Restructuring breakdown and the cap

[TheDude]

I wanted to really examine the restructuring philosophy that The Jones' have touted as the best way to run a cap (or acknowledge that is their long-term strategy). Intuitively, it just doesn't make sense and while there may be some scenarios where it worked ok, or some mitigating factors (increase in cap). I still think there are some basics of asset management that will always override on the whole.

First, when giving out long term lucrative contracts, there are 2 things: Lucrative contracts are earned by past performance; but projection of the duration and trajectory of similar performance should be the overriding determinant of value. This is really where the comparisons to "corporate America" salary comparisons end. Out of college, you prove yourself for a couple of years, get promotions, perhaps bonuses, Stock options etc.

NFL players are a rapidly diminishing asset value. There is a known utility curve that is steep on the left and can be less (or more) steep on the right after the peak performance years. Factor in also that players may retire, injuries, etc., the interplay with the salary cap is a difficult art and science to win consistently.

I chose to review the evolution of the Demarcus Ware contract. Timeline details are below. I think I am very close to the real numbers but might be +/-500K off due to LTBE incentives, etc.

First, the initial Ware contract was actually a very prescient. The Original Cap% was below 10% until 2014. 2014 is also when any "Dead money" was $0 as the original $20M bonus had amortized over the 5 years. This would have left 2014 where Dallas could take a hard look at Ware and determine if he warranted Base salaries only of $12.25M and $13.75M in 2014 and 2015 to finish the contract.

In 2011, while Ware (the asset) was still performing at its peak, the Cowboys began to leverage the financial value of their cap/salary/performance call and moved his base to a bonus. In actuality, this 1st restructure wasn't a bad call. The contract still ended in 2015 and 2014 "Dead Money" was only $2.6M. At the beginning of 2013, I think anyone would have accepted that deal. The move saved $5.3M on the cap

In 2012, however, the decision was made to EXTEND the deal by 2 years (to 2017). This allowed further restructurings to prorate longer (which assumes the asset will maintain similar value longer). The actual restructuring was minor at $3.7M. It saved $3M on the cap but only $1.6M on the original cap. But the extended option years opened up a tool that exacerbate the known negative correlation of returns vs years of service. Also piggybacking on the 2012 restructure, the dead money in 2014 grew from $2.61M to $4.81M

2013, the restructure was larger $5.2M. Dead money rose to $9M in 2014. Keeping Ware uses 12% of the cap, cutting Ware uses 7%.

The last 2 green boxes illustrate a "Max" restructure - adding another year (2018). The cap hit for 2014 can drop $9M. However, 2015 Cap number is at $19.2M and Dead money is an astounding $15M. I also illustrate a "what-if" Ware reduces his salary $5M and restructures adding a year

At some point, Ware retires or is cut and the essentially the pizza size in that year will require cutting a slice and flushing it down the toilet with no utility.

The bottom line, restructures should be used in the rarest of occasions. If they are part of a recurring core strategy, the check will always be cashed at an adverse selection time period. Dead money means you field a team with less quality assets than an opponent (by the theory most others select quality assets).

Sure you get may get some relief when the cap goes up, but that still doesn't address the issue of committing a similar or higher portion of the cap for an asset that is diminishing - and that you projected would diminish by 2014 back in 2009. Then, because of the "recurring" nature of the strategy, you are caught in a death spiral.

I won't argue that there are obviously some restructures that are sound (ware's first for example) and that cap increases may reduce a symptom, but I don't think it is justifiable to rely on this strategy as a baseline.

The cap issues in the late 90s were exacerbated by Aikman's and Irvin's retirement, Deion and Emmitt losing some skill, etc. History can repeat itself.

If Ware is simply extended, it is a bad move and worsens the issue in 2015.

 

[xwalker]

I wanted to really examine the restructuring philosophy that The Jones' have touted as the best way to run a cap (or acknowledge that is their long-term strategy). Intuitively, it just doesn't make sense and while there may be some scenarios where it worked ok, or some mitigating factors (increase in cap). I still think there are some basics of asset management that will always override on the whole.

First, when giving out long term lucrative contracts, there are 2 things: Lucrative contracts are earned by past performance; but projection of the duration and trajectory of similar performance should be the overriding determinant of value. This is really where the comparisons to "corporate America" salary comparisons end. Out of college, you prove yourself for a couple of years, get promotions, perhaps bonuses, Stock options etc.

