Thinking about contract restructuring

[BigAl2526]

It's well known by Bills fans that Brandon Beane restructured a number of contracts in order to create cap space the Bills could use to sign free agents.  That got me to wondering.  Why didn't the Bills write the initial contracts in a more cap friendly way instead of having to restructure.   Is it possible that the initial contracts are written the way they are in order to provide for mor flexibility down the road?  

 

With one of the highest payrolls in the league, are the Bills likely to have continuing cap troubles next year and beyond.  I think in theory, that could be exacerbated by all the restructuring.  Restructuring normally involves converting salary to bonus money.  Big prorated bonuses create dead cap money issues when and if those players are cut.

 

I like the way Beane has built this team and I think the recognition he enjoys as one of the top GMs in the league is well deserved, but it there is something to be concerned about, the cap issues might be it.

[Rc2catch]

Once a team has a 40 million a year quarterback you’re always going to be up against the cap. 
For the foreseeable future we will be top 5-10 in payroll. 
I’m sure someone will mention New Orleans. If they can find a way to get under the cap every year (especially this year they were sooooo over the cap)  I’m sure Beane can. 

[ddaryl]

Winning teams will always have cap concerns. We could return to the days where we had oodles of cap space, but it comes at a cost none of us are willing to pay.

Beane's plan marches out a few years IMO. Yes we will have decisions to make, but I am not worried. Beane =Gandalf the White when comes to salary cap.

[NewEra]

Cap issues occur for every loaded team.  It’s exists for that very reason.  Regardless of how the initial contract is drawn up, once a team is up against the cap, they’ll restructure and kick money down the road to create more cap room if winning now is that important to them.  We’ve never had to worry about that before 17.  
 

The initial contracts are done to benefit the team and the player.  Once a FO decides “winning now” is more important than 2-5 years down the road, contracts are restructured and, again, both sides benefit. The team gets cap space for the current season and the players gets cash up front and/or more guaranteed money. 

Edited May 20, 2022 by NewEra

[BuffaloBill]

The numbers change every year. You assume Beane has been cap unfriendly in his moves. The Bills tend to hold to three year deals or less with an out if they go longer.  If players prove themselves with both play and “culture fit” the Bills have looked to extend them.  The one possible contractual meets-up is Lotulelei, though his COVID year through a wrench in it.

 

IMO, The fact that the Bills have not extended Edmunds shows they are not careless.  

[SCBills]

Beane has been pretty forward thinking when it comes to contract structuring for a win-now team.  
 

We have two long term deals on the books that could see diminishing value.  
 

One is Von Miller, who has an out after 3 years.  One would hope we get 2-3 strong years out of him.  After that, it’s year to year, and if we part ways after Year 3, we have some dead cap in Years 4 & 5, but nothing unmanageable. 
 

The other is Stefon Diggs.  However, Diggs playing style lends himself to a long, productive career.. and the likeliest worst case scenario is that we have an overpaid stud slot WR as he gets later into the contract years. 
 

As far as other moves made, or potentially made, remember that Beane locked Allen down with what is already looking to be a team friendly deal for a Top QB… and it doesn’t even kick in until this year.  He still has the proverbial “Ace up his sleeve” in the ability to restructure Allen’s deal at any time. 
 

Next off-season could be the first real point we see the effects of a top heavy roster should we have to let Edmunds, Poyer or Knox walk… but with the $$$ flowing into the league, how much the players truly like it here, and Beane at the helm.. I’m not assuming anything when it comes to who we can or can’t sign anymore. 

[Ethan in Cleveland]

The most common maneuver is to take salary and convert it to a signing bonus. When the player signs his contract they get one bonus and a salary for a number of years. You can't write a contract with a series of signing bonuses.  You just have to covert them if you want every year.  Additionally if you put all the money into a signing bonus up front and the player doesn't work out then it becomes a large dead money cap hit.  Not every contract/player signed will work out.  So you have to hedge your bets.  

[BarleyNY]

1 hour ago, BigAl2526 said:

It's well known by Bills fans that Brandon Beane restructured a number of contracts in order to create cap space the Bills could use to sign free agents.  That got me to wondering.  Why didn't the Bills write the initial contracts in a more cap friendly way instead of having to restructure.   Is it possible that the initial contracts are written the way they are in order to provide for mor flexibility down the road?  

