Shorting Salary Cap Conservatism

Main Takeaway: Unorthodox strategies are key to allowing teams to more efficiently manage two of their most scarce resources, cap space and draft picks.

Building on the piece that I wrote about the draft pick value of cap space, I sought to come up with a couple of under-explored trade scenarios that creative teams could employ to either minimize their salary cap obligations or maximize their draft capital.

I) “Sign and Trade”

  • Team Red could sign a player to a one-year contract featuring a $3M signing bonus and a $7M guaranteed base salary
  • In this case, the cost of acquiring the player would be equal to $10M in cap space
  • Team Red could also ask Team Yellow to sign the same player to a one-year contract featuring a $3M signing bonus and a $7M guaranteed base salary, and then trade a draft pick to Team Yellow for said player (the player would know prior to signing with Team Yellow that his ultimate destination would be Team Red)
  • Under such a scenario, Team Yellow would retain the signing bonus obligation on its cap, and Team Red’s cost of acquiring the player would be equal to $7M in cap space and the value of the traded draft pick
  • For a contending team with limited salary cap availability, the latter scenario would be appealing as it would enable Team Red to acquire a “$10M player” at a salary cap discount in exchange for draft pick compensation
  • Engaging in the “Sign and Trade” would also benefit a rebuilding team with excess cap space and a desire to add more draft assets

II) “Injury Guarantee Play”

  • Team Blue has an expendable player on its roster with one year left on his contract and whose base salary is not guaranteed
  • Under normal circumstances, Team Blue would simply cut the player
  • However, the player is currently injured and his contract features a significant injury guarantee of $20M which is triggered if he is still injured on “Day X”
  • At the beginning of the offseason, the probability that the player will be healthy enough to pass a physical on “Day X” is estimated to be near 50%
  • Team Blue could either accept to face this significant exposure, or seek a trading partner to eliminate it
  • In the latter case, Team Green would be willing to acquire the player (and take on the substantial financial risk related to his injury) in exchange for appropriate draft pick compensation
  • For a contending team with limited salary cap availability, this trade scenario would be enticing since it would enable Team Blue to completely eliminate its exposure to a potentially calamitous salary cap event
  • The “Injury Guarantee Play” would also serve the interests of a rebuilding team with excess cap space that is seeking to bolster its draft capital

P.S. Thank you to the 49ers for critical feedback

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