Understanding NFL Contracts and Salary Cap Management in 2025

Understanding the NFL Salary Cap: A Comprehensive Guide

What is the NFL Salary Cap and Why Does It Exist?

The NFL salary cap is a fundamental pillar of American football that limits how much each team can spend on player salaries in a given season. Unlike Premier League football, which uses Financial Fair Play rules and Profit and Sustainability regulations, the NFL operates under a hard spending ceiling that applies equally to all teams.

First introduced in 1994 at $34.6 million per team, the 2025 salary cap was set at $279.2 million, an increase of $23.8 million from 2024 ($255.4M). This represents more than a 700% increase from when the cap was first introduced, demonstrating the massive growth in NFL revenues over the past three decades.

At its core, the salary cap operates as what economists call a "hard cap"; teams must always stay under this limit, with no exceptions.

Penalties for violating or circumventing the cap regulations can include fines of up to $5 million for each violation, contract cancellations, and loss of draft picks. This strict enforcement ensures that no team can simply outspend its competition to build a superstar roster.

The cap covers all player salaries on a team's roster, including those on injured reserve and practice squads. Only the top 51 players count toward the cap during the offseason, but when the season starts, all 53 players on the active roster count toward it.

Purpose in Maintaining Competitive Balance

The primary goal of the NFL salary cap is to maintain competitive balance across all 32 teams. While the Premier League has Financial Fair Play and Profit and Sustainability rules, the NFL's approach is more direct, with a hard salary ceiling identical for every franchise.

Salary caps are designed to promote balance among the leagues' teams, so the teams with the most financial resources can't simply dominate play by spending more than teams with less available cash.

This creates what many consider the hallmark of the modern NFL: "any given Sunday" parity, where any team can potentially beat any other team.

Before the salary cap era, teams like the Dallas Cowboys and San Francisco 49ers could dominate for extended periods simply by outspending their rivals. In 1993, they agreed to free agency in exchange for a salary cap to maintain competitive balance.

Free agency began in 1993, and the cap began in 1994. The cap has fundamentally changed this dynamic, forcing even the wealthiest franchises to make difficult roster decisions and creating opportunities for smaller-market teams to compete at the highest level.

How It's Calculated and Adjusted Each Year

The NFL salary cap calculation is based on a sophisticated revenue-sharing agreement between the league and the NFL Players Association (NFLPA). The collective bargaining agreement (CBA) between the NFL and the NFL Players Association mandates that owners and players split the league's revenue. Historically, ownership has received a slightly larger share of the pie, with players currently earning 48% of the profits.

The NFL generates revenue from three main sources: national media deals with television networks, league-wide business ventures (like merchandising and sponsorships), and a portion of teams' local revenue (tickets, concessions, etc.).

The league takes the players' 48% share of this combined revenue pool and divides it equally among all 32 teams to determine each club's salary cap. National TV contracts make up the largest portion of this shared revenue.

The salary cap is recalculated each year based on the previous year's revenue figures and projections for the upcoming season.

This dynamic calculation means the cap can fluctuate significantly from year to year. The COVID-19 pandemic, for example, caused revenues to plummet in 2020 due to empty stadiums, leading to a relatively flat cap in 2021.

Conversely, as revenues rebounded and new media deals kicked in, the cap saw record increases in recent years.

Understanding NFL Player Contracts

NFL contracts are complex financial instruments comprising several key elements that work together to determine both player compensation and salary cap impact.

Base Salary: Like most jobs, all NFL contracts have a base salary. The salary has a floor but no established ceiling. Depending on various clauses and conditions, it can be non-guaranteed or guaranteed. Base salary is the bulk of the money that players lose when they get cut, as any current year or future year base salaries are lost when a player is cut unless they are guaranteed.

Signing Bonuses: Money earned by a player for signing his contract. Typically paid out within the first 12-18 months. Prorated against the salary cap for the contract's life (five-season maximum). This amount is guaranteed and prorated over the contract's life for salary cap purposes.

Even if a player is released, the team cannot reclaim the portion of the signing bonus that has already been paid.

Guaranteed Money: In NFL contracts, guaranteed money refers to the portion of a player's contract that is guaranteed to be paid to them, regardless of whether the team cuts or releases them before the contract expires. However, not all guaranteed money is created equal.

We often hear of blockbuster deals with $60 M+ in supposed guarantees. However, upon learning the full details of the contract, it turns out that only $15 M is truly locked in.

Types of Guarantees

The NFL uses guarantees that can apply to a player's base salary. Teams can choose one, multiple, or all types of protection:

Guaranteed for injury: If a player suffers a football injury and cannot pass a physical administered by the team doctor, he would still be entitled to his full salary if the team were to release him.

