Signing Bonus Max, with re: to Russ

rain7":te47m5gx said:

I was thinking, are there any rules around max signing bonus relative to overall contract?

Can the Hawks pay Russ a *signing* bonus of say 50 mill? Keep in mind, I'm not talking guaranteed money, I'm specifically saying signing bonus. Day 1, 50 mill in your account.

The reason I ask is, if russ got a signing bonus of 50 mill - he gets that state-tax-free and has the ability to invest that immediately, in other words, getting that money today vs 3-5 years from now means an extra 5 mill in his pocket per year assuming he invests most of it. Over the course of a 5 year contract, thats another 25 mill. He gets that signing bonus and starts off with a 5 mill salary, it seems reasonable?

It seems that this would be cap friendly in the short and long term and with the ability to set himself for life (and then some), perhaps he'd take a discount on the overall contract number.

Normally, doing this would be crazy because folks would fear the guy would let off the gas or perhaps get injured - and have it affect his play long term, but it seems that Russ would be at relatively low risk for both.

Just curious, not sure if anyone has insight into how contracts can be structured.

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Prorated Bonus

I saved this for last because it is the money that seems to cause the most confusion when people look at the cap. For the most part prorated money is what is referred to as a signing bonus in the press. It is essentially a lump sum bonus that is considered paid out when a contract is signed or an option invoked, though in reality the payout occurs over a period of time. Now there are a number of less used prorated bonuses such as completion bonuses, fully guaranteed roster bonuses, bonuses when signed during a season, etc…but for this discussion we just are interested in those basic signing or option bonuses.

For those of us who have ever taken an accounting course think of this money as a depreciation schedule on an asset. If you have no accounting knowledge maybe think of it like buying a car in that your personal expense comes over the 5 years you are paying off the car loan. The league looks at each player as an asset with a maximum working life of 5 years for every prorated bonus paid. Prorated money is split over the course of the contract or 5 years, whichever is less, in equal installments. So if you have a player with a 6 year contract that begins in 2013 and you pay him a signing bonus of $20 million he will carry an expense of $4 million in each year from 2013-2017 from the bonus. There will be no expense in 2018 because that is beyond 5 years. If it’s a 3 year deal with a $9 million bonus the expense is $3 million per year because now the limit is 3 seasons rather than 5.

When you hear of an option bonus normally it means a bonus paid out in the second year of the contract, though sometimes it can be as late as the third or fourth year. That starts the clock over on the working life. So in the case of the 6 year deal an option bonus paid in 2014 will extend all the way out to 2018. So if its a $5 million bonus that’s an extra $1 million per year. The prorated bonus portion of the players salary now includes the $4 million from the first bonus and $1 million from the second bonus, giving him a full charge of $5 million per year from 2014-2017 and $1 million in 2018.

In general what we are talking about here is the ability to “buy now but pay later” from a salary cap perspective. What happens is the team and player agree on a contract value. Lets assume the sides decide he has to earn $21 million in the first 3 years of a 5 year deal worth $33 million total. Now the team could simply pay him $7 million a year in P5 salary, which would leave the team with cap charges of $7 million per year, but what if team is really strapped for cap space. Their other option is to pay him $15 million in a signing bonus, prorated at $3 million per year, and then pay the rest of the $21 million as base salary. Pretend its $1 million in 2013, $2 million in 2014, and $3 million in 2015. Our new cap charges are $4 million, $5 million, and $6 million a huge savings on our team salary cap. This is why you hear of teams, and the Jets will likely be one of them in 2013, converting base salary into a guaranteed bonus. All is well in the world when we do this until we come across what we call “dead money”.

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Hawks46":q2xct4md said:

You have to look at certain things from Wilson's standpoint.

I would theorize that he wouldn't want a ton of money up front, unless his divorce is final. He's going to give a lot of that up if he gets it while still getting a divorce.

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