JJ Watt’s New Money

On March 24th at 3 PM CST, the $10 million roster bonus activates for the reigning NFL Defensive Player of the Year.  The bonus became guaranteed back on September 9th, 2014 as apart of the 6 year $100 million dollar contract extension Watt signed with the Houston Texans just prior to the start of the 2014 season.  This is the first time that I have seen the Texans use a Roster Bonus in this method in the past 5 years or so.  In the past the organization has only used Roster Bonus for a per active pay schedule.  I believe the Texans set the deal in this method for two reasons:  protection and cash spending.  Rick Smith commented that the team’s VP and football administration and cap expert, Chris Olsen, was a major architect of the contract structure.

I wanted to weigh in on the reasoning for using the roster bonus on Watt’s contract.  The one-time roster bonus offers the team protection should they need to open up cap space by turning the roster bonus into an option bonus; at which point the $10 million dollar charge can be spread out over the contract up to a maximum of 5 years.  If the team feels they can absorb the full $10 million increase charge towards the cap; then they will leave it as is.  The remaining years of Watt’s contract would be relatively inexpensive compared to Watt’s production.  The kicker here is the team needs to make that decision by the March 24th 3 PM activation period.  They cannot come back a month later and change it to an option bonus structure.  This gives the team some flexibility towards the cap; take the charge now to free up space in the future or spread out the cost to free up space now.  Please note that JJ Watt still receives his money in the same manner, regardless how the team treats the charge for the salary cap.

On January 29th, 2015 the NFLPA hosted their Annual Press Conference.  In that conference it was noted that 8 teams were under the 89% cash spending floor for the 2013-2016 spending period.  Cash spending is not to be confused with cap spending.  Of these 8 teams listed in the presentation, it was reported that the Houston Texans were one of those teams.  The Texans have taken on a large amount of “dead money” towards their salary cap in 2013 & 2014, which limits the amount of cash spending the team can utilize.  For the 2015 season Houston has moved up to 12th in cash spending (per Overthecap.com) and the $10 million roster bonus has aided in the team upping their cash spending.

I am happy to see the Texans exploring new contract structures and the JJ Watt contract was a perfect example of a great contract structure that provides the organization insurance, flexibility, and cash spending options.  I would only expect to see one or two mid to upper level contracts for the 2015 season.  However I expect to see some fireworks for the 2016 season based on the team’s cap situation.

 

Troy

Leave a Reply

Your email address will not be published.