NFL players are a rapidly diminishing asset value. There is a known utility curve that is steep on the left and can be less (or more) steep on the right after the peak performance years. Factor in also that players may retire, injuries, etc., the interplay with the salary cap is a difficult art and science to win consistently.

I chose to review the evolution of the Demarcus Ware contract. Timeline details are below. I think I am very close to the real numbers but might be +/-500K off due to LTBE incentives, etc.

First, the initial Ware contract was actually a very prescient. The Original Cap% was below 10% until 2014. 2014 is also when any "Dead money" was $0 as the original $20M bonus had amortized over the 5 years. This would have left 2014 where Dallas could take a hard look at Ware and determine if he warranted Base salaries only of $12.25M and $13.75M in 2014 and 2015 to finish the contract.

In 2011, while Ware (the asset) was still performing at its peak, the Cowboys began to leverage the financial value of their cap/salary/performance call and moved his base to a bonus. In actuality, this 1st restructure wasn't a bad call. The contract still ended in 2015 and 2014 "Dead Money" was only $2.6M. At the beginning of 2013, I think anyone would have accepted that deal. The move saved $5.3M on the cap

In 2012, however, the decision was made to EXTEND the deal by 2 years (to 2017). This allowed further restructurings to prorate longer (which assumes the asset will maintain similar value longer). The actual restructuring was minor at $3.7M. It saved $3M on the cap but only $1.6M on the original cap. But the extended option years opened up a tool that exacerbate the known negative correlation of returns vs years of service. Also piggybacking on the 2012 restructure, the dead money in 2014 grew from $2.61M to $4.81M

2013, the restructure was larger $5.2M. Dead money rose to $9M in 2014. Keeping Ware uses 12% of the cap, cutting Ware uses 7%.

The last 2 green boxes illustrate a "Max" restructure - adding another year (2018). The cap hit for 2014 can drop $9M. However, 2015 Cap number is at $19.2M and Dead money is an astounding $15M. I also illustrate a "what-if" Ware reduces his salary $5M and restructures adding a year

At some point, Ware retires or is cut and the essentially the pizza size in that year will require cutting a slice and flushing it down the toilet with no utility.

The bottom line, restructures should be used in the rarest of occasions. If they are part of a recurring core strategy, the check will always be cashed at an adverse selection time period. Dead money means you field a team with less quality assets than an opponent (by the theory most others select quality assets).

Sure you get may get some relief when the cap goes up, but that still doesn't address the issue of committing a similar or higher portion of the cap for an asset that is diminishing - and that you projected would diminish by 2014 back in 2009. Then, because of the "recurring" nature of the strategy, you are caught in a death spiral.

I won't argue that there are obviously some restructures that are sound (ware's first for example) and that cap increases may reduce a symptom, but I don't think it is justifiable to rely on this strategy as a baseline.

The cap issues in the late 90s were exacerbated by Aikman's and Irvin's retirement, Deion and Emmitt losing some skill, etc. History can repeat itself.

If Ware is simply extended, it is a bad move and worsens the issue in 2015.

That's a lot of effort to come to the wrong conclusion.

If a team pays a player too much, it does not matter if that pay came as a huge base salary or as a restructure. If you look at a running total of the next 5 years of the teams salary cap, then they have to account for what that player got paid regardless of how it was structured.

If they pay Ware 12M as a base salary in 2014 or give him a base of 1M with an 11M restructure bonus, it is still 12M against the cumulative multiple year cap total.

The fact that they might spend more on other players if Ware is restructured vs not restructured is a different issue. Any money that they gain under the 2014 cap by restructuring his contract can be rolled into the future if they don't spend it.

The bottom line is that if a team never restructured contracts and always "paid as they go", then they are operating at a disadvantage to other teams that do restructure contracts. It is a myth that the bill is going to come due someday. They can push a certain amount into the future indefinitely. It will come due for specific players, but they can always push multiple other players cap hits into the future to more than offset the players that "come due" because they are off the roster.

Restructuring is a Zero interest loan.

 

[Hawkeye19]

This is the balancing act of running an NFL franchise. You need to field a competitive team today-- while maintaing a disciplined strategy and budget in regards to future years.

