In February, we will have a new salary cap number for the league, and each team will have its own cap number. Let’s discuss how the team adjusted salary cap is calculated for each team.
Salary Cap Calculation
The league has a base salary cap starting point for each league year. Per the CBA, there are “Revenue buckets” from the “AR”. Section 12 of the CBA defines AR.
The three AR buckets used for the calculation of the league salary cap are League Media AR, NFL Ventures/Postseason AR, and Local AR. The league media AR are the media rights contracts for the NFL.
NFL Ventures/Posteseason AR are as follows, per the CBA:
NFL Ventures/Postseason AR shall consist of: (A) revenues (other than those described in Subsection (i) above) arising from the operation of postseason NFL games received or to be received by the NFL or NFL affiliates (as opposed to by Club or Club Affiliates); and (B) revenues (other than those described 95 in Subsection (i) above) arising from operation of NFL-affiliated entities (including without limitation NFL Ventures, NFL Network, NFL Properties, NFL Enterprises, NFL Productions, and NFL Digital (including NFL.com and NFL Mobile)). For the avoidance of doubt, revenues in this category include without limitation: (1) all revenues of NFL Network, including those related to the broadcast, telecast or distribution of live NFL games and the RedZone channel; and (2) the revenues of NFL Ventures/NFL Digital from the agreement with Verizon (other than as described above); the revenues of NFL Ventures/NFL Digital from the Game Pass product (to the extent that it only distributes out-of-market games); the revenues from NFL Ventures/NFL Films from the NFL Films agreement with ESPN; in each of the cases listed after (2) above, as such agreements existed as of the 2019 League Year.
Local AR is anything made by the team, not including the TV/Radio contracts by the NFL. So, ticket sales, parking, merchandise, concessions, and other revenue streams.
Then there’s the Joint Contribution Amount. Each team contributes 1/32 of a set amount, defined by the CBA. The money goes to current and former player benefits, medical research, and charities.
The cap calculation is as follows: 55% of the projected league media AR + 45% of league ventures and postseason AR + 40% of local AR + adjustments made based on projected projected AR that’s higher than the projection - 47.5% of the Joint Contribution Amount
The media kicker was included, which meant the calculation had to be 48.8% of the league revenue.
Team Adjusted Salary Cap
Every team doesn’t have the same salary cap number. Adjustments are made to the league cap to get a team cap each season. Unused cap from the previous season and unearned likely to be earned incentives and per-game roster bonuses are added to the league cap. Whereas, earned not likely to be earned incentives and per-game roster bonuses are subtracted.
If a grievance was heard for a contract and there was an adjustment made as a result, any paid or lost money is factored in during the adjustment period. Also, any contract insurance payments made give the team back money in cap space.
After all of that accounting is done for each team, the final number is how much in cap charges the team can accrue during that season.
What is an NFL cap charge?
An NFL cap charge is not the cash earned in a season by a player. A cap charge is based on the following formula:
No NFL team is permitted to go over the salary cap, and penalties do result for going over. The penalties include: fines (up to $5 million), lost draft picks, and voided player contracts.
This is why, while it’s an important number in determining value compared to the rest of the league, AAV is overrated in terms of the cap. The structure of the contract is more important than anything, because players either get released, restructured, extended, or have contracts re-worked before the end of most contracts.
In the end, the salary cap is based on the cap charges in a season, not cash spending.