Rookie Contract Rules Dissected
By The NFLPA

Rookies negotiate their contracts under a “cap within a cap” referred to as the Rookie Pool. The league-wide amount of cap dollars available to rookies under the Rookie Pool in 2008 is just over $140 million, which is about 2 percent of total league-wide revenues. Each draft slot is assigned a portion of the $140 million, with the first pick in the first round receiving the highest amount.

“Each Club’s allocation of the Rookie Pool is different because it is based on the number of draft picks a club has and where those picks fall,” said NFLPA Director of Salary Cap & Agent Administration Mark Levin. “For example, a club drafting first in each round of the draft will have a considerably higher pool allocation than the club drafting last in each round.”

Each club must sign all its rookies to contracts so that their first-year compensation fits within the club’s allocation. A club’s available pool allocation is then reduced with each rookie player signed by the amount of the first-year cap dollars in his contract.

For example, a club signing a third-round pick to a four-year contract with a base salary of $295,000 in 2009 and a signing bonus of $800,000 would have $495,000 deducted from its Rookie Pool ($295,000 salary plus the $200,000 signing bonus for one year).

Rookie contracts are negotiated under many rules spelled out in the Collective Bargaining Agreement (CBA). The most basic is the “25 percent rule.” A rookie’s salary may not increase annually by more than 25 percent of the first-year salary, not including signing bonus amounts. For instance, if a rookie has a $500,000 first-year base salary, the most he may negotiate for the second year is $625,000, and the most in year three is $750,000 (25 percent of the first year added to each subsequent year).

Another factor that affects the compensation a rookie may receive is the length of thecontract. The 2006 CBA extension limits the maximum number of years for rookies drafted among the first 16 picks of the first round to six years, while those in the bottom half of the first round may sign for a maximum of five years. All other drafted players may sign a maximum of four years. Restrictions on length of contract affect compensation since signing bonuses, option bonuses and other types of guarantees typically increase along with the length of contract.

Rookies also frequently negotiate performance incentives and base salary escalators as part of their contracts. Incentives and escalators are governed by the likely-to-be-earned (LTBE) and not-likely-to-be-earned (NLTBE) rules in the CBA. Basically, if an incentive is LTBE it counts against the cap and conversely, if an incentive is NLTBE it does not count against the cap immediately. The CBA lists by position official individual performance levels that a rookie must achieve in order for an incentive not to count against the Rookie Pool and overall salary cap. For example, the CBA states a third-round running back must rush for more than 701 yards in a season for the incentive to be NLTBE.

Base salary escalators must also be triggered by individual and/or team performance levels that have been deemed to be NLTBE under the CBA. A maximum of three team categories may be used to trigger escalators or incentives, and they must be coupled with minimum levels of playtime.

“Rookie contracts often are very easy to negotiate,and it’s only the first few rounds that may get a little tricky,” Levin said. “Either way, it is imperative that a rookie maximize the value of this initial contract because few get to take that big bite of the apple in free agency four years down the road.”