And this is where JJ breaks down time and time again as a GM. He over-values the talent on his roster and thinks his team is always on the verge of competing. Therefore he focuses the majority of his strategy on "winning now" before the "window closes". He has shown that he is more than willing to mortgage the future in the hopes of glory now.

 

[NJ22]

Dude... Get a girlfriend!

 

[TheDude]

That's a lot of effort to come to the wrong conclusion.

If a team pays a player too much, it does not matter if that pay came as a huge base salary or as a restructure. If you look at a running total of the next 5 years of the teams salary cap, then they have to account for what that player got paid regardless of how it was structured.

If they pay Ware 12M as a base salary in 2014 or give him a base of 1M with an 11M restructure bonus, it is still 12M against the cumulative multiple year cap total.

The fact that they might spend more on other players if Ware is restructured vs not restructured is a different issue. Any money that they gain under the 2014 cap by restructuring his contract can be rolled into the future if they don't spend it.

The bottom line is that if a team never restructured contracts and always "paid as they go", then they are operating at a disadvantage to other teams that do restructure contracts. It is a myth that the bill is going to come due someday. They can push a certain amount into the future indefinitely. It will come due for specific players, but they can always push multiple other players cap hits into the future to more than offset the players that "come due" because they are off the roster.

Restructuring is a Zero interest loan.

Ware's initial contract had $40M in guaranteed money. The salary at the end (2014, 2015) would not have counted toward the cap. Now, a portion of total comp does count since it was paid up front as a bonus.

If you project a player to count 7-8% of the total cap during peak years and move that to 10-12% during declining years, you are leveraging. The bill comes due when you have an asset that you can only use 90% capacity. Sure, you expect to take advantage of underpaying young talent, but many contracts like this counter all asset management disciplines.

If they refused to pay ware the 12.25M this year on the original contract or first restructure, they get hit $0-2M. After 3 consecutive restructures (and Ware three years older) they owe $8M if cut $15M if not

The pie is a set size, when you cannot serve a portion in a given year (or get the ingredients to make it edible).

Dallas, Washington and Oakland follow this strategy more than most....How have they performed?

 

[TheDude]

Dude... Get a girlfriend!

got a wife

 

[xwalker]

If they refused to pay ware the 12.25M this year on the original contract or first restructure, they get hit $0-2M. After 3 consecutive restructures (and Ware three years older) they owe $8M if cut $15M if not

That is not a restructure question. It is a question of whether they pay him 12.25M or not. Paying him that salary without a restructure does not solve anything. It's still 12.25M against the running multiple year cap total either way.

If you give business A access to unlimited Zero interest loans and business B no access to loans, then A will exceed B if they have similar management and similar products. If B is more successful than A, then it is because A had poor product management and/or an inferior products.

 

[Corso]

Dude... Get a girlfriend!

Ha ha ha!!!
But seriously- good effort, but he's right.

 

[Corso]

got a wife

Good comeback...

 

[TheDude]

That is not a restructure question. It is a question of whether they pay him 12.25M or not. Paying him that salary without a restructure does not solve anything. It's still 12.25M against the running multiple year cap total either way.

If you give business A access to unlimited Zero interest loans and business B no access to loans, then A will exceed B if they have similar management and similar products. If B is more successful than A, then it is because A had poor product management and/or an inferior products.

The zero interest loan analogy really doesn't translate it's more like an option-ARM or HELOC. But that aside...

If they chose not to pay Ware today on the original contract...They can walk away with a clean break. They can renogiatiate a 1 -3 year reduced deal and start over. Now they have to evaluate a restructure, cap hit vs dead money contribution, restructuring and out year impacts, or how to make up $9M in dead cap.

Your argument would seem to support that they could, with little risk, just max extend Ware - convert all base salary to a bonus add a year at the end (2018). That would mean the decision in 2015 would be to pay ware the $19.M cap number, cut him and take a no problem $15.2M dead money hit OR extend the deal to 2019 and see these numbers even higher in 2016.

If a Ware and Romo both retired, the impact would be widely felt on the cap. Also, the Cowboys have said they will always operate near the cap limit (chicken/egg) so future year's cap savings are an argument but a tail event

 

[xwalker]

Your argument would seem to support that they could, with little risk, just max extend Ware - convert all base salary to a bonus add a year at the end (2018). That would mean the decision in 2015 would be to pay ware the $19.M cap number, cut him and take a no problem $15.2M dead money hit OR extend the deal to 2019 and see these numbers even higher in 2016.