 

With one of the highest payrolls in the league, are the Bills likely to have continuing cap troubles next year and beyond.  I think in theory, that could be exacerbated by all the restructuring.  Restructuring normally involves converting salary to bonus money.  Big prorated bonuses create dead cap money issues when and if those players are cut.

 

I like the way Beane has built this team and I think the recognition he enjoys as one of the top GMs in the league is well deserved, but it there is something to be concerned about, the cap issues might be it.

To the bolded question, teams have started to include team controlled options to restructure contracts.  That way they don’t have to go through the process of getting the agent involved, they just execute their option.

[Shaw66]

I'm certainly not the contract expert here, but it seems like there's a clear pattern:

 

In the ideal situation, all of the cap you're using in any year is being used on players actually on your roster.  What you want to avoid is spending cap on guys who aren't on the roster.   That's true dead cap money, and it limits your ability to sign talent.  That's why the Bills were relatively weak in McDermott's second year - they let a lot of talent go that they didn't want, but the guaranteed money for those guys was still being counted against the cap, so there was enough cap to get new talent.  They did it intentionally, and cleared out a lot dead cap money in one year, so that the following year they could have a more normal approach to free agency and get players they wanted.

 

Say, you have a good guy you want sign, either who's on your team already or who is coming from another team.  He wants a certain amount of guaranteed money.  You know the guy is good now, but you don't know how long he'll last.  In Diggs's case, you figure he's good for four years, in Miller's you figure two.  But in both cases, you know you'll want him longer if he turns out to still be good - you want him for as long as he'll be good.  So, you sign him for the longer period (six years for Diggs, three for Miller), but you give him all the guaranteed money over the shorter period.  By doing that, you're paying him the money that you're sure he's going to be worth having, and you're also taking the cap hit over the period he's going to be worth having.  In other words, you pay for the guy while you're sure he's going to be good.   So, Diggs gets all his money in four years, Miller in two, and those are the periods over which you spread the cap hit.  That is, you've matched the cap hit with your best guess as to how long he surely will be valuable. 

 

Then, a year down the road in Miller's case, or three years down the road in Diggs's case, if the guy looks like he can play out the whole contract, you restructure.  You give the player a little more to make him happy, but generally he doesn't care much about restructuring because he's already gotten his money.  By restructuring then, you get spread some of the cap hit to those out years that you originally weren't sure he was going to play.   By doing that, you create more cap room in the short-term.

 

If you spread out the guaranteed money over the longer term when the contract is first signed, it's true that you have less of a cap hit immediately, but it leaves in the position where you may have to take a cap hit in those out years for a player you cut, because he isn't good enough any longer.   So, if Diggs is washed up in four years and the Bills had spread his guaranteed money over six, the Bills have dead cap.   That's true dead cap money, and that's what you want to avoid, because it means you're using cap in those years on players who aren't on your roster.  

 

 

[Starr Almighty]

13 minutes ago, Shaw66 said:

I'm certainly not the contract expert here, but it seems like there's a clear pattern:

 

In the ideal situation, all of the cap you're using in any year is being used on players actually on your roster.  What you want to avoid is spending cap on guys who aren't on the roster.   That's true dead cap money, and it limits your ability to sign talent.  That's why the Bills were relatively weak in McDermott's second year - they let a lot of talent go that they didn't want, but the guaranteed money for those guys was still being counted against the cap, so there was enough cap to get new talent.  They did it intentionally, and cleared out a lot dead cap money in one year, so that the following year they could have a more normal approach to free agency and get players they wanted.

 

Say, you have a good guy you want sign, either who's on your team already or who is coming from another team.  He wants a certain amount of guaranteed money.  You know the guy is good now, but you don't know how long he'll last.  In Diggs's case, you figure he's good for four years, in Miller's you figure two.  But in both cases, you know you'll want him longer if he turns out to still be good - you want him for as long as he'll be good.  So, you sign him for the longer period (six years for Diggs, three for Miller), but you give him all the guaranteed money over the shorter period.  By doing that, you're paying him the money that you're sure he's going to be worth having, and you're also taking the cap hit over the period he's going to be worth having.  In other words, you pay for the guy while you're sure he's going to be good.   So, Diggs gets all his money in four years, Miller in two, and those are the periods over which you spread the cap hit.  That is, you've matched the cap hit with your best guess as to how long he surely will be valuable. 

