NFL free agency officially began on Wednesday, March 17 (the legal tampering period started two days earlier). From the outside, the 2021 edition of the league’s annual game of musical chairs appears no different from any other year. Teams are signing veteran players to multimillion dollar contracts in hopes of improving their rosters. But a 7.9% YoY decline in the NFL salary cap for 2021 has had a significant impact on how free-agent deals are being structured and the value of those contracts. Conversations with a trio of longtime NFL team front-office executives—Joe Banner (former Browns CEO, former Eagles president), Mike Tannenbaum (former Jets GM, former Dolphins EVP of football ops), and Andrew Brandt (former Packers VP of player finance and general counsel)—helped to identify what is different this time around the sun.
Our Take: While the NFL has seen its salary cap rise by at least $10 million per season over the last seven years, a YoY cap decline is not an unprecedented event. Back in 2011, coming out of an uncapped 2010 season and an offseason lockout, the ceiling for total team salaries dropped by $3 million (from $123 million in ’09 to $120 million). However, because it was a nominal reduction and the league was in an era “where the cap had been really tight, meaning teams were already being very careful with what they were spending,” Banner indicated the impact on clubs and free agency was minimal.
The 2021 reduction “is much more consequential,” Tannenbaum said, and not just because the decline is steeper. “We’re in an era where [teams] have felt free to spend almost whatever they wanted because the [cap number] was going up so fast,” Banner explained. As a result, “the breadth of things teams had to do [to get under the cap] is much greater than anything we’ve seen,” Banner added. That includes restructuring player compensation, apportioning more of the big-ticket salaries into signing bonuses, and pushing more dollars into future years than we would typically see. For perspective, Spotrac founder Michael Ginnitti said his company has “52 restructures in our system since Feb. 5, and [there are] at least eight more we know about that haven’t confirmed numbers. In 2020, we logged 23 from Jan. 1 to April 1.”
The NFL salary cap is declining $15.7 million for 2021. But as Tannenbaum explained, “[The impact is] really a lot more than that. The cap usually goes up $10-12 million a year, so it’s really a $25-27 million swing. And for every cap dollar, [teams] can multiply that by two or three times, in terms of a [player’s] signing bonus (and spread it out over several years). You’re talking about a potentially massive impact on potential proratable dollars [and how deals can be structured this offseason].”
Free agency is just a few days old. However, a couple of trends have already started to emerge. “We’re seeing [teams] use all of the techniques to create a smaller cap number in year one and bigger numbers down the road because of the anticipated increase in the cap (think: media rights increases, sports betting revenues),” Tannenbaum said. Ginnitti cited Leonard Floyd’s (Rams) extension as “a pretty great example of how teams are having to treat 2021 in comparison to all future years.” Floyd will have a $5.5 million cap hit in 2021, a $20 million hit in ’22, a $19.5 million hit in ’23 and a $19.5 million hit in ’24.
“The top players, especially at key positions, are also signing for less on an average per year basis than we would have expected,” Tannenbaum said. Linebacker Yannick Ngakoue “going for $13 million [per year] kind of shows the market has gone backward pretty quickly,” he added. A player of Ngakoue’s quality would typically command $17-19 million.
In the early days of free agency, players have been signing multiyear deals. But both Brandt and Banner suggested we’re likely to start seeing quality players agreeing to shorter deals (like the intentionally short two-year deal Ngakoue signed). Teams are going to start running out of cap space, and once they do, taking the best short-term deal available and hitting the market again in a year or two will become the best option for many. Ginnitti said, “Hassan Reddick’s one-year $8M contract with the Panthers seems to [follow that logic].”
There’s an argument to be made that it would be a mistake for a top player to sign a long-term deal in the current environment. Tannenbaum said, “If I’m a good player, I want to do a short-term deal so I can get back to the table in a more conventional year, where hopefully the cap is ramping up again.” While that’s logical enough, Brandt warned, “You never know how [the free agency market is] going to play out next year.” (Remember, if there are a bevy of short-term deals signed this year, there will be more free agents than normal.) “A lot of these players taking one-year deals will end up taking another one -ear deal—or don’t even get a deal—next year,” he said. Bird. Hand. Bush.
Elite players like Ngakoue signing modest multiyear deals are certainly going to have a trickle-down effect on the remainder of the market this year. It’s also likely to negatively impact future free agent deals. That’s because the ground lost by the players in 2021 won’t be made up overnight. Moving forward, teams are going to negotiate off the most recent deals. “The owners are going to be able to get more players under reasonable contracts over the next year or two than they have been over the last few years,” Banner said.
Brandt and Banner both believe this unusual offseason provides an opportunity for teams that have done a good job managing the cap to gain a competitive advantage. The two former club executives cited New England as one franchise that would fall into that category. “Fundamentally, the thought process—to take advantage of a moment when there is not as much competition to bid on players, to line up a more significant number of players—was very smart,” Banner said. The Patriots have signed 13 free agents (they also did four extensions and traded for one player) for “nearly $300M of total value contracts acquired this offseason thus far, about 55% of that guaranteed,” Ginnitti noted. It’s worth noting the former Browns and Eagles executive still thinks the Patriots overpaid for some of those players, saying the club failed to “fully appreciate how much less expensive this market is.”