No, it does not. That's not remotely similar to what I said.

I said that paying Ware 12.25M is the same with regards to the multiple year cap issue regardless of whether it is structured as a 12.25M base or a 1.25M base + 11M restructure bonus.

I never said that it was a good idea to pay Ware 12.25M for 2014 in any structure.

 

[TheDude]

No, it does not. That's not remotely similar to what I said.

I said that paying Ware 12.25M is the same with regards to the multiple year cap issue regardless of whether it is structured as a 12.25M base or a 1.25M base + 11M restructure bonus.

I never said that it was a good idea to pay Ware 12.25M for 2014 in any structure.

First, I think there are many factors here that in a vacuum can support that restructuring alone isn't always evil....and I agree. The original point is that to get to a point to make a decision to restructure a player, that player must be on his second/third contract. That inherently means that you are restructuring and extending ties to an aging player. On average aging players will provide diminishing returns. But when the compensation structure is solely in base salary, the evaluation can be cleaner because there is no other ramification other than the player is still a stud and we can restructure for 3-4 years or we can ask for a lower salary comp and bonus structure, or we can cut the player with no cap impact.

Multiple Restructuring and extensions does not allow a clean break. The evaluation then becomes well he is only wirth $X (market), but I have to account for $y (cap) anyway. If I extend the structure to lower $y (reduce base as well), then I only buy myself 1 year. More decision points and gambles on a depreciated asset.

Even if Ware's base is reduced $5M, rolling all of the comp to a bonus in order to pay the minimum salary of $840 is leverage. Next year's Dead money is 9M.

In Economic Cash terms, Ware's contract pays him $12.25M cash this year. If $840K is Bonus and $11.41M is Bonus, Ware probably doesn't care, probably prefers a bonus since its upfront and 16 weeks earlier. If he takes a $5M pay cut - the $7.25M will likely be structured from Dallas as 840K base and $4.41 Bonus. To max the cap, they will ad 1 year to ware's deal to pro-rate the 4.41 by 5years. For Dallas to Max the cap, they are going to have to evaluate performance vs cap hit vs dead money next year that is pretty close to the same this year.

Multiple restructures (and thus extension years) increases the odds of dead money. A few are ok, but as a standard procedure, the bill comes due when the player retires. If you are over the cap it is painfull

 

[Hoofbite]

That's a lot of effort to come to the wrong conclusion.

If a team pays a player too much, it does not matter if that pay came as a huge base salary or as a restructure. If you look at a running total of the next 5 years of the teams salary cap, then they have to account for what that player got paid regardless of how it was structured.

If they pay Ware 12M as a base salary in 2014 or give him a base of 1M with an 11M restructure bonus, it is still 12M against the cumulative multiple year cap total.

The fact that they might spend more on other players if Ware is restructured vs not restructured is a different issue. Any money that they gain under the 2014 cap by restructuring his contract can be rolled into the future if they don't spend it.

The bottom line is that if a team never restructured contracts and always "paid as they go", then they are operating at a disadvantage to other teams that do restructure contracts. It is a myth that the bill is going to come due someday. They can push a certain amount into the future indefinitely. It will come due for specific players, but they can always push multiple other players cap hits into the future to more than offset the players that "come due" because they are off the roster.

Restructuring is a Zero interest loan.

Dallas undoubtedly utilizes restructures more than a great deal of other teams, largely because they have to just to get compliant.

So where's the advantage over the other teams that don't utilize it to the same extent? The team isn't stocked with talent, in fact they have very little on the defensive side of the ball. Not really a legitimate contender and only because of a horrible division have they even had a chance to get to the playoffs in week 17 for the last 3 years.

Looking at the big picture it's really hard to spot where the advantage is coming into play.

Spending money doesn't guarantee anything, much less give any sort of advantage. If you suck at identifying talent you could spend as much as you want and never create any sort of advantage at all.

Creating space would be awesome if you could correctly identify whether or not the money you are spending is going to pay off over the next 5 years. Of course, anyone with that sort of omnipotence wouldn't need to create money in the first place because they'd be snatching up all the Richard Shermans, Russell Wilsons, Cam Chancellors, and Kiko Alonsos in every draft. Their team would be so stacked they'd never have to go to free agency to acquire players. Even if you could correctly identify players, it's not like that is what Dallas has been doing. They're just restructuring so they can get complaint, not so they can actually improve the team.

