas more options to crush the small market teams.

When a team guarantees future salary they have to put the cash in an NFL held escrow account

This is where DAL could use their cash on hand advantage......they could offer Dak 5/60m with 100% guaranteed and get a deal next year and then use the savings to buy a DE, CB or WR

But they act like a small market club that needs comp picks and show-me deals to survive

 

[yimyammer]

it is extremely inefficient

Why?

It sounds like you're saying the only way to be efficient is to leverage against the future whereas in my view being efficient minimizes how much a team borrows from the future.

I'm admittedly biased by how I run my personal finances, I HATE debt, have none and retired when I was 40 because I am extremely efficient with how I save and spend money. I did utilize debt at a very low debt to equity ratio in order to achieve this so perhaps there's an analogy here to how you advocate managing the cap.