Signing Bonus: Proration, Acceleration, Dead Money
When a player receives a signing bonus, the NFL salary cap system distributes equal proration of the signing bonus over the term of the contract. For example, if a player receives a $5,000,000 signing bonus on a 5-year contract, then the NFL Management Council will charge the team $1,000,000 for each year of the contract ($1.0M, $1.0M, $1.0M, $1.0M, $1.0M).
A player's signing bonus charge is never removed from the team's salary cap accounting system during the length of the contract. The signing bonus dollar values are affected when a player is released or traded before the full term of contract.
The acceleration of signing bonus money has a punitive mathematical affect on the team for releasing the player before the end of the contract. The amount of "dead money" is determined by the timing of the release or trade, and it lowers the amount of salary cap dollars that the team can spend.
If a player is waived on or before June 1, the remaining signing bonus that has not been included in salary accelerates into that year's team salary. This unamortized signing bonus money is moved immediately into the current year, which creates the "dead money." For example, if the player is waived on February 25 during year three, then the value of signing bonus acceleration is $1,000,000 (current proration) plus $2,000,000 (potential acceleration) = $3,000,000 (full acceleration=$1.0M, $1.0M, $1.0M).
Full acceleration also occurs when a player is traded or waived and picked up by another team. The "new" team is not charged signing bonus proration that was paid by the old club; whereas the team that waived or traded the player is responsible for the accelerated signing bonus.
If a player retires, the remaining signing bonus that has not been included in salary accelerates, and is included in that year's team salary. Thus, the team will take an immediate salary cap hit of the remaining signing bonus. However, recent cases have sided with the team in the cash recovery of signing bonuses for players who retire (the Barry Sanders case), which allows for a signing bonus rebate.
If a player is waived after June 1, the remaining signing bonus that has not been included in salary accelerates into the next year's team salary. This unamortized signing bonus money is moved immediately into subsequent year, which essentially allows the team to "spread" the dead money hit over two years. For example, if the player is waived on June 2nd during year three, then the value of the current year acceleration is $1,000,000 (current proration=$1.0M), and the next year's acceleration charge is = $2,000,000 (potential acceleration=$1.0M, $1.0M).
Also included in the signing bonus are guaranteed reporting bonuses and guaranteed workout bonuses. Guaranteed salary advances that do not have to be repaid are treated as signing bonuses. Money guaranteed or paid for option years, contract extensions, contract modifications, individually negotiated rights of first refusal, and option buyouts are considered signing bonuses. Reporting bonuses are treated as signing bonuses if the contract is signed after the start of training camp. Roster bonuses are also considered signing bonuses if the contract was signed after the last preseason game.
The non-guaranteed amount of any salary advance, off-season workout bonus, off-season roster bonus, or off-season reporting bonus is included in the team's salary in the year it was earned. These bonuses cannot be prorated. The term "guaranteed" refers to those bonuses that are fully guaranteed, regardless of skill, injury or termination of the contract.
Contracts that are signed, renegotiated, or extended in the final capped year are governed by a special set of rules if the signing bonus is to be paid to the player during the final capped season. In this situation, a salary advance that the player is not obligated to repay is considered a signing bonus. Any off-season workout bonus that calls for a player to participate in less than thirty-two days of the team's program is also considered a signing bonus. Finally, all off-season reporting and roster bonuses are considered signing bonuses, in this aberrant situation
