MIAMI GARDENS, Fla. – Miami Dolphins fans, congratulations. Your team has become the latest franchise to be the subject of hot takes from fans and media about their organizational philosophy.
“Mortgaging the future,” “going all-in,” “two year plan,” “aggressive” or “reckless.”
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Whatever gets clicks will end up in a headline.
But what’s the truth? What are the implications for the moves the Fins have made?
The short answer is: nothing.
At least, nothing that’s outside their own control.
(Note: The first part of this is just setting a basic understanding of how contracts are structured and can be restructured. The second is pushing back against the idea that it condemns a team to ‘cap hell.’)
We’ll start with basic principles of the salary cap. It’s not completely a “myth,” but it’s also nowhere near being “rigid,” either.
The truth depends on how much your owner is willing to spend on bonus money and how comfortable the owner and front office people are with “kicking the can down the road” on future salary cap obligations.
A player’s cap number is determined by some combination of his base salary, bonuses and incentives. Each contract is different with numbers, but the basic principle is the same: the level of flexibility is determined by the remaining dollars and years on the deal.
So within every “big,” deal, like the ones the Fins have made in the past couple seasons, there is also some flexibility to create space later
Let’s use a crude example with round numbers to explain it.
The Dolphins sign star LB Tack Zomas to a 4-year contract worth $80 million with $25 million in guaranteed (bonus) money. The structure of the deal at signing may look something like this:
Year one: $10 million base + $10 million in bonus = $20 million cap number
Year two: $15 million base + $5 million in bonus = $20 million cap number
Year three: $15 million base + $5 million in bonus = $20 million cap number
Year four: $15 million base + $5 million in bonus = $20 million cap number
(Again, these numbers are extremely basic to build a base of understanding. An actual contract isn’t likely to look exactly like this).
So let’s say Tack Zomas plays well in year one and the Dolphins like having him. But they need some extra space in year two.
There is flexibility in the contract because to create “year two” space because there is a $15 million base which can be, in part, converted to guaranteed money. This lowers the year two cap hit while pushing the actual cap obligations into the future.
How does this work?
So you could turn $12 million of the “base” (non-guaranteed) money into “guaranteed” money. That $12 million is then spread out on a prorated basis throughout the rest of the contract. For this example, we’ll use $4 million in each of the remaining three years of the deal.
So the new numbers would be:
Year two: $3 million base ($15M - $12M) + $9 million in bonus ($5M plus $4M) = $12 million cap number ($8 million savings in year two).
Year three: $15 million base + $9 million in bonus = $24 million cap number
Year four: $15 million base + $9 million in bonus = $24 million cap number
So the converted money doesn’t “disappear,” it is just pushed into the future to create year two space. This can be re-done in year three if necessary. And even pushed further through the use of a void year if necessary.
Here is where the nuance comes in, and where a basic lack of understanding can lead to people assuming a team is putting itself in “cap hell” for a number of years.
Let’s say in year three of Tack Zomas’ deal, the Fins acquire their franchise QB, Man Darino. Man Darino comes with a first year cap hit of $20 million.
Man Darino is awesome. The Fins decide they want to give him a huge deal starting in year two of his deal (year four Tack Zomas’ deal). But wait a minute! They can’t do this, because Zomas has a HUGE cap number in year four, right?
False.
The Fins could give Man Darino a deal with huge overall guarantees, but a small first-year base number. For example, the Saints just gave Derek Carr a 4-year, $150 million contract with $100 million in guarantees. But his first year cap hit was ONLY $7.2 million.
The Fins could, effectively, use Man Darino’s contract in year one as a “credit card” to pay off year four of Tack Zomas’ deal. You’re using the fact your franchise QB has a relatively small deal compared to other franchise QBs to make up for the relatively big number for year four of the LB, whose number is likely bigger (because you’ve restructured him to the max).
There are other mechanisms to smooth out hits. But the idea that one deal can be used to help pay off another is key. The salary cap has to be viewed as a whole entity where you can use one player’s contract to pay off another.
And since the salary cap is constantly growing (outside of the pandemic year), you’re essentially paying off the balance with a negative interest rate.
Some answers to some FAQs:
1 - Why is it assumed players will agree to this?
Because they get their non-guaranteed money right now in the form of a huge check.
2 - Why don’t all teams do this?
For one, it takes an owner willing to write big bonus checks over and over, as opposed to letting players get their salaries in the form of game checks. Secondly, it requires an organizational commitment to consistently push contracts into the future, which some teams are scared to do.
3 - Does the bill ever come due?
Yes. However, if the team structures deals properly, THEY can largely dictate when they pay off the bill. If you’ve got a good QB on a rookie deal? Good time to pay off previously existing deals or bring on players with high first year numbers. Have a QB with a high cap number that can’t be restructured? A smart organization would have numerous contracts ready to be converted to account for this.
Teams can also choose to do what the Dolphins did during the 2019 season: pay off a bunch of deals at once and live with the on-field results for that season. It’s not “tanking,” per se. But accepting that you’d rather move on from players like Reshad Jones, Ryan Tannehill and Ndamukong Suh immediately and take a big one-year hit rather than slowly deteriorating.
So what Chris Grier and the Dolphins are doing in 2023 isn’t “mortgaging the future,” as long as the organization is committed to being proactive and creative in years to come. They need to hit on some draft picks to get players on cheap deals to smooth out some of the hits (and the team losing its 2023 1st Round Pick makes it a bit trickier). But if done right, the Fins could be setting a new course for doing business that others have done successfully before them.