Cap Space? What's Real Cap Space?
Breaking down how NFL teams budget their cap dollars.
Welcome back for another weekly newsletter here on Cap & Trade. This week’s discussion will be on cap space and what the numbers really mean, leading down the path to true effective cap space. We will cover how do teams allocate and budget out their expected cap dollars. Keep in mind cap dollars is not the same as cash dollars. Cap dollars is an accounting allocation of how cash is spent under the rules set forth in the Collective Bargaining Agreement.
For specific examples and breakdowns, we will utilize the Houston Texans numbers since I am most familiar with those. I will try to avoid getting too far into the weeds as well.
Adjusted Salary Cap
Each team will have their own adjusted salary cap. This comprises of: the league set salary cap, annual adjustment, and salary cap carryover. The annual adjustment is a calculation of achieved NLTBE incentives in 2021 versus unachieved LTBE incentives in 2021, and grievance settlements, cap credits on offset guaranteed salaries, insurance reimbursements, and a few other items. Salary cap carryover is remaining 2021 cap dollars, which is carried over to the 2022 league year salary cap.
The Houston Texans had an annual adjustment of $2,915,038 and salary cap carryover of $3,714,404.
League Cap $208,200,000 + Annual Adjustment $2,915,038 + Carryover $3,717,404 = Team Adjusted Salary Cap $214,829,442.
Top 51 Rules
During the offseason a team only counts their Top 51 salary cap charges as part of their salary cap spending. There are additional cap charges that go into this calculation such as pro-rated money, roster bonuses, incentives, guaranteed salary for players outside of the Top 51.
Players on injured reserve, PUP reserve, and NFI reserve do not count towards the Top 51 spending.
For the Houston Texans currently the Top 51 Spending number is $136,480,410.
Disclaimer: At the time of writing this I am missing contract details on three players.
OTA is the offseason training activities program which occurs prior to training camp. Players are paid per day of service, which is charged against the salary cap. The payment for the 2022 league year is $295 per day. Prior to OTA’s beginning, teams use a placeholder amount in their numbers until the final calculations are completed in June. The placeholder amount for 2022 is $849,600 (80 players x 36 days). The placeholder amount is presently included in salary cap numbers on Overthecap.com. Once the calculations are completed, the placeholder amount is removed and replaced with the calculated amount.
Each team will have to account for their drafted players. This number is merely a forecast as most teams will shift around during the draft with trades, which changes the final draft class cost. For the most part teams have an idea on what their draft class cost will be.
Reminder of the Top 51 accounting rules explained above.
The Houston Texans are scheduled to have 11 draft picks including two in the first round. By adding up the expected 2022 salary cap charge of the draft class, based on the Top 51 rules, the team would have a draft hold of $11,540,280 with a total year one salary cap cost of $19,535,280. The team will utilize the $11.54 million number for salary cap budgeting in the offseason.
The undrafted class will have minimal impact on the salary cap, likely no more than $500,000.
Effective Top 51 Cap Space
Now we can take all of the above information to produce the Effective Top 51 Cap Space.
Adjusted Team Cap: $214,829,442
OTA Debt: $849,600
Top 51 Spending: $136,480,410
Dead Money: $51,776,596
Top 51 Cap Space: $25,722,836
Draft Hold: $11,540,280
Effective Top 51 Cap Space: $14,182,556
The two numbers in bold are the important numbers. When you see reports on social media about how much cap space a team has today (prior to the draft) keep in mind that number likely does not factor in the drafted class. This is the number to account for prior to the draft.
Additional Salary Cap Budget Items
There are other items that teams will begin to account for as the offseason progresses through training camp and the preseason. There are additional salary cap costs teams need to plan and account for.
Teams will need to set aside salary cap dollars to cover the 14 players practice squad for the regular season. Practice squad salaries are set per the CBA. The minimum amount a team will need to set aside for this cost is $3,178,000.
Injured Reserve Replacement
Players getting hurt during the season is common. The cost of the player going to IR is already considered a sunk cost. The cost to sign another player to the roster to replace that player is the new cost teams need to account for. Based on replacement history and player salaries, teams will need to budget a minimum of $3,750,000.
Practice Squad Elevation
Elevations were added to the 2021 CBA which allows teams to move players to the 53 man roster (up to two players, four times maximum per player) to cover inactive players. The player does not have to pass through waivers to return to the practice squad as with the previous CBA. When elevated the player’s salary for the week increases to the 53 man roster salary (based on service time). Teams need to account for this cost. Plan to budget $1 million for this.
Players #52 and #53 to the roster.
True Effective Cap Space
Now we can factor in all the budgeted costs for players to calculate the team’s true effective cap space.
Effective Top 51 Cap Space: $14,182,556
Practice Squad: $3,178,800
IR Replacement: $3,750,000
PS Elevation: $1,000,000
True Effective Top 51 Cap Space: $6,253,036
This will be the true number a team is referencing during the offseason. As the team transitions to the regular season Top 53 accounting, teams will need to keep additional cap dollars available for in-season work.
This will include cap dollars for the 52nd and 53rd player (moving from Top 51 spending rules), potential trades, replacement costs for players released from the active roster, grievances, and other costs. Teams generally will need $4-5 million in cap dollars for in-season operations.
I hope this helps explain how teams view their salary cap budget for the league year. Don’t get lost in the fact that a team may have X number of cap dollars when it is only early in the offseason. The team has multiple items they are budgeting for.