The NFL salary cap is rising explosively, according to Adam Schefter. The league-wide cap was just $123 million last year, but is now expected to rise by $10 million in 2014, and rise to $150 million by 2016. The $133 million cap this year helps, but the expected continued rise (if true) is a game-changer. It changes the way the Buccaneers should manager their salary cap and contracts.
In the past we've praised Mark Dominik and company for the way they've managed the salary cap. They took an approach that kept cash spending in line with cap spending, refusing to mortgage the future to spend now. It led to a very healthy cap situation throughout his tenure, and a solid amount of cap space for Jason Licht and Lovie Smith to play with now. It was a perfect strategy for the relatively flat salary cap the league faced over the past four seasons.
The flat salary cap is gone, though. And that means it's time to spend big, and borrow from the future. The Buccaneers can now spend future money as if it's current money, while future money is discounted significantly.
In very simple terms: every $1 spent in 2016 will be worth $1.22 in 2013 salary cap currency. That means that for every 2016 dollar you spend under the 2013 salary cap, you're getting a 22% discount. This was not true over the past four years, where the discount on future spending was minimal.
Let's take Darrelle Revis' contract as an example. At $16 million last year, he counted for 13.0% of the league-wide salary cap. If the salary cap is set at $133 million this year, that would be just 12.0%. By 2016, it would be 10.7% of the salary cap. It would make a lot of sense to convert a portion of his salary to bonuses now, pushing cap hits into 2015 and 2016. Effectively creating cap space now by borrowing from the future at a significant discount.
Yes, that means that trading Darrelle Revis just became much less of an option.
Now, part of that gain in future money will be eliminated by rising player costs: inflation. The supply of free agents won't change, but the demand for them will increase, thanks to the increased salary cap. More teams will have more money to spend on the same pool of players, which naturally means higher salaries for free agents.
That, however, is also an argument to spend big now, because rising player costs mean that free agents will become cheaper relative to the league and the rest of the roster over time. Greg Hardy will be expensive this year, but a Greg Hardy-equivalent would be more expensive in nominal terms in two years. Again: the discount value of future money. It's why Lovie Smith's comments to Mike Florio on spending to the cap make sense.
The Bucs will have to be careful not to push this too far, though. Creating dead money on the cap now is not a huge issue because of the discounted value due to the rising salary cap, but it will be a bigger issue if the salary cap flattens again. Once the Bucs see signs of that happening, and they should have reasonable projections a few years out, they should transition back to the system of keeping cap and cash hits in step.
While this really is a game-changer, the Bucs won't be the only teams to see it that way. If everyone adopts this strategy, there's no competitive advantage to be had. In fact, this robs the Bucs of the competitive advantage they enjoyed due to their innovative contract structures. But it does allow the Bucs to re-tool their roster more quickly to fit Lovie Smith's needs.