Restructuring doesn't create any sort of advantage by itself. For Dallas, it's basically a crutch that allows them to continue to operate while not having to actually feel the effects of their stupid moves all at once. It lets Jerry make up for spending multiple 2nd round picks on a TE while a HoF TE is on the roster. It allows Jerry to go to free agency to get a couple of players because Jerry's wasted multiple picks on a slow WR from Detroit. It allows the team to try and fill some roster spots that should have been filled over the last 4-5 years with mid round picks but didn't because of all the projects and no-names the team has drafted.

Restructuring basically lets Jerry be Jerry without having the entire team be completely worthless. The team can still make all the stupid moves they shouldn't but restructuring allows them to buy a little talent here and there.

 

[xwalker]

Dallas undoubtedly utilizes restructures more than a great deal of other teams, largely because they have to just to get compliant.

So where's the advantage over the other teams that don't utilize it to the same extent? The team isn't stocked with talent, in fact they have very little on the defensive side of the ball. Not really a legitimate contender and only because of a horrible division have they even had a chance to get to the playoffs in week 17 for the last 3 years.

Looking at the big picture it's really hard to spot where the advantage is coming into play.

Spending money doesn't guarantee anything, much less give any sort of advantage. If you suck at identifying talent you could spend as much as you want and never create any sort of advantage at all.

Creating space would be awesome if you could correctly identify whether or not the money you are spending is going to pay off over the next 5 years. Of course, anyone with that sort of omnipotence wouldn't need to create money in the first place because they'd be snatching up all the Richard Shermans, Russell Wilsons, Cam Chancellors, and Kiko Alonsos in every draft. Their team would be so stacked they'd never have to go to free agency to acquire players. Even if you could correctly identify players, it's not like that is what Dallas has been doing. They're just restructuring so they can get complaint, not so they can actually improve the team.

Restructuring doesn't create any sort of advantage by itself. For Dallas, it's basically a crutch that allows them to continue to operate while not having to actually feel the effects of their stupid moves all at once. It lets Jerry make up for spending multiple 2nd round picks on a TE while a HoF TE is on the roster. It allows Jerry to go to free agency to get a couple of players because Jerry's wasted multiple picks on a slow WR from Detroit. It allows the team to try and fill some roster spots that should have been filled over the last 4-5 years with mid round picks but didn't because of all the projects and no-names the team has drafted.

Restructuring basically lets Jerry be Jerry without having the entire team be completely worthless. The team can still make all the stupid moves they shouldn't but restructuring allows them to buy a little talent here and there.

If you compare the same management team with an without the ability to restructure, then they have an advantage when they are able to restructure.

If Jerry and company are 8-8 the way they do business, they would probably be 4-12 without the restructuring.

The following is not good logic:

Jerry has failed as a GM.

The Cowboys spend more and restructure more than most teams.

Conclusion: Restructuring is the reason that Jerry failed.

 

[Corso]

Dallas undoubtedly utilizes restructures more than a great deal of other teams, largely because they have to just to get compliant.

So where's the advantage over the other teams that don't utilize it to the same extent? The team isn't stocked with talent, in fact they have very little on the defensive side of the ball. Not really a legitimate contender and only because of a horrible division have they even had a chance to get to the playoffs in week 17 for the last 3 years.

Looking at the big picture it's really hard to spot where the advantage is coming into play.

Spending money doesn't guarantee anything, much less give any sort of advantage. If you suck at identifying talent you could spend as much as you want and never create any sort of advantage at all.

Creating space would be awesome if you could correctly identify whether or not the money you are spending is going to pay off over the next 5 years. Of course, anyone with that sort of omnipotence wouldn't need to create money in the first place because they'd be snatching up all the Richard Shermans, Russell Wilsons, Cam Chancellors, and Kiko Alonsos in every draft. Their team would be so stacked they'd never have to go to free agency to acquire players. Even if you could correctly identify players, it's not like that is what Dallas has been doing. They're just restructuring so they can get complaint, not so they can actually improve the team.

