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Peyton Predicament: Part 3

Cap and cash ramifications of expected release Andrew Brandt

Print This February 09, 2012, 06:01 AM EST

First, here are Peyton Predicament Part 1 and Part 2.

As the Winter of Peyton continues with an expected divorce from the Colts (irreconcilable differences?), I have received scores of questions about the financial ramifications of such a move to the Colts.  I will try to answer these both from a cash perspective and by pulling down the curtain on the closely guarded mechanics of the Salary Cap.  Stay with me here…

Cash

As discussed previously, releasing Manning represents a significant and dramatic cash savings to the Colts.  Were the option exercised, the team would be required to pay Manning a $28 million option payment plus a $7.4 million salary, for a total of $35.4 million in 2012.  That, combined with the $26.4 million he received in 2011, would mean a combined $61.8 million over two seasons.

Salaries of $8.4, $9.4 and $10.4 million in 2013, 2014, and 2015 follow this year’s salary, although none of these amounts are guaranteed. 

Were Manning to be terminated – his contract, not him – all of these numbers would be deleted from the Colts' ledgers. 

ICONManning and Luck together would cost almost $51 million in 2012.

Thus, on a cash basis, the Colts would save $35.4 million in 2012 and $63.6 million over the next four years.  And, as the Colts plan for the future, approximately $15 million of the 2012 savings and $23 million of the four-year savings will be allocated to the presumed top pick in the Draft, Andrew Luck.

Again, if somehow, contrary to all indications, the Colts exercise the option on Manning and draft Luck, the combined cash to the two players – who play the same position – would be close to $51 million paid in 2012.  Paying $51 million for two players at the same position, only one of which will play, is untenable.

Cap

The Cap consequences to a Manning release are a bit more complicated. 

One of the main features of Manning’s contract when it was negotiated in July was a $20 million signing bonus at its inception.  As per the NFL Salary Cap – unchanged in the new CBA – signing bonuses are prorated over the length of the contract.  Thus, the Cap charge for Manning’s signing bonus – before adding any salary -- is $4 million per year every year from 2011-2015. 

Remaining signing bonus proration accelerates upon release of a player.  Thus, were Manning released, the entire remaining unamortized bonus -- $16 million -- would accelerate into the 2012 Cap.  This charge is commonly referred to as "dead money”: amounts on a team’s Cap for players no longer on the roster. 

During my nine years in Green Bay, I was always conscious of was making sure that when our Peyton Manning -- Brett Favre -- either retired or was traded (releasing him was never a thought), the Cap acceleration of his contract would not cripple the team.  There are graveyards of dead money charges above $10 million upon the retirements/releases/trades of players such as John Elway, Steve Young, Troy Aikman, Jeff Garcia, Mark Brunell, Steve McNair, etc. Favre's "dead money" charge to the Packers’ Cap upon being traded to the Jets was $600,000 (and yes, shameless tooting of my own horn!)

The Option Treatment

The Cap treatment of the option bonus, due to its timing, is rather unique.  Since it is due and payable within the 2011 League Year -- the March 8th deadline precedes the March 13th 2012 League Year opening -- the option amount is prorated into 2011 as well as future years of the contract.  Thus, $5.6 million1/5th of the $28 million option bonus – was allocated as a Cap charge in every year of the original contract.

In the event Manning is released, the Cap charges for the option will come off the books, meaning the $5.6 million charge for 2012 will be deleted and the $5.6 million option proration amount in 2011 will then become a credit to the 2012 Cap, reducing the Colts' Cap charge on Manning by that amount.

Manning's Cap charge, if somehow the Colts exercise the option and keep him, is the following: $4 million (the amount of prorated signing bonus) PLUS $5.6 million (the amount of prorated option bonus) PLUS $7.4 million (the amount of salary) EQUALS $17 million.

So what is Manning’s 2012 Cap charge to the Colts if released?

$16 million (the amount of accelerated bonus proration) MINUS $5.6 million (the amount of credited option bonus proration) EQUALS $10.4 million.

Thus, if the Colts move on from Manning, the consequences of the contract signed five months ago will be $26.4 million in cash and $10.4 million in leftover "dead money" Cap charges. 

Stay tuned. Test coming soon.

Follow me on Twitter at adbrandt

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