Value of Signing Bonuses

In the NFL, there is no such thing as a guaranteed contract. The NFL is the most important league to look at when delving into the signing bonus arena. The strong likelihood of player injury coupled with a hard salary cap on teams provide an atmosphere where owners refuse to sign no-cut contracts (thus, the amount of years on a contract is never guaranteed). Within a contract, however, there may be guaranteed money to your client. The largest sum of guaranteed money usually comes in the form of a signing bonus. Currently, the average signing bonus is $679,934 in the NFL. Salary bonuses also take up a large portion of a player’s contract, up from 20% of the average contract in 1993 to about $1 for every $2 that players earn today [NFLPA: Guaranteed Contracts].

Interesting Fact: The majority of NFL players receiving a signing bonus of $2-million and higher have been in the league for 6+ seasons (rookies are not getting the largest signing bonuses for the most part).

As previously discussed, signing bonuses are divided by the amount of years of the contract and counted toward the team’s salary cap equally among each year served for the team. Salary bonuses not only allow a client the safety of guaranteed money, but also provide a strong dis-incentive for teams to release a player with a large signing bonus before that player’s contract has expired. The reasoning is that if a player is cut with 3 years left on his contract and $2 million of signing bonuses to be paid each year, that team will be caught with $6 million of dead money against its salary cap for the year that such player was cut.

The USA Today provides an excellent database to see the amount of money that NFL players are receiving in base salary and signing bonuses [USA TODAY Salaries Database]. It provides salaries for MLB, NBA, and NHL as well, but does not break down the individual player contracts so that signing bonuses are separate from the overall contracts.

In baseball, generally half of the signing bonus is paid immediately when the initial contract is signed, and the rest of the bonus is granted the next year [Evolution Of The Bonus Record]. To observe the breakdown of baseball contracts, take a visit to Cot’s Baseball Contracts. In baseball, signing bonuses will differ greatly depending on the round you are drafted in and whether you entered the draft as a highschool student, college junior, or college senior.

The NBA’s Collective Bargaining Agreement defines signing bonuses as: any amount provided for in a Player Contract that is earned upon the signing of such Contract (allocated over the number of Salary Cap Years); any Option Buy-out Amount; at the time of a trade of a Player Contract, any amount that, under the terms of the Contract, is earned in the form of a bonus upon the trade of the Contract; and payments in excess of $500,000 with respect to foreign players.

In the NHL, players that are labeled “Entry-Level” (between 18-21yrs old for their first 3 seasons, between 22-23yrs old for first 2 seasons, 24+yrs old for one season) cannot receive more than 10% of their salary as a signing bonus [Understanding the NHL Salary Cap]. Entry-level players can only receive a maximum of $850,000 total salary per year. That means that such a player will never receive $100,000+ in signing bonus money under the current CBA.

As with any salary cap/contract discussion, an issue is never truly diagnosed to its fullest extent. If you have anything to add to this discussion, please do so in the comments area.

[tags]mlb, nba, nfl, nhl, hockey, baseball, basketball, football, signing bonus, cba, collective bargaining, salary, salary cap[/tags]