Salary Cap Nuggets - No. 2: Joint Contribution Credit

This series is called Salary Cap Nuggets because ‘nuggets’ is such an interesting word in English. It calls to mind chicken nuggets - tasty, bite sized and easy to eat. But it also calls to mind gold nuggets - small, but valuable.

The salary cap is a product of the Collective Bargaining Agreement (CBA), which is a 301-page contract between the NFL Owners and the NFL Players Association. In these articles, I try to explore just one or two small parts of the NFL salary cap defined in the massive CBA. Hence, Salary Cap Nuggets - small, bite-sized, easy to digest, yet valuable information for NFL fans.

The goal is to, one bite at a time, get a clear understanding of the salary cap.

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Joint Contribution Credit

I saw a one-sentence reference to the Joint Contribution Credit in a news article that I read about two months ago, but didn’t understand what it was when I read it. I thought, from the wording of the article, that it was a one-off contribution that the NFLPA had agreed to.

In fact, the Joint Contribution Credit is a reference to a large chunk of money that the owners and players jointly contribute to a beneficial fund every year. I learned this by reading about it in Crunching Numbers.

It was a surprise to me that this contribution even existed, and it embarrassed me to learn about it because I had recently written an idea into an article suggesting that the player’s union initiate a program that has already been in place since 2012, and which is funded at a pretty significant level, and growing every year.

Here’s the explanation from Crunching Numbers, where the concept is introduced on page 17:

The initial joint contribution began in 2012 at $55 million. The total increases by 5% each year and is used to fund various programs outside of the game. In 2016, the joint contribution will be $66.852 million, at these percent increases. These benefits include payments set aside for healthcare of retired players, medical research, and donations to charities of the joint contribution....

Recap of the Joint Contribution Credit:

• This is money paid by both owner and current players.
• The money is used to fund healthcare of retired players, medical research and donation to charities.
• The total contribution from owners and players was around $66.8m in 2016, and the CBA calls for the amount to increase by 5% annually.

One question that might arise is the question of the ‘split’ between owners and players with regard to this contribution.

• It turns out that 47.5% of the total contribution is made by the players, while the owners contribute the remaining 52.5%.

The name “Joint Contribution Credit” might be a bit confusing; it doesn’t seem particularly descriptive of a ‘donation’ or ‘benefits’ fund. I mean, the ‘Joint Contribution’ part makes sense — both owners and players contribute — but why does it it have the word “Credit” there?

This comes from the mechanism by which the players make their contribution. The CBA uses a fairly elegant method.

Instead of teams paying players, then players contributing to the fund by some complex formula, the contribution by players comes in the form of a reduction in the salary cap.

In other words, the league-wide salary cap amount for the year is calculated, and then the players’ 47.5% share of the contribution is deducted from the salary cap before it is divided among the 32 teams.

This means that the contribution takes the form of money that the owners have agreed to pay to players as salary, but which is never paid because it is never included in teams’ unadjusted salary cap. Instead, the owners make the contribution to the fund on the players’ behalf, then ‘credit’ the players with having made the agreed contribution.

Let me use a very simple (ie. slightly unrealistic) example to illustrate how this works:

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Calculated salary cap for the NFL for one year: $6,400,000,000 ($200m per team)

Total Joint Contribution for that year: $77m

• Owners contribution ($77m x 52.5%) = $40.4m
• Players’ contribution ($77m x 47.5%) = $36.58m

Less: Players’ contribution credit = $36,580,000

Equals Uadjusted League-wide salary cap (6,400m - 36.58m) = $6,363,420,000 ($198.85m per team)

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The unadjusted salary cap, which is the money that the owners will pay to players, already has the player contribution deducted (and paid to the Joint Contribution Fund).

Editorializing

In the example above, the Joint Contribution would be equal to about 1.2% of the total players salaries for the year, with the players’ portion coming in at about 0.57%. These percentages aren’t accurate because my example was made up, not real, but the numbers aren’t far from reality.

In 2016, the unadjusted salary cap per team was $155.27m - so, $4,968.64m league-wide.

Based on my reading, the 2016 Joint Contribution Credit (owners & players together) was $66.85 m, so payment from players would have equaled $31.75m

A little reverse-engineering says that the starting point was (4,968.64 + 31.75) $5,000m. That means that $66.85m represents about 1.33%, and the player contribution would have been 0.63% in 2016.

My greatest criticism of this scheme would simply be that the players and owners should agree to put a much larger percentage into benefits for retired players at the cost of current players’ salaries (I’d suggest something on the order of 10% rather than 1% to achieve meaningful benefits levels).

In addition, the prescribed rate of 5% growth in the Joint Contribution Credit is less than the actual growth of the salary cap since 2011, so the contribution is actually falling slightly as a percentage of the salary cap every year. This is the opposite of what should be happening. In my opinion, the Joint Contribution Credit should be defined, not as a dollar amount, but as a percentage of the calculated league-wide revenue that defines the salary cap and that percentage should increase annually until it reaches a significant level.

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