Explaining the Cowboys’ likely future pitfalls of restructured contracts in more detail

Note from the editor: Blogging the bEast collaborated on this with Jason from OverTheCap.com, which is phenomenal new website/resource. Actually, Jason did all the heavy lifting; we just made a few tweaks. You can ask Jason questions on your team’s cap situations via Twitter. He is an absolute must follow.

Over the past week, in order to attempt to become cap compliant, the Dallas Cowboys made a number of contractual changes in an effort to maintain their roster as is, but reduce their salary cap costs via the process of restructuring a contract. In general, an NFL contract is made up of a four basic cash flows:

  1. Base (P5) Salary
  2. Prorated Bonuses
  3. Roster/Reporting Bonuses
  4. Offseason Workout Bonuses

When we look at salary cap, the three bonus categories are treated as both cash and cap charges, but the bonuses will see their cap charges spread out over the life of a contract, up to a maximum of 5 years. When a player has a high salary cap charge due to cash flows in the other three categories, a simple mechanism to reduce that cap charge is to convert the cash into a prorated bonus for cap accounting purposes.

The danger in this move is that it increases the future cap charges and also increases the amount a team has to pay in “dead money” to the salary cap if a player is released.  This restructure will often effectively guarantee the player being on the roster, not just in the current season, but also in subsequent seasons. When restructuring a player’s contract you have to be well aware that players have prime years, and once they exit those prime years, decline in their level of play can happen rapidly. You then get stuck with a team full of players that have incredibly high cap charges and high dead money charges, who simply aren’t playing up to their pay scale.

This is the sort of situation that the Cowboys are going to find themselves in. The Cowboys reworked the contracts of Miles Austin, Jason Witten, DeMarcus Ware, and Brandon Carr. The moves saved Dallas $23,357,600 against the salary cap in 2013, but increased the Cowboys’ cap charges in 2014 by $5,839,500.  Perhaps even more importantly, they increased the dead money charges of those players in 2014 by $23,357,600. Those 4 players will represent 4 of the top 5 cap hits on the roster in 2014 once the contract of Tony Romo voids at the end of this season. Austin will be 30, Witten 32, Ware 32, and Carr 28. Carr is the only player among the group that is in his “prime.” If Witten and/or Austin go into a sharp decline, the Cowboys are basically stuck with them, due to dead money they would incur by releasing them. Ware could be released, but the team would carry a dead money hit of $8.57 million. It would have only been $4.44 million under the terms of his prior deal.

To make matters worse, Dallas decided to franchise Anthony Spencer, which means they have now allotted over $10 million of the 2013 cap to him. This could put them in a position to have to rework even more contracts to get under the 2013 salary cap, which just means pushing more money into 2014. When you have future cap situations like Dallas’, it is imperative to be able to carry excess cap room over from one year to the next.  Using the tag two years in a row on the same player just destroys that excess cap room.  It’s just poor cap management.

Assuming Romo’s contract voids, Dallas is committed to $130 million in salary cap costs in 2014. They can release Doug Free and Jay Ratliff to save around $7 million, but other than Ware they have no savings greater than $2.3 million. That means pushing more money further into the future just to be compliant in 2014. Dallas already has $106 million on the 2015 salary cap for just 20 players. Now, it’s not fair to sound the alarms for a year that far in the future but they have locked themselves in to a 29 year old Carr in 2015, while a 33 year old Witten and a 31 year old Austin will count for $10.34 million in dead money, compared to just $4.07 million a few days ago. And none of this includes whatever crazy cap cost will likely exist for a 35 year old Romo.

It is one thing for a team that just made a championship game to make moves like this in hopes of maximizing their chances of getting to the next level. It is a completely different thing for a team that hasn’t made the playoffs since 2009 to do the same thing. The odds of a payoff with this strategy are slim, and Dallas is now at a financial disadvantage compared to the rest of the league after this season, pretty much locking them into high-cost players with a strong likelihood of declining skills.

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  1. […] • The Cowboys continued their spree of restructuring contracts. They restructured Jay Ratliff, Orlando Scandrick, and Mackenzie Bernadeau. In case you missed why this strategy is bad business, you can go here. […]

  2. corn on the Kolb says:

    Great feature, Jimmy.

  3. Sejo28 says:

    Lol wow some Cowboy fan must have pissed you off Jimmy. The last four articles on this site would make Jerry Jones rethink his entire life

    1. Ha. I know there’s awareness of Jerry Jones’ short-comings as a GM, but when you peel the onion a bit, it just gets worse and worse. Cowboys fans should be calling… loudly… for them to hire a real GM. He’s a brilliant businessman, but he’s not a GM.

