As we have been breaking down the excessive amount of available cap room that the Cleveland Browns have, fans have been wondering, "How can we have so much room? I thought there was a requirement that we had to spend 89% of the salary cap." After taking a few days to research the specific rules, here is my interpretation of the requirements.
Requirements: 89% in Cash Spending from 2013-2016
First off, the 89% rule does not apply to a single season, but rather a span of four years. Therefore, it doesn't matter that the Browns spent less than 89% in 2013, or if they spend less than 89% in 2014. By the end of the 2016 season, though, the cumulative spending from 2013-2016 must be at least 89%. Therefore, if the Browns spend very little in 2013 and 2014, in order to meet the requirement in 2016, they will be forced to spend a lot of money in 2015 and 2016.
Second, everyone needs to understand the difference between a cap hit and a cash spend. The 89% rule applies to cash spends, not cap hits. For a full, in-depth understanding between the two, read this article over at Cincy Jungle from last year. I will present a simple example below that should convey the difference well enough, using OLB Paul Kruger as an example.
Difference Between Cap Hit vs. Cash Spend
Last offseason, former Browns CEO Joe Banner signed OLB Paul Kruger to a 5-year, $40.5 million deal. Most of you should be familiar with cap hits, because they are the numbers we typically talk about.
|Paul Kruger's Contract, Cap Hits Per Year|
|Year||Base Salary||Signing Bonus||Roster Bonus||Cap Hit|
The table above represents Kruger's cap hits per year. Kruger's contract included $12.285 million in bonuses, with $6 million allocated to a signing bonus and $6.285 million allocated to a roster bonus. What is the difference between a signing bonus and a roster bonus when talking about cap hits? Roster bonuses are paid in the full amount for a specific year if a player is on the roster by a certain date. Signing bonuses are fully guaranteed, but divided by the number of years of the contract to create an equal signing bonus allocation per year against the cap.
|Contract, Cash Spends Per Year|
|Year||Base Salary||Signing Bonus||Roster Bonus||Cash Spend|
The table above represents the cash spends per year on Kruger. While the Browns are able to divide Kruger's signing bonus over five years for salary cap purposes, the fact is that they physically paid Kruger $6 million, straight up, in 2013. The total cap hit and cash spend numbers are always going to be the same, but the per year numbers are different.
Why is it important to understand this? Let's say the Browns are currently under the 89% spending requirement by a good amount, but still want to be in decent cap shape for the future. Signing a player to a $12 million signing bonus on a 3-year deal (through 2016, for example) would be pro-rated to $4 million per year for cap hits, but the immediate cash spend in 2014 would be at a much higher clip -- the full $12 million -- which can help a team "catch up quicker" to the spending requirement if they need to.
Note: by cutting LB D'Qwell Jackson, the Browns accelerated $4.2 million in dead money against the cap for 2014, but they are not spending a dime on Jackson in 2014 when it comes to cash spends. They actually lost some projected cash spend for 2014-2016 of the amount of Jackson's base salaries.
What is the Projection for the 89% Rule?
The minimum spending requirement says that teams must spend, in cash, at least 89% of the total salary cap from 2013-2016. This is impossible to figure out to precision, because the salary cap is not known until around March each year. In fact, the only salary cap that we know for certain during that span is last year's, which was $123 million. Projections have this year's salary cap around
$132 million. UPDATE: The 2014 salary cap was just announced to be $133 million. The figures below have been updated to reflect that.
Back in 2012 (which was outside of this range), the cap was $120.6 million. From 2012-to-2013, and then from 2013-to-2014, the average increase in the salary cap was 5.06%. Despite the limited sample size, I used this percentage as the estimated salary cap increases for 2014-to-2015 and 2015-to-2016. To determine the 89% minimum cash spending requirement, the sums of the salary caps are multiplied by 89%.
|Total Salary Cap||$542.53 million|
|89% Floor (Minimum Spending)||$482.85 million|
If the total salary cap from 2013-2016 is $542.53 million, then every NFL team, including the Browns, must have a cash spend of at least 89% of that by the end of the 2016 season, which is $482.85 million.
Do the Browns Need to Start Spending More?
