1. Every year, each team is given a salary cap that they can’t go over.
This number is for all players on the active roster. This year it is expected to be around $126.3 million.
2. The salary cap hit for one player is a combo of three things.
Base Salary + Signing Bonus + Misc. (Performace-Based) Bonuses.
5. Unlike a normal job, the money is usually spread unevenly from year to year.
Year 1: $4 million
Year 2: $7 million
Year 3: $5 million
6. The base salary counts against the cap each year, but is not fully guaranteed to the player.
In other words, teams usually put the “guaranteed” money up front so that when the player gets cut before reaching the end of his deal — TOUGH BISCUITS! — he isn’t entitled to any money from his salary in future years.
8. The good news is that players are given a “signing bonus,” which is guaranteed money that is given to him THAT DAY.
There’s no limit to how much money this can be.
9. The signing bonus does carry a cap hit… but it’s delayed.
The yearly cap hit = the bonus divided by the number of years on the deal.
$10 million signing bonus with a five-year contract = $2 million cap hit every year.
11. Finally, players are given extra bonus money based on various performance metrics.
These include roster-, workout-, and incentive-based bonuses and are usually determined between the team and the player during negotiations.
13. So if the team wants more cap space, couldn’t they just cut the player at any time?
14. Not really. If a player is cut, traded, or he retires before the end of the contract, it may create “dead money.”
15. Dead money is basically a sum of all remaining bonus money + the salary from the year he was cut.
Simply put, dead money is the lump sum of the cap hit the team still owes to a player… but it can be a bit more complicated than that.