Bengals salary cap mythbusters, ft. Jake Liscow

Last week, Paul Dehner Jr. of The Athletic put out a unique article featuring an offseason simulator in the form of a Google Sheets document. This gave Cincinnati Bengals fans a chance to see how the team could maneuver free agency with their current salary cap space.

The problem with this tool is that attached to every player is a fixed salary cap number, and some of the numbers are pretty big, like too big.

For example, Carl Lawson’s cap hit is $14 million, which is also the same as Joe Thuney. Both Lawson and Thuney could very well sign multi-year deals with Cincinnati in the near future, but if and when they do, the contracts they sign will be very unlikely to feature 2021 cap hits of $14m.

Dehner’s simulator seemed to make any free agent’s projected average annual value (AAV) their cap number for 2021, and for free agents that will sign multi-year deals, this is almost never the case.

The tool at The Athletic is much easier to use than the more realistic and flexible tool on OverTheCap.com. Still, with the complexity of the widely misunderstood NFL salary cap, using AAV as a proxy for year-one cap hits misleads fans on how NFL accounting works, and how teams navigate the salary cap. Many readers found out they weren’t able to sign the players they wanted and stay under the cap, when in reality, there are very simple contract structures the Bengals could (and do!) use to do just that.

Jake Liscow, host of the Locked on Bengals podcast and Cincy Jungle alumnus, approached me about this and wanted to put his thoughts to print. I said let’s collaborate on an article, and a few days later, here we are. Consider us the Mythbusters, but for the Bengals’ salary cap and not for quirky scientific phenomena.

Fact: Signing bonuses work to delay cap hits while front-loading cash

Before we get into myths, let’s discuss some truths. Signing bonuses are typically paid within the first 12-18 months of a deal, and they’re always fully guaranteed.

Let’s look at Trae Waynes’ contract as an example. The Bengals signed Waynes to a three-year, $42m deal last year. Included in the deal was a $15m fully guaranteed signing bonus. With a first-year base salary of $5m, the Bengals paid Waynes $20m in 2020, which was the sum of his signing bonus and base salary. However, despite paying Waynes $20m in cash in 2020, his cap hit was only $10m.

This discrepancy was due to the proration of NFL signing bonuses. Here’s a visualization of the deal, courtesy of OverTheCap.com:

Notice that the $15m signing bonus is evenly divided over the three years of the deal. This is yearly proration in its simplest form.

Additional bonuses will also contribute to the final cap number, but the Bengals didn’t include any of that for the first year of Waynes’ deal. As a result, despite a $14m AAV and $20m year-one cash spend, the Bengals delayed the biggest parts of Waynes’ cap hit by paying him larger salaries and various bonuses later on in the life of the deal.

This is vital information to know before addressing our first myth.

Myth: Large average annual value = equally large year one cap hit

This is inherently false primarily because of signing bonuses being prorated. We can just highlight Waynes’ deal again for this, but that was just one example. D.J. Reader’s contract can also be used to prove this false. Let’s examine that as well.

As you can see, Reader’s 2020 cap hit was also lower than his AAV. But Reader, unlike Waynes, was given a roster bonus in the first year and the second year instead of just the second year.

Roster bonuses—specifically year-one roster bonuses—can be looked at as ways of guaranteeing cash without actually guaranteeing it in the signing bonus. Year-one roster bonuses are usually paid shortly after the new league year begins or shortly after the contract is signed. The latter is true if the deal is signed well after the new league year begins. Roster bonuses in future years are usually paid right after the league year begins, but a team doesn’t have to pay them if they release the player before they’re due.

Some teams use roster bonuses to front-load cap numbers and ensure future cap space, but all roster bonuses will have to be paid at a certain point if a team does nothing to the contract. That’s why you see Reader having $4m in guaranteed salary in 2020. And when March 22nd arrives, Reader will be listed with $5m in guaranteed salary for 2021, and his dead money will rise by that same amount.

Fundamentally, early roster bonuses in any contract are practical guarantees, because the only way they won’t be paid is if the team releases the player very early in the life of the deal. As everyone knows, that very much classifies as uncharacteristic behavior for the Bengals. Clubs can work with the player to convert his roster bonus into a signing bonuses if they need to, but that only increases current cap space, as the player will still get paid the amount he’s owed.

The Bengals paid Reader a roster bonus in 2020 as a way to avoid offering a guaranteed base salary, but to reiterate, the roster bonus still acted like extra guaranteed money to go with his signing bonus. The same can be said for this year, as the Bengals will pay Reader a $5m roster bonus five days after the new league year begins (March 22nd). The sum of that $5m, a slightly increased base salary of $4.3m, and one-fourth of his $16.25m signing bonus equates to his 2021 cap hit of just over $13.5m, which is slightly larger than his AAV.

