Voidable years have been talked about a lot with recent NFL free agent signings. Some fans have reacted as if teams are “cheating” by using them, but voidable year contracts have been around a long time, and they are even discussed in many provisions of the last two Collective Bargaining Agreements. Voidable year contracts offer teams a method to help make it possible to sign veteran players to contracts in years when the team faces a (usually unexpected) tight salary cap situation.
Voidable year contracts have drawbacks, but they also offer a powerful tool for teams trying to add talent to a roster. The team will eventually have to pay the piper, but structuring the contract can delay the inevitable cap hit, allowing a team to ‘squeeze’ a contract in that they might not have been able to manage otherwise.
So, what are voidable years?
A voidable year is an ‘extra’ year (or more) on the length of the contract that the team and the player intend to void. In other words, it is a “dummy” year on the contract that the player will never play or get paid for, and it exists for the sole purpose of lowering the annual cap hit, especially in the first year of the contract.
As mentioned above, this type of contract is nothing new, though most teams use them sparingly, if at all under normal circumstances.
When Chip Kelly cut Desean Jackson
The Redskins used this method with Desean Jackson when he was unexpectedly available in the 2014 off season. Because Jackson was cut near the end of March, about two weeks into the free agency period, the Redskins had already spent most of their available cap space before Jackson became a free agent, but the owner and front office were keen to sign him if they could.
The Washington front office wanted to give Desean Jackson a 3-year contract, but they were concerned about the impact of his rather hefty dollars on the 2014 cap, which was already mostly spent.
They instead gave him a 4-year contract with a ‘voidable’ 4th year. The effect was to shift part of his salary cap hit from Year 1 & 2 to Year 3, allowing the Redskins to sign a high-impact free agent that they really wanted.
The drop in Salary Cap in 2021 has made voidable year contracts more common
This same tool that was used with Desean Jackson in 2014 has been used extensively by NFL teams this off-season due to the unusual decrease in salary cap from the 2020 level of $198.2m to just $182.5m for the current 2021 season.
So, how can the voidable year be used?
It can be a bit technical and complex, but we’re gonna keep it simple.
Example contract structure
Let’s say a team wants to sign a veteran free agent to a 3-year, $24m deal, but they are tight on cap space.
In my example, the team is going to give the player half the contract as a signing bonus — that is, $12m.
The remaining $12m in salary will be paid equally at $4m per season.
Here’s what the contract looks like:
The structure is simple, and you can see that the cap charge of $8m hits equally in every year of the 3-year contract.
Adding a voidable year
To use the voidable year effectively, the team is going to write a contract for 4 years instead of 3, but the 4th year is really a “dummy” year — its only purpose is to shift cap hit from Year 1 to later in the contract.
- The player’s contract will actually still terminate after the 3rd year.
- The team will pay the same $12m as salary over the first THREE years of the deal, knowing that the player will be paid this money.
- They will add a non-guaranteed $4m to the ‘dummy’ 4th year, knowing that it will never be paid.
- To make the contract more immediately cap-friendly, the base salary will start low in Year 1, and escalate.
The new contract structure looks like this:
You can see that the Year 1 cap hit for this contract has been lowered from $8m under the standard contract to $4m under the voidable contract structure, partly due to the lower base salary, and partly by spreading signing bonus money over 4 years instead of 3.
The team now has to plan carefully for Year 3, because at the end of the third year, the mechanism to void the 4th year will be triggered. When that happens, the $3m prorated signing bonus from Year 4 gets charged immediately to Year 3.
The final effect of the cap hits, when the 4th year is voided, will look like this:
The team is taking the same $24m overall cap hit that they would have taken with a standard contract, but $2m of the signing bonus cap hit has been shifted from Years 1 & 2 into Year 3, giving the team a couple of years to figure out how to create room for it.
Because of the ability for the team to roll over unused cap space, it’s possible for the team to simply carry forward the Year 1 cap savings until they need it in Year 3, but with the flexibility to spend the increased cap space if they need it in the meantime.
How has Washington used this tool in 2021?
This kind of “voidable year” cap structure was used in the contract with WR Curtis Samuel. Here is his contract structure, per OverTheCap:
This chart has a few extra columns for roster & workout bonuses, but the organization is vey similar to the simple examples above.
- As you can see, the team has added two voidable years instead of just one to multiply the effect and shift even more signing bonus to Year 3.
- The team is taking the same $34.475m cap hit that they would have taken with a standard contract, but part of the signing bonus cap hit has been shifted from Year 1, 2 & 3 to the two voidable years -- Year 4 & 5, giving the team a couple of years to figure out how to create room for it.
- In a standard 3-year contract, the $12m signing bonus would have been charged equally, at $4m per year. Instead, Washington will be charged just $2.4m per season (reducing the salary cap hit by $1.6m per year, or $3.2m in 2021-22).
- When the contract voids, the remaining $7.2m of prorated bonus will all be charged to Year 3.
As in the simple example given in the article above, Curtis Samuel will take a lower base salary of $1m in 2021, shifting cap hits to 2022 & 2023.
The scheduled cap hits, then, are:
- 2021 = $3.775m
- 2022 = $12.9m
- 2023 = $17.8m
The effective reduction in cap space in 2021 is, as you can see, very significant. This provides Washington with flexibility to sign other free agents this season if they need it.
If they don’t use that cap space, however, it can simply be rolled forward to future years, and can help cover Samuel’s delayed cap hit in 2023.
Player cash flows under the voidable structure
Curtis Samuel does okay in this structure from a cash flow standpoint.
In 2021, he gets $13.4m in cash ($12m signing bonus + salary & roster bonus)
In 2022, he gets $10.5m in cash (salary + roster & workout bonuses)
In 2023, he gets $10.6m in cash (salary + roster & workout bonuses)
The team retains the ability to cut the player if he doesn't perform to expectations
Washington has total flexibility to keep Samuel if he plays well, or cut him if he disappoints.
- If they cut him after one season, the cap hit will be $13.4m ($1m salary + $12m signing bonus + $400k roster bonus)
- If they cut him after two seasons, the total cap hit will total $23.9m ($11.95m per year)
- If he plays all three seasons, the total cap hit will be $34.475m ($11.49m per year)
Media and fans often focus on "dead cap" numbers to say that a team "can't afford" to cut a player, but in a contract like Samuel's that has no guaranteed salary, the dead cap is simply the signing bonus that he has already been paid in Year 1 of the contract; it is part of the $13.4m in cash and cap hit listed above. Cutting the player doesn't change that number; it merely changes the entries the accountant makes in the ledger. In other words, with the Curtis Samuel contract, dead cap is a non-factor in deciding whether to keep him or cut him, and the team can cut the receiver at the end of his first or second season without hurting their overall cap position.
The Redskins used this tool with Desean Jackson several years ago in the unusual circumstances that arose in 2014, and Washington, like many other NFL teams, is using voidable years again in 2021. This isn’t ‘cheating’ and it’s not a new way to write contracts; it’s just one tool available to the salary cap manager to allow him to do his job effectively in changing circumstances.
Comments / 0