LA Rams News: Restructuring Goff and Havenstein to pay FAs

LA Rams News: Rams announced officially signing two free-agent signings, and found cap space by restructuring contracts.

The LA Rams made their two free-agent signings official, as the team proudly welcomed defensive tackle A’Shawn Robinson (again) and outside linebacker Leonard Floyd on April 24, 2020. While this is new-old-news, the fact that the Rams officially announced the signings indicate that the team must be tapping into their reserve funds.  In short, the signing of free agents means that the Rams had finally found and freed up the necessary funds to do so.

As two new players are officially on the roster now, and the dust from the 2020 NFL Draft and the chaotic undrafted free agent signing period is finally settling, we have a chance to double back and explore the strategy used by the Rams in this instance. Of course, the Rams announcement of the two official signings of both Floyd and Robinson started the chain of financial feats, so let’s begin there as well.

So how will the team pay for the signings? As expected, the team restructured the biggest contract out there, that of QB Jared Goff.  Paying for the Rams 2020 free agents has been a problem for weeks, as the team had simply committed too many dollars to players who regressed in 2019.

Restructure, as we believed all along

That meant the team needed to free up salary-cap space immediately upon entering 2020, but the team failed to make that a priority. Instead, the team committed to free agents with contract spending that was based upon the NFL’s version of an I.O.U. until the team could sort out the finances. Unfortunately, other NFL teams smelled blood in the water and likely lowballed the team on any potential trades intended to relieve the salary cap situation.

The Rams did end up cutting running back Todd Gurley and trading away WR Brandin Cooks, with both moves clearing 2021 salary cap space but creating huge hits to the 2020 salary cap situation. That meant the team had painted itself into a corner, a corner that only QB Goff could fix for the team.

Of course, the Rams immediately went to work on the largest contract currently on the books, that of franchise quarterback Jared Goff.  While Goff’s contract provided the potential to make as much as $24 million available for 2020, the Rams’ small amount of details are still insufficient to give us enough information to report how much money was redirected from the 2020 salary cap and moved to future years.

Details of NFL cap make a difference

The mechanics of freeing up salary cap space is pretty diverse, and the available cap space is a very fluid number. Diverse in that NFL teams have a wide range of methods to reduce their salary cap exposure. Fluid in that many events and actions impact how much free salary cap money the NFL team has available, and some of those impact items are automatic and are beyond the team’s ability to control.

We know that Rams general manager Les Snead indicated that he was very reluctant to approach any contracts for restructuring because it complicated the Rams’ future salary-cap space.  But the actions of releasing RB Gurley and trading away WR Cooks added significant dollars back to the Rams cap space in 2021 and beyond.  So while the Rams did bite the bullet in 2020, the actions cleared up many questions for the future.

But per all reports, that did not free up enough cap space. The last piece to the puzzle was reported by Ian Rappaport on April 27, 2020, just three days after reports of the original official free agent announcement.

So there it is. The LA Rams needed to restructure the contracts of multiple veterans to create enough salary-cap space. While the actual details of those newly restructure contracts may take days or weeks to become available, the Rams should now have enough space to sign their drafted players and the two non-NFL kickers in quick fashion.

Revisiting restructure vs reworked vs. renegotiated

While restructuring contracts does free up 2020 salary cap space for the LA Rams, it does not reduce the team’s money owed to the player. In fact, in many cases, it actually helps the player as it converts optional payment into guaranteed amounts. We discussed various cap issues when discussing Brandon Cooks’ trade. Now we have new twists to consider, restructure vs. renegotiate vs. rework.

Let’s discuss how that works. Let’s make up some numbers for QB Jared Goff.  In our example, Goff is due $10 million salary this year, has 5 years remaining on his 8-year contract’s  $40 million signing bonus, plus has a $20 million roster bonus due this year. His current salary cap is $35 million.  If the Rams cut him, they save his roster bonus and salary but must recognize all his remaining signing bonus. In this story, that means that the Rams save just $10 million.

But if the team restructures the contract, converting the $20 million roster bonus into a signing bonus, the team pushes $16 million of that salary into equal parts into the future. So restructure simply takes what is in the contract and reclassifies one bonus into another.

Reworking and renegotiating the contract can mean the same thing to some, but to me and my experience in finance, reworking the contract retains the value of the contract but resets the categories. In essence, a reworked contract in the above story will take the $10 million salary and the $20 million roster bonus, and reclassify them as signing bonus as well. That saves the Rams $24 million but pushing all those dollars into the future in equal parts.

Renegotiating a contract is where everyone sits back down to the bargaining table and a new contract is written up from scratch, replacing the previous agreement entirely. While any unrecognized money from the previous contract will fall on the current year, the dollar values can now change. In short, the salary can be changed to $2 million and the roster bonus can be shaved to $4 million, also saving the team $24 million while not pushing any salary cap dollars into future years.

In the end, the Rams found their money. But the team may want to sign new free agents to round out the current roster. To do so, the team will need to make additional salary changes.