 

Then, a year down the road in Miller's case, or three years down the road in Diggs's case, if the guy looks like he can play out the whole contract, you restructure.  You give the player a little more to make him happy, but generally he doesn't care much about restructuring because he's already gotten his money.  By restructuring then, you get spread some of the cap hit to those out years that you originally weren't sure he was going to play.   By doing that, you create more cap room in the short-term.

 

If you spread out the guaranteed money over the longer term when the contract is first signed, it's true that you have less of a cap hit immediately, but it leaves in the position where you may have to take a cap hit in those out years for a player you cut, because he isn't good enough any longer.   So, if Diggs is washed up in four years and the Bills had spread his guaranteed money over six, the Bills have dead cap.   That's true dead cap money, and that's what you want to avoid, because it means you're using cap in those years on players who aren't on your roster.  

 

 

☝🏻 This!

[BarleyNY]

10 minutes ago, Shaw66 said:

I'm certainly not the contract expert here, but it seems like there's a clear pattern:

 

In the ideal situation, all of the cap you're using in any year is being used on players actually on your roster.  What you want to avoid is spending cap on guys who aren't on the roster.   That's true dead cap money, and it limits your ability to sign talent.  That's why the Bills were relatively weak in McDermott's second year - they let a lot of talent go that they didn't want, but the guaranteed money for those guys was still being counted against the cap, so there was enough cap to get new talent.  They did it intentionally, and cleared out a lot dead cap money in one year, so that the following year they could have a more normal approach to free agency and get players they wanted.

 

Say, you have a good guy you want sign, either who's on your team already or who is coming from another team.  He wants a certain amount of guaranteed money.  You know the guy is good now, but you don't know how long he'll last.  In Diggs's case, you figure he's good for four years, in Miller's you figure two.  But in both cases, you know you'll want him longer if he turns out to still be good - you want him for as long as he'll be good.  So, you sign him for the longer period (six years for Diggs, three for Miller), but you give him all the guaranteed money over the shorter period.  By doing that, you're paying him the money that you're sure he's going to be worth having, and you're also taking the cap hit over the period he's going to be worth having.  In other words, you pay for the guy while you're sure he's going to be good.   So, Diggs gets all his money in four years, Miller in two, and those are the periods over which you spread the cap hit.  That is, you've matched the cap hit with your best guess as to how long he surely will be valuable. 

 

Then, a year down the road in Miller's case, or three years down the road in Diggs's case, if the guy looks like he can play out the whole contract, you restructure.  You give the player a little more to make him happy, but generally he doesn't care much about restructuring because he's already gotten his money.  By restructuring then, you get spread some of the cap hit to those out years that you originally weren't sure he was going to play.   By doing that, you create more cap room in the short-term.

 

If you spread out the guaranteed money over the longer term when the contract is first signed, it's true that you have less of a cap hit immediately, but it leaves in the position where you may have to take a cap hit in those out years for a player you cut, because he isn't good enough any longer.   So, if Diggs is washed up in four years and the Bills had spread his guaranteed money over six, the Bills have dead cap.   That's true dead cap money, and that's what you want to avoid, because it means you're using cap in those years on players who aren't on your roster.  

 

 

There is a very big difference between dead cap from cutting overpaid players not performing to their contract and from kicking cap hits into future years.  Star is an example of the former.  We didn’t get our money’s worth out of him and are left with a fair bit of dead money because he had to be released before we originally planned to.

 

Now consider a situation where a player lives up to his contract, but where cap hits are delayed.  Assuming the cap increases every season (which it has except for the pandemic year and work stoppages), then that player’s percentage of the total cap is reduced.  On large contracts that makes a real difference. 

[Buffalo_Stampede]

As long as Josh plays at an elite level we’ll just keep pushing his cap into the future. Eventually it’ll catch up but that’s a long way away, maybe a decade.

[DCbillsfan]

2 hours ago, BigAl2526 said:

It's well known by Bills fans that Brandon Beane restructured a number of contracts in order to create cap space the Bills could use to sign free agents.  That got me to wondering.  Why didn't the Bills write the initial contracts in a more cap friendly way instead of having to restructure.   Is it possible that the initial contracts are written the way they are in order to provide for mor flexibility down the road?  

 

With one of the highest payrolls in the league, are the Bills likely to have continuing cap troubles next year and beyond.  I think in theory, that could be exacerbated by all the restructuring.  Restructuring normally involves converting salary to bonus money.  Big prorated bonuses create dead cap money issues when and if those players are cut.

 

I like the way Beane has built this team and I think the recognition he enjoys as one of the top GMs in the league is well deserved, but it there is something to be concerned about, the cap issues might be it.

