2012 Salary Cap

New Deal With Mike Wallace Can Be Both Cap Friendly And Lucrative

After the release of Jonathan Scott on Thursday, the Pittsburgh Steelers are approximately $6 million under the salary cap. Keep in mind that figure also includes the $2.74 restricted tender that wide receiver Mike Wallace is currently wearing as well. If you pull that tender amount out, the team has approximately $8.74 million in cap space to work with to accommodate a new deal. Now of course David DeCastro figures to eat up another $1 plus million of that cap space when his deal is completed and the Steelers will certainly want to have about $2 million at their discretion in case injuries strike, so that puts them back around $5.74 million available in cap space for a year one hit of a Wallace deal.

I have also mentioned previously that it is in my belief that the three $500,000 veteran credits the Steelers have at their disposal have not yet been applied. In 2011 they had three $1 million veteran credits at their disposal, and they used them on James Farrior, Hines Ward and Casey Hampton. There is no reason to think that they will not use those credits, which are borrowed from future years, in 2012. Should that indeed be the case, that puts the Steelers back at roughly $7.25 million in available space to work with for Wallace.

Structure is everything when it comes to contracts. So many people want to look at the total value as well as the perceived average per year and base their opinions solely on that. I am here to tell you that that is the wrong way to look at contracts. The structure, signing bonus and break down by individual years are the most important elements of any deal. Often times roster bonuses, option bonuses and escalators are often listed in the initial reports as guaranteed money along with the total value of a deal. Why do agents release the numbers initially to the media this way? Because it looks good, that\’s why.

I pointed to the deal the other day that the Baltimore Ravens gave to running back Ray Rice as a great example of structure in relation to a way the Steelers could do a new deal with Wallace. I think many thought in that example I was trying to say that would be the exact money Wallace would get. I wasn\’t, as I was merely pointing to the structure of the contract, not the actually amounts, just so we are clear.

Rice received a $15 million signing bonus in that five year deal upon signing. That $15 million is amortized out equally over the 5 years of the deal as salary cap charges. That means that in all 5 years of the deal that $3 million is charged to the Ravens salary cap. So in 2012, Rice has an amortized signing bonus charge of $3 million. His base salary in 2012 is $2 million, so right there you see that Rice will count only $5 million against the Ravens cap in 2012.

So where is the other “guaranteed” money at? In 2013 Rice has a $7 million option bonus due him that the Ravens will surely pay and it should be guaranteed fully in case of injury. Semantics. That $7 million option, once paid, is amortized like a signing bonus and is spread out for cap purposes over the remaining four years left on the deal. That means that Rice will have an additional $1.75 million bonus charge added to years two though five. That $1.75 million is stacked on top of the $3 million signing bonus cap charge that I talked about above. So that means in years two through five that Rice will have a $4.75 million total amortized bonus charge against the cap on top of his base salaries due him, as well as any incentives he earns in his performance escalators. More on those in a bit.

In 2013 Rice is scheduled to earn a base salary of $1 million, so that would make his 2013 cap hit only $5.75 million. So as you can see, this is a perfect example of a structure that pays Rice $24 million by March of next year, because that is when the option bonus needs to be exercised, yet the Ravens only incur cap hits of $5 million in 2012 and $5.75 in 2013. Essentially his cap hit stays flat and helps the Ravens in 2013 when the salary cap is expected to remain flat as well.

The base salaries for Rice in 2014-2016 are $4 million, $3 million and $3 million respectively and these are not guaranteed. His cap hits, assuming he does not trigger his escalator by then, are scheduled to be $8.75 million, $7.75 million and $7.75 million in years three through five. His highest cap hit peaks in year three of the deal. If Rice is still producing after year three, they will obviously retain him, and in fact, they are betting he essentially has four more years in him with a 5th year being a bonus.

Ok, so now we have $34 million of the reported $40 million accounted for, so where is the other $6 million? Rice has another $5 million that he can earn through a triggered performance incentive. All he has to do is to hit it once in the first three years. If he hits it in 2012, he gets and extra million in 2012, as well as the remaining 4 years of the deal. If he hits it in 2014, he gets an extra million in that year and another $2 million in both 2015 and 2016. That escalator is triggered by Rice reaching specific rushing/receiving targets in any of the first three years of the deal, and if the team finishes in the top 10 in total offense.

That puts us at $39 million, so where is the other $1 million? I believe that $1 million to be in the form of workout bonuses in years two through five of the deal. $250,000 in each of those years. That amount is of course added to his salary cap hit once earned, so that should mean that in 2013, his cap hit is likely to be $6 million, and could be as high as $7 million, should he trip his escalator. That $250,000 workout bonus each year is not guaranteed though.

So what does this have to do with Wallace? Well, you can expect his new deal, if one is reached, will likely will be structured quite similarly to the one of Rice. Maybe not the exact amounts, but the structure. The key thing is the signing bonus and the second year money that is likely to be either in the form of a roster bonus or an option bonus. If it is a roster bonus, it can easily be restructured in 2013 and paid out as a signing bonus, thus lowering the cap hit. The most I see Wallace getting as far as a signing bonus goes, on say a five-year deal, would be $18 million, which would create a salary cap liability in each year of the deal of $3.6 million. Add that on to a max $2 million base salary in 2012, and Wallace has at most a cap charge in 2012 of $5.6 million. Year two of the deal could be an option bonus of say $6 to $8 million, which would create an additional salary cap charge in years two through five of anywhere between $1.5 and $2 million. Say his 2013 base salary is $1 million, then Wallace essentially makes anywhere between $24 to $26 million by March of 2013.

Those are high end amounts in my opinion and only a crude example of how a deal, that could be structured in so many different ways, could be done on a high end, yet be cap friendly at the same time in the first two years of the deal.

The ultimate goal of Omar Khan is to keep year one and year two of the deal as flat as possible cap hit wise and around $5 million in each of those first two years. At the same time, he will need to give Wallace enough guaranteed money in the first two years two appease him. Realistically I see a $15 million signing bonus as tops, followed up with an option bonus of around $7 million in 2013. Add in a $2 million base salary in 2012 and a $1 million base salary in 2013 and Wallace basically gets $25 million “guaranteed”. That scenario would result in cap hits in 2012 of $5 million and $5.75 million in 2013. Fill in the blanks in years three through five of non-guaranteed base salaries and perhaps roster or workout bonuses, and you get a deal that might just total out at as high as $40 million or greater, just like Rice.

In 2014 and on, which includes the final three years of the Wallace deal, should be absorbed easily with the new TV deal money expected to kick in and the subsequent increase of the cap. What that cap increase will be at that time, we still don\’t exactly know. The roster also figures to be average in age by that time in addition, and Wallace would likely be in the top ten or so of cap hits. It is sacrilegious to say, but players like James Harrison, Troy Polamalu, Heath Miller and Ike Taylor could very well not be around in 2014, the final year of their current deals. So whatever the cap hit of Wallace would wind up being in 2014, should be easily affordable, as too should be the cap hits of both Antonio Brown and Emmanuel Sanders, both of whom I think the Steelers can easily retain if they so desire.

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