Monday, March 22, 2010

Under the Cap: The Redskins Finally Leverage the Uncapped Year

It took nearly three weeks into the uncapped year, but the team a lot of people suspected to be most likely to leverage the uncapped year has finally done so. However, contrary to popular thought, the Redskins haven’t leveraged the uncapped year by signing Julius Peppers and Karlos Dansby all on the same day; instead, the Redskins have renegotiated the contracts of defensive tackle Albert Haynesworth and cornerback DeAngelo Hall.

As of March 11th, the Redskins had a total team salary amount 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 signing bonus, and that’s exactly what they did according to league sources. However, they did this conversion 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 by which if Haynesworth pays back $16.8 million of the signing bonus, 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, meaning 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. With this new voidable provision, if Haynesworth decides he's unhappy with his role in the Redskins' new 3-4 defense and he can come to an agreement in principle with a new team that would guarantee him the $16.8 million he'd have to pay back to the Redskins, then in theory 2010 could Haynesworth's last year in Washington.

Similarly, Hall had a $15 million option bonus in his contract signed in the 2009 offseason. The Redskins converted this $15 million to signing bonus and also 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 (http://insider.espn.go.com/nfl/insider/news/story?id=4757680 ), I discussed the cap and contracts creativity of Redskins GM Bruce Allen. The Haynesworth and Hall renegotiations illustrate that creativity. The voidable language added to the Haynesworth and Hall contracts are the same device included in the Jeff Faine contract negotiated by Allen in Tampa Bay. Interestingly, I mention this clause in the ESPN.com article, as Allen is known to do, he creatively 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 amongst others as a sign of the Redskins taking advantage of the uncapped year. The reality is that those terminations actually saved the Redskins nearly $300,000 in team salary accounting, as had those veterans (inclusive of Ladell Betts, Todd Collins, and Chris Samuels) 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 as nearly as profound of a leveraging of the uncapped year 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 signing bonus is the concept of forfeiture. That is, option bonus is not subject to forfeiture; however, 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. Meaning, 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, then 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

10 comments:

  1. Wait...Bruce Allen wasn't with the Redskins when DHall and Haynesworth were signed.

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  2. Sorry if I wasn't clear, the Redskins renegotiated the contracts of Hall & Hayneworth last Friday to include the aforementioned provisions.

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  3. Any chance they can get portis to do the same?

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  4. But what do the Skins risk? Worst case is that they've risked Gilbert and Hall leaving early, but the cap hit is the same as it would have been if the bonus was prorated -- as it would have been before the renegotiation, right? And it's not as if they signed Peppers and put $100 mil on the uncapped ledger, right? That is, the spirit of the reneg was not to pay a player more, but to take advantage of the /possibility/ of 2010's ledger not being prorated in the future.

    In any event, if you can get this all straight in a way Joe Fan can understand, I hope ESPN puts you through the car wash. This topic has been driving me crazy, and I haven't gotten a good answer on exactly how the uncapped year can/can't be exploited yet. The story of the NFL's "uncapped" year is the worst dropped ball in my recollection of sports media, in part because someone should be able to understand how it works.

    Thanks.

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  5. That's a great article. Down the line, it will be very interesting to see how the new salary cap and CBA politics unfold, especiallly for the Redskins.

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  6. Excellent article.
    More reason why Allen was brought in. Now the Skins have cut dead weight and adjusted some of the heavier contracts to help with the future cap. I was wondering if the Skins were going to find a way to pay for Big Al now than down the line and you explained to me how they did it.
    Thanks.

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    ReplyDelete