This form of contract structure will eventually lead to cap hits that reflect a player’s AAV, but even with a year-one roster bonus, all the team has to do is make the first-year base salary low to limit that cap hit in relation to the AAV. A low base salary is entirely negotiable when the player is pocketing a signing bonus and a roster bonus in the same year. This is exactly what they did with Reader, and nothing is stopping them from doing it again on a future contract.

Myth: You need current-year cap space to extend your stars

There seems to be a misguided idea out there that clubs need current-year cap space in order to extend their stars. For players like Jessie Bates III and Sam Hubbard, Dehner’s simulator has their projected 2021 cap hits coming in at $14m and $11m, respectively. Those numbers may end up representing the AAV of their new contracts, but they’re far too large to be reasonable cap hits for the NFL’s upcoming fiscal year.

Joe Mixon’s extension from last year shows this idea in action. Mixon’s extension added $48m and four years to his original rookie deal. Mixon’s base salary escalated in line with normal rookie contracts, increasing slightly to $1.325m. Since the deal included a $10m signing bonus, Mixon’s cap hit also increased because extensions allow teams to take the cap hit on the prorated part of that bonus on the remaining years of the extended contract. As a result, Mixon’s year-one cap hit hardly increased. $2m of the $10m signing bonus and a small salary increase were the only addends of his 2020 cap number, despite the team giving $11m in cash.

Mixon’s extension is different from other large extensions in recent Bengals history. It came in a year when the Bengals were aggressive in free agency, which was obviously unusual activity for them. For example, when Geno Atkins, Carlos Dunlap, and Tyler Boyd signed their first big deals, those extensions were the biggest contracts that the team signed in those offseason periods. They all received year-one roster bonuses that led to higher year-one cap hits that ranged from 60-90% of the contracts’ new AAV.

The likeliest reason as to why they structured Mixon’s contract differently is because the Bengals were incurring big cap hits from earlier in the offseason. A.J. Green’s franchise tag, the additions of D.J. Reader, Trae Waynes, and other free agents all added up, and Mixon’s deal required some immediate cap manipulation.

The same logic should apply this year, not only because the Bengals should be active in the early portion of free agency, but because the damn cap shrunk from last year due to the pandemic. The salary cap had increased by $10m+ per year since 2014. Given the current cap environment and expectations for a return to normalcy in 2022, there’s no reason the Bengals should revert to their old ways, as it would only create unnecessary hurdles.

Speaking of old ways, let’s clarify that.

Fact: What the Bengals used to do, and why every team will operate differently this year

The first extensions for Atkins, Dunlap, and Boyd are great examples to showcase how the Bengals recently structured big deals for their own players. Waynes and Reader are the only big examples of external free agent deals they’ve given out. What are the trends?

They have often front-loaded contracts by increasing year-one base salaries and paying year-one roster bonuses in order to minimize future cap numbers and avoid large signing bonuses. They would do this because they used to avoid spending large sums of cash for external free agents, and the consistently steady growth of the cap was always reliable. Their approach made most of those in-house deals look like bargains over time, and had added benefits of reducing up-front cash liquidity requirements.

The current cap environment clearly indicates that the Bengals cannot conduct business as usual this year.

As of this posting, the lowest the league-wide salary cap can be is $180m. This would make the Bengals’ 2021 salary cap at least $190m due to the $10.79m they rolled over from 2020. The Bengals’ 2020 salary cap was almost $20m more than this thanks to the nearly identical $10.81m they rolled over from 2019. That in itself should force the Bengals to exercise similar practices from a year ago, and they will not be alone.

The Bengals have the luxury of possessing their traditional cap space despite the cap being smaller than it was a year ago. A handful of other teams are in a similar boat, but if the league-wide cap stays at $180m, over half of the league will have an effective cap space of less than $10m. Effective cap space is the most amount of cap space a team would have if they rostered 51 players. The cap should end up being slightly larger than $180m, but you get the point. Most of the league will have to make hard decisions with cap cuts, or creative with restructures and extensions.

Fortunately, with new TV contracts close to being finalized, and COVID-19 (hopefully) not having as big of an impact on the 2021 season, league-wide revenue should increase this year and the 2022 cap should also increase. We may see more one-year deals as players bank on the cap recovering in 2022. But, for those multi-year deals, there’s a clear blueprint to follow. It involves paying a lot of cash (signing bonus) up front in order to delay large cap hits.

If the Bengals follow this contract structuring idea and make the cuts they’re expected to make, they’d be able to extend Jessie Bates III and Sam Hubbard, re-sign Carl Lawson and William Jackson III, and still have $30m+ in 2021 cap space—even without mortgaging the future.

Ultimately, the Bengals have plenty of cap space to play in the deep end of the free agency pool. Assuming the league’s revenue recovers in 2021, the Bengals can maximize their roster around Joe Burrow’s inexpensive rookie deal. Whether they pony up the cash to do so is the only question.