The short answer is "Yes." The table below outlines the Browns' cash spending as of February 28, 2014, for the years 2013-2016. If you are confused by what the table means, I explain it below.
|Year||Cash Spend||On Pace||Required Cash Spend for 89%|
|2013||$105.54 million||78%||$15.17 million|
|2014||$81.84 million||69%||$54.04 million|
|Total Cash Spent||$273.87 million|
|Amount Below 89% Requirement||$208.98 million|
Right now, I would tell you to not pay very much attention to 2015 and 2016. Those years will be important for the future, but not so much right now. 2013 is already in the books, a year in which the Browns had a cash spend of $105.54 million.
If we go to the previous table and divide the Total Salary Cap by four to get a per-year average, then to stay "on pace" with the 89% requirement, the Browns needed to spend 89% of $134.42 million last year, which would be $119.64 million. The Browns only spent 78% of the projected requirement, though -- they would have needed to spend $15.17 million more to be on pace for the 89% minimum.
That effect carries over into this year. Currently, the Browns have a cash spend of $81.84 million for 2014. If they did absolutely nothing in free agency, didn't sign any of their draft picks, didn't extend any contracts, etc, they would drop to being on pace to spending only 69% of what they are required to do so. That's not going to happen -- the Browns will spend some money.
Let's say that, for whatever reason, new general manager Ray Farmer says, "you know what, I want to meet the 89% requirement right now, rather than having to really have huge cash spends in 2015 and 2016. For that to happen, the Browns would have to spend $54.04 million on free agents, the draft, extensions, etc. Note that those cash spends would include base salaries, full signing bonuses, and other bonuses that take place during the 2014 season; the numbers in 2015 and 2016 would also increase a little bit due to base salaries and roster bonuses.
How Does This Effect the Team's Cap Space?
In my opinion, it's actually wise for the Browns to continue not spending the entire cap space they have available (currently $57.45 million for 2014), because for insurance purposes, they can continue rolling over excess cap space into 2015 and 2016. Granted, I am by no means an expert of how to handle the salary cap, but consider this:
If the Browns did want to catch up to the 89% rule, we wouldn't say, "oh, the Browns spent $54.04 million, so let's subtract that from the cap space of $57.45 million, meaning we'd have $3.41 million left in cap space." That would be wrong. Let's say that half of the Browns' new cash spends in 2014 are the result of signing bonuses (which comes out to $27.02 million), and all of those are five-year deals.
For cap purposes, all of those signing bonuses are divided by five years for cap purposes -- $5.40 million per year. When you take the other $27.02 million spent on base salaries + roster bonuses, and then add in the $5.40 million, you get $32.42 million spent against the cap. In this convoluted scenario, the Browns could still have $25.03 million ($57.45 million - $32.42 million) in available cap space by the end of the year, which they could roll over into their adjusted salary cap for 2015, putting them in good cap shape again.
This whole offseason, we heard Jimmy Haslam preach "cap space" as an enticing factor why players and coaches would want to come to the Cleveland Browns. He wasn't kidding. Not only are the Browns in great shape cap-wise, but even when we do need to do significant cash spends to meet the 89% requirement, we should still be in great shape cap-wise for future years. I predict that the Browns will be big spenders this offseason, perhaps at a historic rate for Cleveland's standards.
Amidst my research into this topic, I originally forgot to discuss what the reprecussions of not meeting the 89% requirement are. Sander Philipse of Bucs Nation reminded me of this:
It's also important to note that the penalty for not reaching the 89% spend over 2013-2016 is you have to give the money you're short by to your own players (via NFLPA-determined distribution). Which means there's no real penalty to not spending to the floor. Obviously you'd prefer to spend the money where you saw fit instead of being forced to adopt the NFLPA's distribution key, but there's no point to handing out idiotic contracts just to hit the floor.
If you don't reach the amount, is it better to basically distribute slight bonuses to your current players, with the backlash of knowing you could have used that money instead toward a better-fitting player? Teams should be motivated to spend on players they feel can improve their team, rather than spending a certain amount on someone just for the sake of meeting the requirement. It's all about the general managers of the league planning in advance, and Cleveland is in good shape right now to do so.
Thank you to Over the Cap for their great database of NFL salary information, which I consulted when piecing a lot of these numbers together. Also, I would still consider myself a novice at this topic, so please feel free to challenge or question the points I made in those post. If inaccuracies are discovered via our deliberations, I will amend the post accordingly.