LA Rams Salary cap: Setting stage for 2021

The LA Rams, like 30 other NFL teams, have begun the reviews of the 2020 NFL season and the planning for the 2021 NFL season.  It’s a new calendar year, and that means that it’s time once more to break out my adding machine and sacrifice my own peace of mind for the common good. Yes, that’s right. It’s time for me to take the painful plunge into the icy cold waters of the NFL Salary Cap.

Listen, I’d love to jump into the fun stuff like signing NFL Free Agents, drafting new rookie prospects in the 2021 NFL Draft, and even signing up undrafted free agents. But the NFL, like any financially run organization, depends upon the flow of money.  So each year it’s a wise idea to start from the basic fundamentals.

The Rams are trying to pack everything they believe that they will need into a box. Each team gets the same size box. Each season, NFL teams get a new box. In most years the box is bigger. But due to the coronavirus pandemic, the 2021 NFL Salary Cap box is much smaller than originally thought.

At one point, estimates for the 2021 NFL Salary jumped to well over $200 million at one point. But as soon as the assessment of NFL revenues for the 2020 season dropped significantly, the NFL and NFLPA created an artificial floor of $175 million to ensure that the 2021 season would not begin by releasing players in record numbers.

Now, there is hope that a new 2021 salary cap will be higher than the original floor.

We had covered some salary cap fundamentals in 2020, and it’s probably a good time to review those basic principles.

Established in 1994

The salary cap was established in 1994 as a way of leveling out the playing field. Since the NFL (like most professional sports teams) have teams in cities of various populations.  To remain competitive, the league abandoned the old economic models of individual teams and adopted a business model of negotiation with television networks for packages of football games.

The NFL separately packaged nationally televised NFC games, AFC games, and Monday Night Football games. Thanks to a higher contract than expected with Fox Sports, the first NFL salary cap in 1994 was $34.6 million per team.

And so it has become one of the most talked-about and least understood elements of the modern-day NFL. The salary cap is the reason NFL teams justify being unable to re-sign their outgoing players. It is the reason teams cut players, or restructure contracts, or even renegotiate player contracts.

Some argue that the NFL salary cap does not exist. It does exist, but it’s similar to grocery shopping. Some families will spend a fixed amount for groceries each month, regardless of the income. Some families spend a fixed percentage of their income on groceries. And still, other families will buy groceries with credit cards, knowing that the bill will need to be paid in the future. For NFL teams, they have linked the salary cap directly to the previous year’s league revenue. So as revenues go up or down, so too does the next season’s salary cap.

17 games and a new CBA

Each year, the NFL looks at the previous year’s revenue and sets a new salary cap for the current year. The salary cap is predetermined by the NFL-NFLPA contract and with the new agreement, sets the salary cap at 47% of the annual NFL revenues in 2020.  The normal trend was fairly positive, with each new year showing a healthy increase from the previous year’s ceiling.

For 2021, the salary cap is set at 48 percent of the annual revenue of the NFL and can increase to 48.5 percent if the league adopts a 17-game season.  Of course, all of this was established just before the coronavirus pandemic obliterated the 2020 revenue stream. Here is where we must recall what we said about the salary cap.  This year’s cap is based upon last year’s revenue. But with 2020 revenues down dramatically, what of the salary cap?

Well, the NFL-NFLPA met to avoid a precipitous drop and agreed to set a minimum salary cap of $175 million for the 2021 season. Now with a floor, teams could preplan to set up their 2021 salary expense with some assurances that they can pay their players.

Anticipating some challenges in 2021, the LA Rams bit the bullet in 2020 to relieve salary cap pressures on the team for 2021 and were extremely wise to do so.  It paved the way for the Rams to commit to trading Jared Goff this year, as the team has taken on very similar dead cap amounts over the past two seasons.

Even still, previously signed contracts are still in effect. So the LA Rams’ total salary cap expense for 2021 is currently estimated at over $210 million, while current estimates set the cap ceiling at or about $185 million.  So how can the LA Rams create cap space? And once under the cap, how can the Rams structure new contracts to stay there?  Those are the next salary cap articles.