Explanation for additional salary cap increase

The NFL salary cap has risen again. Due to a new mechanism that was created in the most recent amendments to the Collective Bargaining Agreement in March 2006, there is now close to $1 million more per team of available cap room than there was a week ago. Although the reason for the increase is a bit technical, I thought I would give readers a look at why this increase happened – twice during the past couple of months – and how the amount is artificially inflated due to the fact that 2009 is the last year of the cap.

The Cash Adjustment Mechanism (CAM) was developed by the NFL and the NFL Players Association as a method to ensure cap adjustments based on actual cash spending on an annual leaguewide basis. There are two types of accounting in the NFL – cash and cap – and, contrary to much that has been written, the accounting is entirely different. Due to the ability to prorate signing bonuses and the different types of compensation that are TASB (Treated As Signing Bonus), there are multiple ways for teams to spend more cash by the millions and, in some cases, tens of millions of dollars, than cap. This is how a couple of teams spent $150 million in cash last season yet never went above the $116 million cap threshold. As we know, the NFL does not have a hard cap; it is more of a “yarmulke” or soft cap.

The CAM reflects cash spending below or above the cap from year to year. There is a trigger amount, reflecting the percentage of Total Football Revenues (TFR) allocated to players – presently 59 percent.

In the event leaguewide spending on player costs exceeds that trigger point, then each team’s cap room for the following Capped years will be decreased by a proportionate amount. In the event leaguewide spending on player costs falls below the trigger point, then each team’s cap room for the following capped years will be increased by a proportionate amount.

In February, after initial calculations by the league showed a shortfall in spending below the trigger point, the 2009 cap was thus increased by more than $4 million per team. The increase would have been a lot less under normal circumstances due to its being spread out among the multiple years remaining under the salary cap (remaining capped years). However, because of the owners’ decision to opt out of the CBA after 2010, ’09 is the last capped year and receives the full CAM benefit of $4.05M per team of additional cap room.

Now, after further review and accounting of leaguewide cash spending on players in 2008, the bookkeeping has shown that player costs were actually less than calculated in February, resulting in a further credit to each team’s cap room of another $947,000. Thus, adding this new adjustment to the one in February, the final CAM adjustment from the 2008 analysis has resulted in each team having approximately $5 million of additional cap room to play with (adding to the $7 million increase from 2008 prior to the CAM adjustment.)

In a year preceding one without a salary cap – as we presently sit here today – this is an interesting development. With the usual mechanisms to divert cap from the present year to the next now unavailable due to restraints in place since 2010 is presently without a cap – cap room is at a premium for many teams, and this is another welcome bit of news.

For other teams that are blessed with ample cap room, there is now another $950,000 to use or lose as we approach a year with no salary cap to carry over remaining room.

CAM was designed to normalize cash to cap spending between the owners and players over a long period of salary capped football. In this strange twist of not having a cap beyond this season, another $150 million of new cap room leaguewide has been lumped into this one remaining capped year.

Hope I didn’t confuse you too much. With 2009 potentially being the end of the cap as we know it, and negotiations to come between the union and the ownership, things will get very interesting in the business of football over the coming months.

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Updated Monday, May 18, 2009