Restructuring Contracts and Extensions

Now that you have the basis for understanding the difference of cap implications between salaries and signing bonuses, let’s talk about how teams can manipulate these to help create cap space.

Restructuring is actually very simple. It’s basically when a team converts a player’s salary into a signing bonus. For the player (and agent), this is an easy sell. They get the same amount of money except now they’re getting it in up front and it’s guaranteed.

For the team, converting salary to a bonus frees up cap space for the current year by pushing it into later years because the bonus is prorated over the rest of the contract. If a player has 3 years left on his contract and is due to receive $4 million in salary for the upcoming season, and converts $3 million of that to a bonus, that $3 million is then prorated over the 3 years left of the contract ($1 million counts each year). Now instead of the $4 million salary counting against the cap, the player has the $1 million salary that wasn’t converted, plus $1 million of the prorated bonus, he only counts as $2 million on the cap. The team saved $2 million on this year’s cap, but pushed $2 million onto later years’ caps in the form of prorated bonus money.

This is why you always hear the phrase, “Robbing Peter to pay Paul.” Teams are saving themselves space now but hurting their cap situations in future years. If this practice is abused, it can severely cripple a franchise’s ability to retain it’s own players or dabble in free agency.

Extensions work similar to restructures. Players almost never take pay cuts up front in extensions. This is hardly an issue because a new extension means a new signing bonus.  Extensions are paid on top of a player’s already existing contract.

One final note: A player who restructures or renegotiates cannot renegotiate for 1 year to date.

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3 Responses to Restructuring Contracts and Extensions

  1. Christine H. says:

    Thanks for these explanations. Guess Brady wasn’t being a martyr by restructuring. He just guaranteed he’d get all his money and spread it out a bit.

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  3. BIlly says:

    Great article is there any chance I can take it and copy it onto my own blog

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