  4. Juz Saying says:

    Eagles found the Dream Team was a Bust After the Skins & the Over the Cap Cowboys swept them & they found themselves in last place in the NFC East!Now they went got Chip” Spurrier “Kelly!

    1. Rex says:

      How’s 1995 treating you? You know the last year the cowboys were relevant other than being a sideshow.

  5. Nothingtoseehere says:

    I would much prefer if Dallas would put together a “Dream Team”. That is the proven way to build a winner

    1. That’s actually a great comparison. The “Dream Team” is gone. Done. Almost completely.

      – Cullen Jenkins: Gone.

      – Nnamdi Asomugha: Soon to be gone.

      – Jason Babin: Gone.

      – Ronnie Brown: Gone.

      – Vince Young: Gone.

      – Steve Smith: Gone.

      The only holdover from that free agent spree is Evan Mathis, who is a Pro Bowl caliber player. Babin was great for one year, an asshat the next. Jenkins was OK. Brown, Smit and Young were terrible, and Nnamdi was a total failure.

      But the Eagles recognized it, and cut bait. And they’ll have $44 million in cap space whenever they get rid of Nnamdi. The plan failed in spectacular fashion, but it’s not going to hurt them long term. And as it turns out, only 2 out of the 32 teams (6%) in the NFL won the Super Bowl since the Eagles made that splurge.

      1. dannymac056 says:

        I think the kid’s point is he’d rather be struggling with the cap and at least competitive than have plenty of cap space and be a 4 win team. Can’t disagree… though I’d like less dead money if I were a cowboys fan. I’m sure the penalty didn’t help.

        Clearly the Eagles have done a better job with low-risk contracts the last 2-3 years, but it has arguably netted them one of the weaker rosters in the league.

        The Cowboys have been a game (and better QB play) away from the playoffs the last 2 years, and in the mix for a while. JJ isn’t great, but a lot of the best teams stay right up against the cap and push money back- Giants and Steelers seem to do that dance a lot. Meanwhile a lot of terrible teams usually have plenty of room- Jags and Bucs are good examples.

        Having said all that, it’s a good article and if I were a Dallas fan I’d be pissed at the Jerry. OTC is a great site, thanks for the heads-up.

        1. DerfDiggy says:

          Well said Danny.

        2. Mitchell says:

          The cowboys didn’t make the playoffs last year either. I would rather have a high pick, a young team and a new direction than no cap space, an old team and Jerry jones.

        3. This isn’t really about managing the last few years for the Eagles. They have been mastering the cap forever. With Lurie/Banner/Reid/Roseman, the Eagles have hardly ever had to worry about the cap while winning double digits for the majority of the last 14 years.

          The last couple years have sucked, no doubt. But with Jerry at the GM helm, they aren’t going to advance much past 8-8/9-7. Then once everyone gets old at once they will collapse and have to rebuild with the peak having been 9-7 and maybe an early playoff exit.

        4. Rex says:

          The cowboys are competitive?

          1. KD says:

            Nope, competing for the division in the last game of the season two years in a row is not being competitive. of course not.

      2. TRANSLATION... says:

        …”despite those Eagles stupid moves, they are still the smartest team in football, while Dallas is the dumbest…” LMAO!!

        1. Eagles are clearly not the smartest team in football. But the manage their cap far better than the Cowboys, which again, isn’t saying much.

  6. justrelax says:

    Oh, this is soooo sad.

  7. Really, their best hope to get out of this problem is to pull the franchise tag before Spencer signs it.

  8. Joe D says:

    The NFC E is so bad right now that I think pretty much any team including the Cowboys could win it… If their D gets healthy they could really be good as well…

    1. Dallas sucks, and with moves like this they will continue to suck for years to come. I’m excited!

    2. OlSkool1972 says:

      I don’t know what division you’re watching. The Cowboys will be lucky to get out of the cellar above rebuilding Philly. The Giants will remain solid but this has clearly become Washington’s division with the only chance the other teams have of challenging is if Griffin continues to suffer injuries.

      1. RedskinsFan says:

        I am a diehard Skins fan, but I can’t agree that it’s Washington’s division yet. Yes, they are the team on the rise, but all things considererd, I still think the Giants are the team to beat, for now. The Cowboys really need to overachieve this year to do anything, and it’s really unlikely (as in they would have to a historic rookie record for a HC) that the Eagles are going to do anything. But the Giants are still the most complete team, even as the Redskins are the most interesting and dynamic.

        For one more year. Superbowl bound 2014 season! Hail yeah.

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