Guaranteed for skill: The most subjective of the three, a player whose talents have significantly declined and is released for skill-related reasons (i.e., another player beats him out for a roster spot) would still be entitled to his full salary if that salary is guaranteed for skill.

Guaranteed for cap purposes: This guarantee ensures that a player released due to his team's need to create cap room will still be entitled to his full salary.

Fully guaranteed: When money is protected for skill, cap, and injury, it is fully guaranteed at signing and will be paid to the player regardless of the reason for release. This combines all three protections into one comprehensive guarantee.

How Contract Elements Impact the Salary Cap

The structure of these contract elements significantly impacts their effect on the salary cap.

Signing Bonuses and Option Bonuses are prorated over the length of the player's contract (or the remaining years of the player's contract, in the case of an Option Bonus), up to a CBA-mandated maximum of 5 years.

Roster bonuses count fully against the cap the season they are awarded. For example, roster bonuses are typically paid for being on the team on a certain date, usually 3-5 days after the start of the new league year.

For example, when the Washington Commanders signed defensive tackle Daron Payne to his four-year, $90 million extension in 2023, the deal demonstrates how teams structure large contracts with escalating salaries. Payne's $28 million signing bonus was prorated at $7 million annually over four years.

In 2023, his cap hit was just $10.01 million (comprised of $2.51 million base salary + $500k workout bonus + $7 million prorated signing bonus). However, his base salary increases dramatically each year - from $2.51 million in 2023 to approximately $15-20 million in 2024, then $20-25 million in 2025, and potentially $25-30 million in the final year.

This "backloaded" structure allows teams to keep early-year cap hits low when they need immediate cap space, but creates much larger cap obligations in later years.

The total $90 million comes from adding all four years of base salaries plus the $28 million signing bonus, with most of the contract value weighted toward the final years when the salary cap is expected to be higher.

Real-World Examples of Creative Contract Structuring

Teams have become increasingly sophisticated in structuring contracts to maximise player security and cap flexibility. A prime example is how teams use cash flow timing to their advantage. The most useful contract metric is knowing how and when players get their cash. The more money paid upfront, the better for the player.

Consider the structure of recent quarterback extensions. Goff will hit the cap for $27.2 million in 2024 and $32.6 million in 2025 before that figure balloons to $69.6 million in 2026. By then, Detroit can figure out how to adjust the deal, likely via a restructuring (converting salary into a signing bonus) for the contract's final years.

Teams also use performance bonuses strategically. Performance bonuses: Bonuses can be tied to playing-time percentage, such as 50% of defensive snaps, or a statistical milestone like 70 receptions or 10 sacks. They are classified as likely to be earned and not likely to be earned based on whether the player achieved the milestone the previous season.

The Commanders' rookie quarterback Jayden Daniels operates under the NFL's rookie wage scale, which provides tremendous salary cap value. This cost-controlled talent allows teams like Washington to allocate significant resources elsewhere while building around their franchise quarterback.

Managing the Salary Cap: Strategies and Challenges

NFL teams employ sophisticated strategies to manage their salary cap space while building competitive rosters effectively. The most common and impactful technique is contract restructuring.

Contract Restructuring: Most NFL contract restructures come from converting P5 salaries (called "P5 salaries" because they're listed in Paragraph 5 of the standard contract) or roster bonuses into signing bonuses and prorating the money across the remainder of the contract rather than just the season at hand.

In a basic contract restructure, teams can take any base salary, roster bonus, or workout bonus and pay it to the player as a lump sum. That money is treated as a "signing bonus," which allows it to be counted for up to five years in terms of the salary cap (prorated).

For example, if the team converts the $15 million base salary (minus the league-minimum salary) into a signing bonus, the $15 million would be spread three ways across the remaining years of the deal. This is money the player was already guaranteed to make, and in most cases, the team can do this without the player's consent.

Void Years are fake contract years added to the end of a player's deal solely for salary cap accounting purposes. They allow teams to spread signing bonus money over more years to reduce the immediate cap hit, even though the player will never actually play those years.

Here's how it works: Let's say a player has 2 years left on his contract and receives a $10 million signing bonus. Usually, that bonus would be spread over just 2 years ($5 million per year against the cap). But if the team adds three void years, they can spread that $10 million over 5 years ($2 million per year), reducing the immediate cap impact.

The catch is that when those void years arrive, the contract automatically cancels, and all the remaining bonus money "accelerates" onto that year's cap as dead money. So teams are essentially borrowing cap space from the future - they save money now but pay a bigger penalty later.

The "five minus current years" rule exists because NFL rules limit bonus proration to a maximum of five years.

