While decrying the NFL salary cap as “fake” has become commonplace, the cap sits at the crux of team-building around the league. It’s an accounting mechanism that can be manipulated, but clubs must be aware of where their team sits financially as they formulate their rosters.
Free agent signings, trades, draft picks, and waiver claims all affect the NFL salary cap, acting as a guardrail for front offices league-wide. Here’s how the NFL salary cap affects teams, players, and contracts.
NFL Salary Cap Explained: What Is the NFL Salary Cap?
The NFL salary cap can seem complicated — and in many ways, it is. Let’s boil down to the basics as the 2024 offseason gets underway.
At its core, the NFL salary cap limits how much each team can pay players on its roster in a given season. The 2025 salary cap is estimated to be in the range of $277.5 million to $281.5 million, which is a significant increase from last year’s $255.4 million cap.
The collective bargaining agreement 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 — players currently earn 48% of the profits.
NFL revenue comes from three sources: media revenue, NFL ventures/playoff revenue, and local revenue. The players’ total is then divided by the league’s 32 teams to give each club its individual salary cap.
Salary cap numbers are a combination of salaries and bonuses. 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.
Additionally, any player placed on the injured reserve or the practice squad counts against a team salary cap.
Can NFL Teams Exceed the Salary Cap?
NFL teams cannot exceed the salary cap. All clubs must be under the cap by the start of each new league year. This year, the new league year will begin on March 12.
However, it’s critical to remember that the NFL salary cap is simply a ledger. While it is a hard cap, it’s designed to be exploited. Teams can deploy various mechanisms to push money into the future and create more space in the present.
For example, signing bonuses are typically paid to players almost immediately, but their salary cap impact can be protracted.
Signing bonuses are prorated over the life of the contract or five years (whichever is shorter). Although the player receives his cash instantly, his team won’t feel the financial impact immediately.
Similarly, teams can restructure contracts to open up more cap space, which we’ll cover in a moment.
MORE: Simulate the NFL Offseason With PFSN’s Offseason Manager
Still, any dollar that a team pays to a player — including those on the practice squad or on injured and reserve lists — must eventually be accounted for on the salary cap.
As such, many teams are often over the cap during the offseason and until the new league year begins. Increasing salaries, prorated signing bonuses, and “dead money” — salary cap space devoted to players no longer on a team’s roster — can add up and force a club over the cap.
To get under the cap by the beginning of the new league year, teams often have to release some players, trade others, or rework contracts to lower the current season’s cap charges.
How Do NFL Contract Restructures Work?
There are multiple ways an NFL contract restructure can work. Again, some restructures can be performed by the team without needing permission from the player, but others require the player to sign a new contract to allow the change in terms to happen. Most of the time, a restructure does not see a player lose money, and it usually accelerates the timeframe in which the player receives their money.
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 a team restructures a contract to pay a $10 million lump sum in 2025, that would be prorated across the cap at $2 million a year from 2025 to 2029.
In order for that to be the case, a player must have at least five more years remaining on their deal. If a player has just two years remaining, including 2025, then it would count for $5 million against the cap in 2025 and $5 million in 2026. If a team wants to prorate it over anything longer than the remaining length of the contract, they can add void years to the end of the contract, but this requires the player to sign a new contract.
A void year is essentially a “dummy” year that is 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. So in the example above, if the cap number were $2 million a year across 2025 to 2029 and the contract voids in 2026, the team would have an $8 million cap hit in the 2026 season, even though the player no longer is on their roster.
When restructuring a contract, the only constraint for a team is that they must leave at least the minimum base salary for that player based on the number of accrued seasons. All other cash for that season can be transferred into the lump sum payment and treated as a signing bonus.
What Is Dead Money in NFL Contracts?
The term 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. This money could be paid in the form of a signing bonus, an option bonus, or a salary that was guaranteed at signing.
For example, let’s imagine a contract where a player signs for two years in a deal worth $20 million with a $10 million signing bonus and $5 million in guaranteed salary. In Year 1, their salary is just $1.5 million, with the remaining $8.5 million in Year 2.
That $10 million signing bonus prorates across the two years at $5 million per year. His cap numbers would be $6.5 million in Year 1 and $13.5 million in Year 2.
If the team decides after Year 1 that the player is not worth $13.5 million against their cap in Year 2, they could cut him. The team would then have the following in dead money; the remaining $5 million from the prorated signing bonus and the remaining $3.5 million in guaranteed salary.
The remaining $5 million in salary that was not guaranteed would “vanish” and would be both a cap and cash saving of $5 million, as it is money the team would not have to pay to that player.
However, because the team has already spent the $5 million signing bonus that was due to count against the cap in Year 2 and committed to spending another $3.5 million in salary, they will have $8.5 million dead money against their cap in Year 2.
What Happens to Unused Salary Cap?
NFL teams are allowed to roll over any unused cap space from one season to the next. Teams must tell the league they plan to roll over cap space by 4 p.m. ET on the day after their regular-season finale.
While the NFL has a salary cap, it also has a salary floor, so teams cannot hold onto money perpetually. Teams must spend at least 89% of the cap over a four-year period, while the NFL as a whole must spend at least 95% of the cap.
If a team fails to reach the 89% threshold, it will be forced to pay the difference to players who were on its roster during those four years. However, no NFL team has been penalized in this manner in recent memory.
Do Coaches Count Toward the Salary Cap?
Coaches, executives, and other staff members do not count against the NFL salary cap.
The NFL’s highest-paid head coaches are Kansas City Chiefs head coach Andy Reid ($20 million), Denver Broncos head coach Sean Payton ($18 million), Pittsburgh Steelers head coach Mike Tomlin ($16 million), Los Angeles Chargers head coach Jim Harbaugh ($16 million), and Los Angeles Rams head coach Sean McVay ($15 million).
However, that money is not factored into the salary cap equation.
When Did the NFL Adopt a Salary Cap?
The NFL’s creation of a salary cap came hand-in-hand with the start of the league’s free agency. For decades, NFL players were tied to their teams via a reserve clause, which limited their ability to change clubs.
When the NFLPA sued the league in 1989, the NFL responded with a “Plan B” free agency system. Teams could choose 37 players to retain on its roster, while the rest became free agents.
MORE: What Is the NFL Franchise Tag and How Does It Work?
Unhappy with that solution, the NFLPA sued again. The Plan B system was subsequently discarded in favor of unrestricted free agency, which remains in effect today.
In exchange, players agreed to a salary cap. Free agency began in 1993, while the salary cap took effect in 1994. The first NFL salary cap was just $34.6 million.
When Does the NFL Announce the Salary Cap?
In December, the NFL typically gives salary cap projections to the NFLPA and teams.
The league will then officially set the salary cap for the following season at some point before the new league year.
In 2023, the salary cap was announced at the end of January. In other years, the league has waited until early March to formally set the cap figure.
The NFL has yet to announce the 2025 salary cap, but the range of $277.5 million to $281.5 million was provided to all 32 teams in a memo from the league office.