Belichick Clarifies Cap vs. Cash Spending Comments

[cmasspatsfan]

I listened briefly to Bedard today with Felger, only day I listen, and he somewhat explained this cap vs cash to Felger, in typical Felger fashion he didn't quite grasp it and still went with the cheap Kraft bit. It's really not that complicated, I understand people that don't have a math mind may have a little trouble but when it's explained like it has been in this thread, it's not that hard to see the difference.

 

[RodThePat]

I posted something similar earlier but this is more detailed.

The main reason there's a difference between cap charge vs cash spending is because of upfront bonuses. A typical deal is say $30m over 3 years, including a $15m bonus up front and salaries of $1m, $7m, and $7m.

The cap charge for the bonus is always spread equally over the term - $5m per year for 3 years in this case, so that:
- Cash spending is $16m in year 1 ($15m bonus + $1m salary), and it's $7m (all salary) in each of years 2 and 3.
- Cap charge is $6m in year 1 ($5m bonus proration + $1m salary), and $12m in each of years 2 & 3 ($5m bonus proration + $7m salary)
- each team has a "cap limit" each year, but not a cash spending limit.

In the above, you're spending $16m cash in year 1, but the cap charge is only $6m. Conversely in each of years 2 and 3 you're spending $7m in cash but the cap charge is $12m. The real cost is in between: $10 per year for 3 years.

Also, if you cut or trade a guy after say year 2, the cap is still charged the remaining $5m of the bonus proration for year 3 even though he's no longer on the team (but no salary is charged in year 3 unless it had been guaranteed which it usually isn't). That's what people are usually referring to when they talk about "cap hit".

If a team is approaching their cap limit, then they can extend a guy another year or two and "convert" his salary to a bonus. The example above has a year-3 salary of $7m and a year-3 cap hit of $12m. Prior to year 3, they could add a 4th year @ $10m/year, and basically do a new bonus/salary schedule for years 3 & 4 that creates cap space such as a $7m bonus with salaries of $1m and $9m. Bonuses to be prorated over 2 years are now $12m, so that's $6m/yr. The year-3 cap charge is now $7m (6m bonus proration + 1m salary), instead of $12m. But year 4's cap hit will now be $15m ($6m bonus proration + $9m salary). This is the discipline that BB talks about: not increasing your future year cap charges.

"Cash spending" is a just a function of how you structure the deal between bonus and salary - it's not really telling you anything about how aggressive or conservative a team is about getting a player. "Cap charge" is what the contract payments are actually totaling up to over the life of the contracts.

What would make everything better imo is get rid of up-front bonuses and spread them out over the term of the contract. So even if a guy is cut he still gets that unpaid bonus. Same math, just don't pay the bonus at signing, pay it in increments each year as another component of compensation. Then you wouldn't have a case like Gilmore claiming he was only being paid $6m or whatever, when in fact he was prepaid another $7m in his upfront bonus.

It doesn't tell you anything about how aggressive a team is in getting a specific player, but it might tell you about how aggressive a team is in acquiring talent in the short term. Converting money into a signing bonus puts a financial burden on the owner while clearing present cap space for more potential signings. It's how the Jets have spent 300+ million to put together a roster in a season with a 224.5 million dollar cap. But the Jets got Rodgers and are going to try their damnedest to win a title in the next two years, sustainability isn't really on their minds, so not saying it's what the Patriots should be doing, just that cash spending in the short term can mean a lot more than cap spending in terms of providing an avenue to getting talent on your roster. It might not be viable long term without a QB in place, but which strategy is?

 

[Real fan 02]

A good example of this is to compare this year's total cap ($224 million in 2023) to the contract that Justin Herbert just signed ($262 million). Obviously that contract can't all be in 2023, it wouldn't fit. It must be spread out, and it is - across 5 years. So you're really talking about $50 million or so per year, but exactly what proportion of that amount is allotted to each of those 5 years will vary depending on how the team structures it. Additionally, not all of the deal is guaranteed, which would come into play if the player is traded, gets cut etc.

Ross, really easy for me. If we spent to aquire top tier talent, and not at the bargain bin then these questions never arise.. just look at our own division for example.. those teams spent to have talent not bargain bin building 19 players. Even during our championship years they never really spent like that. So therefore when the winning pauses, and the focus becomes glaring. This is just my opinion as a fan.

 

[mike_usagisan]

I think the complaint about Kraft being cheap isn't solely about Bill not giving top tier contracts to top tier talent. I think part of it is because they're unwilling to dip too far into future caps, meaning that cash spending in any year isn't too much beyond the cap limit for that year. Unlike a lot of teams, which are willing to spend recklessly (Jets), it makes it appear that Kraft is unwilling to do as much cash spending as other owners.