Restructuring doesn't create any sort of advantage by itself. For Dallas, it's basically a crutch that allows them to continue to operate while not having to actually feel the effects of their stupid moves all at once. It lets Jerry make up for spending multiple 2nd round picks on a TE while a HoF TE is on the roster. It allows Jerry to go to free agency to get a couple of players because Jerry's wasted multiple picks on a slow WR from Detroit. It allows the team to try and fill some roster spots that should have been filled over the last 4-5 years with mid round picks but didn't because of all the projects and no-names the team has drafted.

Restructuring basically lets Jerry be Jerry without having the entire team be completely worthless. The team can still make all the stupid moves they shouldn't but restructuring allows them to buy a little talent here and there.

Good point...

 

[Corso]

If you compare the same management team with an without the ability to restructure, then they have an advantage when they are able to restructure.

If Jerry and company are 8-8 the way they do business, they would probably be 4-12 without the restructuring.

The following is not good logic:

Jerry has failed as a GM.

The Cowboys spend more and restructure more than most teams.

Conclusion: Restructuring is the reason that Jerry failed.

And a just as good counter-point...

Bravo gentlemen. I'm learning more and more with posts like these.
Thank you.

 

[Vanilla2]

got a wife

Get a girlfriend!!!

 

[xwalker]

First, I think there are many factors here that in a vacuum can support that restructuring alone isn't always evil....and I agree. The original point is that to get to a point to make a decision to restructure a player, that player must be on his second/third contract. That inherently means that you are restructuring and extending ties to an aging player. On average aging players will provide diminishing returns. But when the compensation structure is solely in base salary, the evaluation can be cleaner because there is no other ramification other than the player is still a stud and we can restructure for 3-4 years or we can ask for a lower salary comp and bonus structure, or we can cut the player with no cap impact.

Multiple Restructuring and extensions does not allow a clean break. The evaluation then becomes well he is only wirth $X (market), but I have to account for $y (cap) anyway. If I extend the structure to lower $y (reduce base as well), then I only buy myself 1 year. More decision points and gambles on a depreciated asset.

Even if Ware's base is reduced $5M, rolling all of the comp to a bonus in order to pay the minimum salary of $840 is leverage. Next year's Dead money is 9M.

In Economic Cash terms, Ware's contract pays him $12.25M cash this year. If $840K is Bonus and $11.41M is Bonus, Ware probably doesn't care, probably prefers a bonus since its upfront and 16 weeks earlier. If he takes a $5M pay cut - the $7.25M will likely be structured from Dallas as 840K base and $4.41 Bonus. To max the cap, they will ad 1 year to ware's deal to pro-rate the 4.41 by 5years. For Dallas to Max the cap, they are going to have to evaluate performance vs cap hit vs dead money next year that is pretty close to the same this year.

Multiple restructures (and thus extension years) increases the odds of dead money. A few are ok, but as a standard procedure, the bill comes due when the player retires. If you are over the cap it is painfull

Restructuring is irrelevant. They either pay a player too much or they don't. If they pay Ware 12.25M for 2014, it is too much regardless of the structure.

Dead-money should not be a factor in a decision to cut or not cut a player. The dead-money still gets applied to the cap over the long run regardless of whether they keep the player or cut him. They would have about 8.5M in dead-money if Ware is cut. That 8.5M + his 2014 salary still counts against the cumulative multiple year cap even if he stays.

The number that is important is how much does it add to the cap to keep a player. If they keep Ware without a pay cut, it adds 12.25M regardless of how it is structured to the long term cumulative cap. The 8.5M is already a done deal. They can't get it back.

 

[TheDude]

If you compare the same management team with an without the ability to restructure, then they have an advantage when they are able to restructure.

If Jerry and company are 8-8 the way they do business, they would probably be 4-12 without the restructuring.

The following is not good logic:

Jerry has failed as a GM.

The Cowboys spend more and restructure more than most teams.

Conclusion: Restructuring is the reason that Jerry failed.

However, just looking at the Cortland Finnegan vs Brandon Carr cap timelines.

Both signed in 2012 for 5years/50M. Brandon Carr restructured 13.6M into the guarantees and added a year. Today Finnegan could be cut or asked to take a paycut and he has no leverage he can be cut and add $4M to the Rams cap space. Carr, on the other hand, will have a negative cap hit of -$4.6M due to the more guarantees and restructure. Over the next few years Carr will have about $10M more dead cap space that Finnegan.

http://www.overthecap.com/cap.php?Name=Cortland Finnegan&Position=CB&Team=Rams
http://overthecap.com/cap.php?Name=Brandon Carr&Position=CB&Team=Cowboys

There is no way you can make a pure market decision when you have to deal with significant dead cap space. You also open yourself up to career ending retirement risk, etc.

