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How do voidable year contracts work, and why has the NFL embraced them this year?

Carolina Panthers v Washington Football Team Photo by Will Newton/Getty Images

Voidable years have been talked about a lot with recent NFL free agent signings. Some fans have reacted as if teams are “cheating” by using them, but voidable year contracts have been around a long time, and they are even discussed in many provisions of the Collective Bargaining Agreement. They offer teams a method to help make it possible to sign veteran players to relatively high-dollar contracts in years when the team faces a (usually unexpected) tight salary cap situation.

Voidable year contracts come with caveats, but they also offer a powerful tool for teams trying to add talent to a roster. The team will eventually have to pay the piper, but structuring the contract can delay the inevitable cap hit, allowing a team to ‘squeeze’ a contract in that they might not have been able to manage otherwise. Because most NFL teams are run like well organized businesses and not like a teenager running wild with dad’s credit card, the large delayed cap hit can be planned for and managed effectively. It’s a basic part of what NFL teams do — Salary Management 101.

So, what are voidable years?

A voidable year is an ‘extra’ year on the length of the contract that the team and the player intend to void. In other words, it is a “dummy” year on the contract that the player will never play or get paid for, and it exists for the sole purpose of lowering the annual cap hit, especially in the first year of the contract.

As mentioned above, this type of contract is nothing new, though most teams use them sparingly, if at all.

When Chip Kelly cut “gang member” Desean Jackson in 2014

The Redskins used this method with Desean Jackson when he was unexpectedly available in the 2014 off season. The team had already spent most of its available cap space before Jackson became a free agent, but Dan Snyder and front office were keen to sign him if they could.

The Redskins wanted to give him a 3-year contract, but they were concerned about the impact of his rather hefty dollars on the 2014 cap.

They instead gave him a 4-year contract with a ‘voidable’ 4th year. The effect was to shift part of his salary cap hit from Year 1 & 2 to Year 3, allowing the Redskins to sign a high-impact free agent that they really wanted.

This same tool has been used extensively by NFL teams this off-season due to the unusual decrease in salary cap from the 2020 level of $198.2m to just $182.5m for the current 2021 season.

So, how can the voidable year be used?

It can be a bit technical and complex, but we’re not gonna go there. We’ll just keep it simple to start.

Example contract structure

Let’s say a team wants to sign a veteran free agent to a 3-year, $24m deal.

  • In my example, the team is going to give the player half the contract as a signing bonus — that is, $12m.
  • The remaining $12m in salary will be paid equally at $4m per season.

Here’s what the contract looks like:

The structure is simple, and you can see that the cap charge of $8m hits equally in every year of the 3-year contract.

But what if the team is tight on cap space this year and can’t really afford the $8m cap hit? Should the team simply pass on a player who could make the roster better?

Well, a voidable year contract might provide the solution to the team’s dilemma.

Adding a voidable year

To use the voidable year effectively, the team is going to write a contract for 4 years instead of 3, but the 4th year is really a “dummy” year — its only purpose is to shift cap hit from Year 1 to later in the contract. The player’s contract will actually still terminate after the 3rd year.

  • The team will pay the same $12m as salary over the first THREE years of the deal, knowing that the player will be paid this money.
  • They will add a non-guaranteed $4m in base salary to the ‘dummy’ 4th year, knowing that it will never be paid.
  • To make the contract more immediately cap-friendly, the base salary will start low in Year 1, and escalate.

The new contract structure looks like this:

You can see that the cap hit for this contract has been lowered from $8m in Year 1 under the standard contract, to $4m under the voidable contract structure, partly due to the lower base salary, and partly by spreading signing bonus money over 4 years instead of 3.

The team now has to plan carefully for Year 3, because at the end of the third year, the mechanism to void the 4th year will be triggered. When that happens, the $3m prorated signing bonus from Year 4 gets charged immediately to Year 3.

The final structure of the contract, when the 4th year is voided, will look like this:

The team is taking the same $24m cap hit that they would have taken with a standard contract, but $2m of the signing bonus cap hit has been shifted from Years 1 & 2 to Year 3, giving the team a couple of years to figure out how to create room for it. Additionally, the lower first year salary makes a big difference. Remember that this is a simplified example, designed to make the concept easy to follow. A genuine contract will look a little different, and we’ll look at one below.

Because of the ability for the team to roll over unused cap space, it’s possible for the team to simply carry forward the Year 1 cap savings until they need it in Year 3, but with the flexibility to spend the increased cap space if they need it in the meantime.

How has Washington used this tool in 2021?

This kind of “voidable year” cap structure was used in the contract with WR Curtis Samuel. Here is his contract structure, per OverTheCap:

This chart has a few extra columns for roster & workout bonuses, but the organization is very similar to the simple examples above.

  • As you can see, the team has added two voidable years instead of just one to multiply the effect and shift even more signing bonus to Year 3.
  • The team is taking the same $34.475m cap hit that they would have taken with a standard contract, but part of the signing bonus cap hit has been shifted from Year 1, 2 & 3 to the two voidable years — Year 4 & 5, when the team has cap space available. The larger 2023 cap hit will be in the cap space model going forward, and the team will plan all of its contract signings knowing that it is there.
  • In a standard 3-year contract, the $12m signing bonus would have been charged equally, at $4m per year. Instead, Washington will be charged just $2.4m per season (reducing the salary cap hit by $1.6m per year, or $3.2m in 2021-22).
  • When the contract voids, the remaining $7.2m of prorated bonus will all be charged to Year 3.
  • As in the simple example given in the article above, Curtis Samuel will take a lower base salary of $1m in 2021, shifting cap hits to 2022 & 2023.

The scheduled cap hits, then, are:

  • 2021 = $3.775m
  • 2022 = $12.9m
  • 2023 = $17.8m

The effective reduction in cap space in 2021 is, as you can see, very significant. This provides Washington with flexibility to sign other free agents this season if they need it. If they don’t use that cap space, it can simply be rolled forward to future years, and can help cover Samuel’s delayed cap hit in 2023.

Curtis Samuel does okay in this structure from a cash flow standpoint.

In 2021, he gets $13.4m in cash ($12m signing bonus + salary & roster bonus)

In 2022, he gets $10.5m in cash (salary + roster & workout bonuses)

In 2023, he gets $10.6m in cash (salary + roster & workout bonuses)

Washington has total flexibility to keep Samuel if he plays well, or cut him if he disappoints.

  • If they cut him after two seasons, the total cap hit will total $23.9m ($11.95m per year)
  • If he plays all three season, the total cap hit will be $34.475m ($11.49m per year)

The Redskins used this tool with Desean Jackson several years ago in unusual circumstances, and Washington, like many other NFL teams, is using voidable years again in 2021. This isn’t ‘cheating’ and it’s not a new way to write contracts; it’s just one tool available to the salary cap manager to allow him to do his job effectively in changing circumstances.

As long as the guy in charge of the salary cap (in Washington’s case, that’s Rob Rodgers) has basic spreadsheet skills, there’s no chance of the team being surprised or running out of cap space later because of this structure. As you can see, whether Samuel plays one, two or all three years of his contract, the dead money is a non-factor; he will get paid between $10.5m and $13.4m in cash each season, and the team will pay him an annual average of between $11.49m and $13.4m per season.

The short term cap ‘savings’ created by this structure can be used for immediate roster needs or rolled over from year to year. I often see fans suggesting that a team should “front load” contracts so that the cap space will be available later “just in case”. But cap space doesn’t disappear; it’s not a “use it or lose it” situation. Washington has never been reckless in its cap management, and the Curtis Samuel contract has been carefully constructed to meet the needs of both the player and the team.