Under general manager Adam Peters, the Commanders have embraced the void for years. As one analysis noted, "the Commanders have been adding void years to 3-year contracts."

Players like Dorrance Armstrong, Tyler Biadasz, Nick Allegretti, and Frankie Luvu all have contracts structured with void years, which will result in approximately $18.36 million in dead cap hitting Washington's 2027 salary cap if these players aren't extended.

A void year is a "dummy" year used for cap purposes. If a contract voids in 2026, that player becomes a free agent, and all the remaining cap ramifications will then count in the 2026 season.

How Teams Stay Under the Cap While Building Competitive Rosters

When you’re juggling a tight salary cap and a need to stay competitive, you’ll find that the smartest teams employ a blend of tactics:

1. Restructuring Contracts

If you need cap space now, convert part of a player’s upcoming base salary into a signing bonus. The player still receives the full amount immediately, but you spread that bonus equally over the remaining years of their deal. That process shrinks this year’s cap hit, giving you breathing room to add or retain talent.

2. Exploiting the Veteran Salary Benefit

When you sign a four-year veteran to a one-year deal at the minimum salary rate, you can add up to £133,000¹ of bonus money (in 2024/25 that figure is $167,500). Instead of counting the full veteran minimum, you only absorb the cap charge equivalent to a two-year player plus that small bonus. It’s a neat trick to pack experience into your roster without a hefty cap toll.

3. Timing Releases or Trades Post-1 June

If you release or trade a player after 1 June, you split the remaining prorated bonus between two seasons. Any prorations left charge this season’s cap, while all future prorations land in the next league year. That move lets you spread dead-money pain over two campaigns, rather than taking it all at once.

By combining restructures, veteran-minimum signings, and judicious post-June 1 moves, you’ll keep your cap in check and maintain the flexibility to strengthen the squad.

The Risk of "Kicking the Can Down the Road"

While these cap management techniques provide immediate flexibility, they have significant long-term risks. This seems like free money, but it is not. The roughly $9 million in space saved in 2023 becomes $4.5 million in added costs in 2024 and 2025.

A restructure makes sense if the player's projected performance, using age curves, scheme fit, and past performance as a guide, either increases over the deal's lifetime or decreases more slowly than the cap value of the new cap hits in subsequent years.

The fundamental problem with excessive restructuring is that it creates compounding obligations. The drawbacks to void years for teams are intuitive. First, a player must agree to add void years to an existing deal. Unlike restructures, where there is normally language in a contract that allows a team to convert a roster bonus to a signing bonus regardless of a player's wishes, a player must agree to the new deal.

The second drawback is even more straightforward; while kicking the can down the road is not in and of itself a problem when it comes to team building, it leaves open avenues for teams to make suboptimal decisions.

Dead Cap and Its Impact on NFL Teams

What Dead Cap Is and Why It Matters

Dead cap represents one of the most challenging aspects of NFL salary cap management. Dead money in an NFL contract refers to money that a team has already spent or committed to spending but has yet to count against its cap.

Refers to salary a team has already paid or has committed to paying (i.e., a signing bonus, fully guaranteed base salaries, earned bonuses, etc.) but has not been charged against the salary cap. In business terms, it is essentially a "sunk cost."

The financial consequences can be severe when a player is released or traded. Dead money is most often associated with cuts. It's essentially the remaining portion of guaranteed money on the deal, whether future base-salary guarantees or the remaining prorated portions of a signing bonus or option bonus.

A critical component to understand about dead money is that it counts against the cap immediately.

Now, let's say that player is cut after two seasons. Because the contract is terminated, the team can no longer spread out the remaining $9 million cap hit attached to the signing bonus. It becomes due immediately. So even though that player is no longer on the roster, they will count $9 million against the cap that season.

How Teams Handle These Financial Burdens

Teams have limited options for managing dead cap situations, but strategic planning can minimise the impact. The primary tool available is the June 1st designation. Teams can only lessen the immediate blow through a June 1 cut. That allows a team to split the dead money across two seasons instead of absorbing it in one year. It does not lessen the total obligation.

Teams must balance the immediate cap relief against future obligations when making these decisions. The timing of roster moves becomes crucial, as Teams are allowed to release two players before June 1 (but on or after the first day of the League Year) while still using this designation and getting the same cap treatment. However, the cap savings created by a June 1 designation do not take effect until after June 1.

Notable Examples of Dead Cap Issues from Recent Seasons

Recent seasons have provided stark examples of how dead cap can cripple a team's financial flexibility. Example: The Broncos were left with an $85.0M dead salary cap charge after releasing Russell Wilson in the 2024 offseason. This massive dead cap hit demonstrates how a poorly structured contract can haunt a franchise for years.

