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NFL contracts can sometimes be extremely confusing to figure out because of all the intricate details of how they work. A contract is loaded with various payment methods for players, including base salary, signing bonuses, roster bonuses, incentives, and many other things.
When an NFL player signs a contract with a team, it includes a total value different from the guaranteed portion of the deal. The team only ensures a certain amount of time and money to the player who signs the contract, with the remainder of the total value needing to be earned one way or another.
The unguaranteed portion can come through incentives or sometimes through a team option that allows them to release a player without paying them a certain portion of their contract after a set amount of years. NFL teams will sometimes build options for themselves into the contract as insurance if the player doesn't work out the way they had hoped. If the team keeps the player with their options, it will provide the player with more guaranteed money after its execution.
What is dead cap in the NFL?
As for the guaranteed money on a contract, it means exactly what it sounds like it means. It is the total amount of money the player is promised to receive regardless of other factors. Even if the player is released before the entirety of their contract, they are still owed the total amount of guaranteed money agreed upon, regardless of how the rest of the agreement is structured. This amount of money is known as dead cap and is counted against the salary cap of the team for that particular year.
What happens financially when an NFL player is released before their contract is completed?
When a player is released by their NFL team before the conclusion of their contract, they are still owed the entirety of the guaranteed money they agreed upon. Any that has not been received from the team because it was due for years they haven't played yet, will still be owed to them by the team that gave them the contract.
This is where dead money comes into play. Any player that is not on the team roster but is still owed guaranteed money will count against their salary cap for the next two seasons. The remaining portion of the guaranteed money will be spread evenly across two years and paid to the player.
The most recent one is that of the Denver Broncos and the Russell Wilson. After releasing the Super Bowl XLVIII winner, the franchise will now take on an NFL-record $85 million in dead cap hit.
The dead cap is used as an insurance method from the player's perspective. They will always get what's guaranteed, and teams will be more hesitant to release a player because of the penalty. If the team still has to pay the player whether or not they are on the roster, it will often make more financial sense to keep them, which helps the player extend their career and earn more of the unguaranteed portion of the contract.
