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Explaining Salary Cap Dead Money


There have been quite a few questions in the comments about dead money in relation to the salary cap, so I wanted to dedicate a quick post to it.

When a player receives a signing bonus, whether it be on a new contract or a restructure, that money is paid out immediately to the player. For salary cap accounting purposes it is prorated out over the remaining years of the contract, but it can not be prorated out over more than 5 years.

Let\'s say a player signed a new 3 year contract that included a signing bonus of $3 million. That player will have a prorated signing bonus cap charge for each of those 3 years of $1 million and that is added on to whatever the base salary, roster bonus or other (LTBE) Likely To Be Earned incentive that player is scheduled to earn in that season. So let\'s say that same player has a base salary in year one of his contract of $465,000, his cap charge in that first year would $1.465 million.

Let\'s hypothetically say that before his second season you choose to release him and suppose he is scheduled to earn a year two base salary of $555,000. Normally base salaries are not guaranteed unless that player is vested and on the roster at the start of the regular season. So the team is not on the hook for the $555,000. Thete is still $2 million left in proration of the signing bonus that needs to be accounted for. If that player is terminated before June 1st, that $2 million escalates immediately as a dead money cap hit for that upcoming season. So originally that player was set to count $1.555 million against the cap, but now because his contract was terminated he will count $2 million against the cap as dead money.

Now if that same player is cut after June 1st and before the start of the season, only the originally proration amount hits the cap for that year as dead money and any other left over proration will hit the following year as dead money. So using our example, if the player is terminated after June 1st, the team will have a dead money cap hit in that year of $1 million and another $1 million dead money cap hit the year after.

You should know that signing bonuses also stack up on top of each other as well. In other words, let\'s say a player receives a signing bonus of $10 million for a 5 year contract. That breaks down to a $2 million a year cap hit proration of signing bonus for 5 years. Now let\'s say you need to restructure his contract to save cap room in year two and let\'s say he is scheduled to earn a base salary of $6.5 and you want to turn $5 million of it into a signing bonus so you can prorate it out. $5 million divided by 4 years left on the contract comes out to a another $1.25 million proration cap charge for the remaining 4 years that stacks onto the top of the $2 million remaining per year. So now years 2-5 of the contract have a signing bonus proration total each year of $3.25 million. That player originally was scheduled to count $8.5 million against the cap. ($6.5 million base + $2 million signing bonus proration amount) After the restructure he now counts $4.75 million against the cap. ($1.5 million base + $2 million signing bonus proration amount + $1.25 million signing bonus proration amount.

That same player after his second season has $9.75 million left of proration remaining on his contract. (3 years x $3.25 million) If you choose to cut that player before June 1st, the dead money cap hit is the full $9.75 million. If you cut that player after June 1st, his dead money hit for that upcoming year is $3.25 million and the second year dead money hit would be $6.5 million.

I hope that answers a few of the questions on dead money in relation to the salary cap. The above examples are crude, but the best way to explain it.

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About Dave Bryan

I am, I'm me. 40 something, retired and a life long Steelers fan.
  • Mike.H

    personally Dave, would you cut Hampton and save a ton of $$$$? will Hampton’s replacement whether currently on roster or a rookie be hard to grasp the position?

  • SteelersDepot

    I would monitor his health & see if he would trim that base salary down about $3 million. They can save $5.89 million by cutting him, but there is just no depth on the roster other than McLendon. That ACL injury happened at the very worst time. He will not be safe until week 1.

  • Wdmason

    I understand we are saving money but cutting these players but we could be saving a lot more if not for all the past restructuring. And it seems we are going to pay a lot more dead money in the future. But I seem to be the only one that is bothered by it lol.

  • SteelersDepot
  • http://pulse.yahoo.com/_ESU2VFZHEUTQEPJ7AWSN7ODBPQ Emac2

    I think most of us are happy with the superbowl titles even if they required some restructuring that is hurting us now. I can understand if maybe you prefer to avoid the highs and lows though…..?

  • Tanner

    So how much dead money are we looking at this year and that will be a plus for next year right?

  • Joe D

    Future cuts and restructures will depend upon what the Salary CAP will be…
    If $125 million, Steelers are in pretty good shape…… if $120.5 million… ouch!!
    Currently at $120million when you count the RFA’s tendered, etc..
    In order to sign Cotchery, Wallace above tender, Draft picks…Steelers need about $10 million is CAP space. They still need to clear some space even if $125million is the 2012 CAP.

    Cutting Farrior saves $2.8 million. Cutting Hampton saves $4.9 million. Total $7.7 million.
    Not to mention restructures.

  • kitztracks

    Is the proration always even?

  • Dafonz182

    I’m studying to be a CPA and I have to say Omar Khan is one of my idols at this point. Cheers to you sir!

  • SteelersDepot

    yes.

  • Heathicus

    EXCELLENT article – exactly what I was looking for, thanks!

    And yeah, I wouldn’t cut Hampton. Steve McLendon was better all around but he is not a surefire thing (as an adequate starter that is) and with Hoke retiring, we would have 0 depth unless Hood moved to NT.

    Makes you wonder if the Steelers might try to make a move for Poe unless he goes in the top 15. I’d rather not see us draft another less-than-stellar DL >_>

  • Dave

    This is the type of article that makes this site great. You don’t get this anywhere else.

  • Wdmason

    You are correct. It was worth it to do anything to keep the team together. Its just that it will soon come to an end and we will be at a disadvantage as compared to other teams with our constant cap problems and no spare money to sign free agents or replacements should anyone get hurt. We were lucky to get Starks so cheap. Im not sure this restructuring strategy is “genius” or “a win win situation” as others have referred to it… but I am happy the Steelers are willing to do anything and spend whatever it takes.

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