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Peppers Contract: Past, Present and Future

One of the biggest misconceptions floating around the interwebs about the upcoming (un-capped) NFL year is that teams can take advantage of it by front-loading a player's contract with guaranteed money. This is simply untrue.

In the past, if a team had a lot of cap space in a given year, they could offer a player an outrageous signing bonus. Thus designating a significant chunk of the contract to that season's cap and minimizing the cap hit in future seasons. This system also benefited the player since they would be able to get a large payday upfront.

However, under a (somewhat) recent rule change by the NFL, all signing bonuses are now pro-rated equally each year for the duration of the contract.

After one of the largest signings in the team's history, what does it mean for the Chicago Bears going forward? Follow me past the jump to find out...

Let's look at Pepper's new contract:

6 years – $91.5m – $42m guaranteed (link >>)

Peppers was guaranteed $42 million. Under the new pro-rated format that's in place, you take that figure and divide it equally by the number of years (6) on the contract and you get the signing bonus portion of the cap hit for each year. So...

$42m / 6yrs = $7m per year

Meaning, $7m will automatically count against our cap each year for the next six years, given that there's a Cap of course. Other contributions to the Salary Cap are a player's base salary and any bonuses/incentives that they reach.

If for some reason, the Bears decide to cut Julius Peppers after his fifth year, only the remaining guaranteed money portion ($7m x 1yr) of the contract would count against the cap for the following year. This figure is commonly known as "dead money."

Another interesting thing to note (from this post at BRB - great read if you have the time):

Under the CBA, any salary decrease of greater than 50% from one year to the next becomes a signing bonus and is then spread out over the life of the deal.

According to the same link that I posted above (re-link >>), Peppers will be making $20m in the first year as a Bear, and 40.5 over the first three years and a potential of up to $91.5m (with incentives for sacks, making the Pro Bowl and winning Defensive Player of the Year).

So, let's take a look at how his contract could be structured and what impact it might have on us in future, possibly capped, years. Note that this is all my speculation as to how his contract is laid out with the information that I've seen.

Guaranteed: $42m

2010: $20m (this much we know)
2011: $13.5m (greater than the 50% rule)
2012: $7m (greater than the 50% rule AND supports the at "$40.5m over three years" that's being reported)
2013: $3.75m (greater than the 50% rule)
2014: $2m (greater than the 50% rule)
2015: $1.25m (greater than the 50% rule)

If these figures were correct (probably not, but they may be close), Peppers base salary would come out to $47.5m over six years. Add that to the guaranteed money ($42m) and you have a total of $89.5m total. Leaving approximately $2m on the table for incentives and bonuses (I/B).

None of this matters, unless there is a new Collective Bargaining Agreement reached that includes a Salary Cap. This is what the Cap hit would look like with the figures that I laid out above:

2010: $20m + $7m + I/B = at least $27m
2011: $13.5m + $7m + I/B = at least $20.5m
2012: $7m + $7m + I/B = at least $14m
2013: $3.75m + $7m + I/B = at least $10.75m
2014: $2m + $7m + I/B = at least $9m
2015: $1.25m + $7m + I/B = at least $8.25

No worries about the $27m figure in 2010, since this year will be uncapped. However, 2011 is the year that concerns me. It's important to note that the Salary Cap in 2009 was $128m.

For example purposes, let's say the CBA is reached, contains a Salary Cap, and increases to $140m for 2011. In that scenario, Peppers would count for approximately 6.8% of the teams total Cap space. This is alarming to me, as we may have to make tough decisions on re-signing some players or cutting others.

But then again, there's always the even worse possibility that there's not going to be a season in 2011. Here's to wishing for the best, whatever happens.

I hope this clears up some of the confusion on the issue.