Check out Joe Marino on Locked on Bills via Youtube.  He talked about next off season and possible restructuring moves by Beane.  It's about 30 minutes long.  If you don't have the time.  The short answer is restructure Allen's contract I.e. convert a chunk of his salary to signing bonus.  

[FilthyBeast]

3 hours ago, BigAl2526 said:

It's well known by Bills fans that Brandon Beane restructured a number of contracts in order to create cap space the Bills could use to sign free agents.  That got me to wondering.  Why didn't the Bills write the initial contracts in a more cap friendly way instead of having to restructure.   Is it possible that the initial contracts are written the way they are in order to provide for mor flexibility down the road?  

 

With one of the highest payrolls in the league, are the Bills likely to have continuing cap troubles next year and beyond.  I think in theory, that could be exacerbated by all the restructuring.  Restructuring normally involves converting salary to bonus money.  Big prorated bonuses create dead cap money issues when and if those players are cut.

 

I like the way Beane has built this team and I think the recognition he enjoys as one of the top GMs in the league is well deserved, but it there is something to be concerned about, the cap issues might be it.

 

To his credit most of his deals have been team friendly so to speak despite the frontloaded guaranteed money and even the mega deal we gave a 33 year old pass rusher is not as bad as it seems on the surface.

 

He's definitely misfired on a few (most notably the absurd Star L deal and restructure) but it happens.

 

But make no mistake about it, you can only kick the can down the road so far like Beane and other GM's like Veach in KC are doing. Eventually you have to pay the pipe which makes the current window that is open much more critical to secure at least one SB appearance and win.

[DrDawkinstein]

2 hours ago, Ethan in Portland said:

The most common maneuver is to take salary and convert it to a signing bonus. When the player signs his contract they get one bonus and a salary for a number of years. You can't write a contract with a series of signing bonuses.  You just have to covert them if you want every year.  Additionally if you put all the money into a signing bonus up front and the player doesn't work out then it becomes a large dead money cap hit.  Not every contract/player signed will work out.  So you have to hedge your bets.  

 

This is the real answer that addresses the bulk of OP's question.

 

You can't do a deal that is 100% signing bonus. But you CAN convert salary to signing bonus year by year.

 

Converting it to bonus also converts it to GUARANTEED money, another reason why you wouldnt do a 100% signing bonus contract.

 

Plus, the point of restructuring into a signing bonus is it allows you to spread that salary out over the remaining year. So if a player had a 5yr/$50M contract, year 1 its a $10M hit. They convert that to bonus, and get to spread that $10M out. So now it's only $2M this year, but you've also added $2M to each of the remaining year. So next year's hit is $12M instead of $10M. You're just kicking the can, waiting for the cap to increase.

 

Ultimately, signing bonuses are capped at a certain % of the overall deal, so you couldn't do a 100% bonus contract even if you wanted to.

[Big Turk]

3 hours ago, BigAl2526 said:

It's well known by Bills fans that Brandon Beane restructured a number of contracts in order to create cap space the Bills could use to sign free agents.  That got me to wondering.  Why didn't the Bills write the initial contracts in a more cap friendly way instead of having to restructure.   Is it possible that the initial contracts are written the way they are in order to provide for mor flexibility down the road?  

 

With one of the highest payrolls in the league, are the Bills likely to have continuing cap troubles next year and beyond.  I think in theory, that could be exacerbated by all the restructuring.  Restructuring normally involves converting salary to bonus money.  Big prorated bonuses create dead cap money issues when and if those players are cut.

 

I like the way Beane has built this team and I think the recognition he enjoys as one of the top GMs in the league is well deserved, but it there is something to be concerned about, the cap issues might be it.

 

Because restructured contracts are viewed as something that is done only when needed, and if they don't need to do it that way, it's better to take the bigger cap hits up front to ensure there are always a balance of money being spent and contracts coming off the books in a given year.  You don't want to create a situation where you have a bunch of contracts coming due for signing but nothing coming off the books.  It is a balancing act that can be shifted somewhat when need be.

 

So the answer to this is because it would create an imbalance between contracts coming off the books and new contracts/extensions in a given year.  This is only done when absolutely necessary and then it is worked towards being rebalanced again in other ways.