The Washington Commanders face their own dead cap challenges with some of their highest-paid players. The pairing of Jonathan Allen and Daron Payne was seen as the strength of Washington's defense, but neither player has really lived up to their generous contracts of late (Payne has the team's highest 2025 cap hit at $26.2m while Allen is third at $22.5m). The Commanders recently gave Allen permission to seek a trade, recognising that his $22.47 million cap hit may not align with his recent production levels.

The situation becomes particularly problematic when teams accumulate multiple dead cap hits simultaneously. As Once a player reaches the void years portion of their contract and they are not re-signed to a new contract for that team, all the bonus money prorated onto the void years is accelerated to that year for cap purposes.

Teams that aggressively restructure contracts often find themselves in precarious positions later. The New Orleans Saints provide a cautionary tale, as they have frequently been mentioned among teams struggling with dead cap accumulation from years of creative contract manipulation.

The Future of the NFL Salary Cap

The NFL salary cap is poised for continued dramatic growth driven by unprecedented revenue expansion. The NFL generated $23 billion in revenue across the 2024 season, the highest figure ever for the National Football League. It also marked the second consecutive year that NFL revenue topped $20 billion and it was the second year NFL revenue increased by at least $2 billion.

This revenue growth directly translates to salary cap increases. This year's salary cap will be $30.6 million more per team than last year's $224.8 million -- by far the largest jump it has taken from one year to the next since the salary cap was introduced in 1994. The trend shows no signs of slowing, with The NFL salary cap will be between $277.5 million and $281.5 million for the 2025 season, rising as much as $26 million from last year.

The primary driver of this growth comes from media revenue. In its announcement of the 2024 cap number, the NFL said one of the reasons for the sharp increase was "an extraordinary increase in media revenue." Since the league signed new deals with its broadcast partners in 2021, there has been a belief that 2024 and 2025 would be the first years in which the new TV revenue would really have a noticeable impact on league revenue.

The Impact of International Expansion and Streaming Deals

The NFL's global expansion represents a significant revenue opportunity that will continue to drive salary cap growth. The NFL has also expanded its reach globally with international games, particularly in London and Mexico City.

For UK fans, the London games at Tottenham and Wembley have become increasingly important not just for fan engagement but also as major revenue drivers. As the league grows in popularity overseas, it will generate more revenue, which in turn will boost the salary cap for 2025.

Streaming platforms are becoming increasingly important revenue sources. One of the most significant factors influencing the NFL salary cap in 2025 is the league's lucrative television deals. The NFL has some of the most valuable broadcasting contracts in the world, with deals extending to major networks like CBS, FOX, NBC, ESPN, and the new streaming platforms.

The NFL generates over $10 billion in TV rights every season, with its 10-year contracts with broadcasting partners worth over $100 billion. As these deals expand into digital and international markets, the revenue sharing that drives the salary cap will continue its upward trajectory.

Potential Changes to the Cap System in the Coming Years

However, this rapid growth has raised concerns among team owners about the integrity of the current system. NFL Commissioner Roger Goodell made some interesting comments about the salary cap and revenue calculations at his press conference at the owners' meetings this past week, indicating potential changes ahead.

Owners are particularly concerned about creative contract structures that may undermine competitive balance. Now going back to his comments about the salary cap itself, I think we have a number of things that are in play but the primary focus is probably what is considered the high usage of void years in contracts which are used to defer salary cap costs and turn the salary cap into less of a deterr[ent].

The current revenue split may also face scrutiny. The current CBA splits the revenues collected by the NFL close to a 51.5/48.5 split between owners and players. This split is pretty much the same as the NFL's prior CBA which started with a 52/48 split before ending at the current number. However, owners are expressing concerns about rising operational costs.

However, growth rates between 2020, where the initial cap was not impacted by COVID, and 2025 average out to about 8% per year. Since 2017 the growth is at about 67% which is worse for the owners than the prior CBA though not as bad as the earlier CBA's.

As the next collective bargaining agreement approaches, these issues will likely be central to negotiations. The challenge will be maintaining the competitive balance that has made the NFL so successful whilst adapting to new revenue streams and evolving business models in the digital age.

For Commanders fans, this presents both opportunity and challenge. According to Spotrac, the Commanders have $90.95 million in projected salary-cap space with 34 players under contract heading into the 2025 offseason.

This substantial cap space provides general manager Adam Peters with tremendous flexibility to build around Jayden Daniels whilst he remains on his cost-effective rookie contract.

The salary cap system that has served the league well for over 30 years may need significant modifications to address the realities of a rapidly changing sports landscape.