Like anything, in moderation, restructures can be good. But high usage/concentrations begins to erode negotiating leverage and can limit the ability to take advantage of other market opportunities. Paying age is risky, restructures (especially multiples) are doubling down that to a degree because the asset life is finite

 

[DavidS]

I wanted to really examine the restructuring philosophy that The Jones' have touted as the best way to run a cap (or acknowledge that is their long-term strategy). Intuitively, it just doesn't make sense and while there may be some scenarios where it worked ok, or some mitigating factors (increase in cap). I still think there are some basics of asset management that will always override on the whole.

First, when giving out long term lucrative contracts, there are 2 things: Lucrative contracts are earned by past performance; but projection of the duration and trajectory of similar performance should be the overriding determinant of value. This is really where the comparisons to "corporate America" salary comparisons end. Out of college, you prove yourself for a couple of years, get promotions, perhaps bonuses, Stock options etc.

NFL players are a rapidly diminishing asset value. There is a known utility curve that is steep on the left and can be less (or more) steep on the right after the peak performance years. Factor in also that players may retire, injuries, etc., the interplay with the salary cap is a difficult art and science to win consistently.

I chose to review the evolution of the Demarcus Ware contract. Timeline details are below. I think I am very close to the real numbers but might be +/-500K off due to LTBE incentives, etc.

First, the initial Ware contract was actually a very prescient. The Original Cap% was below 10% until 2014. 2014 is also when any "Dead money" was $0 as the original $20M bonus had amortized over the 5 years. This would have left 2014 where Dallas could take a hard look at Ware and determine if he warranted Base salaries only of $12.25M and $13.75M in 2014 and 2015 to finish the contract.

In 2011, while Ware (the asset) was still performing at its peak, the Cowboys began to leverage the financial value of their cap/salary/performance call and moved his base to a bonus. In actuality, this 1st restructure wasn't a bad call. The contract still ended in 2015 and 2014 "Dead Money" was only $2.6M. At the beginning of 2013, I think anyone would have accepted that deal. The move saved $5.3M on the cap

In 2012, however, the decision was made to EXTEND the deal by 2 years (to 2017). This allowed further restructurings to prorate longer (which assumes the asset will maintain similar value longer). The actual restructuring was minor at $3.7M. It saved $3M on the cap but only $1.6M on the original cap. But the extended option years opened up a tool that exacerbate the known negative correlation of returns vs years of service. Also piggybacking on the 2012 restructure, the dead money in 2014 grew from $2.61M to $4.81M

2013, the restructure was larger $5.2M. Dead money rose to $9M in 2014. Keeping Ware uses 12% of the cap, cutting Ware uses 7%.

The last 2 green boxes illustrate a "Max" restructure - adding another year (2018). The cap hit for 2014 can drop $9M. However, 2015 Cap number is at $19.2M and Dead money is an astounding $15M. I also illustrate a "what-if" Ware reduces his salary $5M and restructures adding a year

At some point, Ware retires or is cut and the essentially the pizza size in that year will require cutting a slice and flushing it down the toilet with no utility.

The bottom line, restructures should be used in the rarest of occasions. If they are part of a recurring core strategy, the check will always be cashed at an adverse selection time period. Dead money means you field a team with less quality assets than an opponent (by the theory most others select quality assets).

Sure you get may get some relief when the cap goes up, but that still doesn't address the issue of committing a similar or higher portion of the cap for an asset that is diminishing - and that you projected would diminish by 2014 back in 2009. Then, because of the "recurring" nature of the strategy, you are caught in a death spiral.

I won't argue that there are obviously some restructures that are sound (ware's first for example) and that cap increases may reduce a symptom, but I don't think it is justifiable to rely on this strategy as a baseline.

The cap issues in the late 90s were exacerbated by Aikman's and Irvin's retirement, Deion and Emmitt losing some skill, etc. History can repeat itself.

If Ware is simply extended, it is a bad move and worsens the issue in 2015.

Stephen Jones is laughing at all the time you wasted on being wrong about his cap numbers

Great news on the $133 announcement with $150 in just a few years, we got plenty of money now!!