[Ed_Formerly_of_Roch]

3 hours ago, BigAl2526 said:

It's well known by Bills fans that Brandon Beane restructured a number of contracts in order to create cap space the Bills could use to sign free agents.  That got me to wondering.  Why didn't the Bills write the initial contracts in a more cap friendly way instead of having to restructure.   Is it possible that the initial contracts are written the way they are in order to provide for mor flexibility down the road?  

 

With one of the highest payrolls in the league, are the Bills likely to have continuing cap troubles next year and beyond.  I think in theory, that could be exacerbated by all the restructuring.  Restructuring normally involves converting salary to bonus money.  Big prorated bonuses create dead cap money issues when and if those players are cut.

 

I like the way Beane has built this team and I think the recognition he enjoys as one of the top GMs in the league is well deserved, but it there is something to be concerned about, the cap issues might be it.

 

Reading the title of the thread, thought you were debating having your contract changed.  Was going to ask if you were looking for more or less money!

[Shaw66]

2 hours ago, FilthyBeast said:

 

But make no mistake about it, you can only kick the can down the road so far like Beane and other GM's like Veach in KC are doing. Eventually you have to pay the pipe which makes the current window that is open much more critical to secure at least one SB appearance and win.

I don't think this is correct.   

 

As you pointed out, the restructuring game doesn't work if you're wrong about how much each player has left in the tank.  When you restructure a guy, you're investing in his future, and if his future turns out to be not so good, like Star, you've got cap tied up in guy who's not producing.   

 

But if you're 100% on your judgment of the player's future, the process never catches up with you.  

 

The only important question is whether you're getting production this year that is more or less worth the cap you have invested in him this year?   If the answer to that question, year after year, is yes, then there's nothing to "catch up to you."   Whether I have a lot of next year's cap wrapped up in this year's player isn't really relevant.   The question is whether next year he's worth the cap I have invested in him next year.  

 

So, for example, Diggs.   After four seasons, he will have gotten all his guaranteed money.   There would be cap hit if the Bills cut him there, but only $10 million on a $124 million contract.  That's not bad.  Kicking $10 million down the road isn't mortgaging the future, especially when the salary cap is going up from year to year.   Ten million of cap four years from now isn't worth as much as $10 million now.   If Diggs is still in his prime, the Bills will keep him and pay him $25 million per year, more or less, and the cap hit will go up, but the cap hit will be worth it for his production.  

 

As someone pointed out, the team gets a similar result if they have team-option extensions.  

 

The Bills are not spending a significant portion of their cap on players who are not on their roster.   Their dead cap is about in the middle of the league - $16 million, and a there are several teams with dead cap of $30 or $40 million.   Those are teams whose rosters should be talent deficient, because they simply don't have enough cap room to hold a lot of talent.  

 

 

 

[MJS]

Because they have to follow the rules.

 

BTW, Joe Marino (Locked On Bills) just did a 2023 off-season overview where he looked at contracts, restructures, cut candidates, etc. The Bills can free up like $50 million in cap through various restructures. The big one will be Josh Allen. They can free up $20 million by restructuring him. There are also extensions they can make that will lower 2023 cap figures.

 

Beane knows what he is doing. He has all these contracts humming perfectly. Yes, we won't always be able to sign everyone, but this is going to be a very competitive team for years to come.

Edited May 20, 2022 by MJS

[Rew]

1.  In a salary cap world, assuming you spend equally as wisely as your competitor, you will have a better team by spending every cap dollar than a team consistently under the cap.  Over commiting in the short term with the flexibility to push it out allows for you to optimize to cap.

 

2. Inflation. Not currency inflation, but salary cap inflation.  If you're familiar with the concept of net present value of money, put it in terms of cap %.  A player being paid 10% of the cap this year is only going to take up 8-9% of the cap if you can push it out 2 years.  Let's say you push all cap hits out 2 years indefinitely, you can afford to pay 13% more than a team that is putting all the cap in this year.  

 

3. Marketing.  You sign good players with high AAV contracts with long term flexibility so that you don't end up paying them the actual AAV from signing due to restructures lowering overall cost and cost averaging into years of lower pay.  

 

Ultimately, with a salary cap, you will generally be the better team the more efficiently you use the cap.  #1 is to get the best talent.  #2 avoid dead money (from failed signings).  #3 spend to the cap.  #4 defer wherever possible to keep spending to cap and pay better talent this year.

 

Add to that the short term incentive to win soon or lose your job for GM and coach.  They will sometimes "kick the can" even when it doesn't make long term sense in order to have short term success to keep their job.

Edited May 21, 2022 by Rew