NFL Contracts Explained: Incentives and Salary Escalators

Incentives in veteran player contracts, unlike those rookie deals that are limited to playing time, can be earned through the accomplishment of individual and team goals (i.e. statistics, playing time, awards, etc.) specified in the contract (NFL CBA, p. 96-104). For a list of acceptable performance incentives see pages 98-101 in the CBA.

There are two types of incentives:

“Likely to be Earned” (LTBE) Incentives and “Not Likely to be Earned” (NLTBE) Incentives

Incentives are designated LTBE or NLTBE by a player or team’s previous year performance. If a defensive end has an incentive for getting ten sacks in a season and he had ten sacks the season before, the incentive is considered LTBE and counts against the current year’s cap. If he recorded less than ten sacks, the incentive would have been NLTBE and is not charged against the current season’s salary cap.

If a player has LTBE incentives in his contract and he doesn’t achieve them, that money will be credited to the team’s salary cap in the next year. If an NLTBE incentive is earned, it counts against the following season’s cap. One exception to this is the NLTBE per game roster bonus, which is charged immediately against the current season’s cap.

The latter can be used to help compensate a player fairly while also keeping him under the cap. If a great free agent missed a significant amount of time in the previous season, the team can set low, easily achievable NLTBE incentives. This enables the player to get paid for his performance while providing cap relief in the current season.

A salary escalator is very similar to an incentive because it is also triggered through attaining performance goals. The difference lies in the form and chance of payment.

A triggered escalator translates into a raise in a future year(s) of the contract, and it is not necessarily guaranteed to be received. If a player earns a P5 salary escalator that is guaranteed for injury only and he is healthy at the time of his release, he will not receive the benefits of reaching the threshold.

An incentive is guaranteed to be received once it is earned, while an escalator, as mentioned, is not. A contract can also contain de-escalators that lower a player’s salary in a given year if performance measures aren’t met.

Example: Alex Smith/Jamaal Charles and Colin Kaepernick

During Week 17 of the 2013 season, two Kansas City Chiefs had significant money on the line.

Quarterback Alex Smith had two performance incentives for $500,000 each. One was for throwing for 3,500 yards and the other for throwing 25 touchdowns. Running back Jamaal Charles had a salary escalator for reaching 1,400 rushing yards that would have increased his 2014 salary by $300,000.

Smith needed just 187 yards and two touchdowns. Charles needed 113 yards to trigger the escalator.

Head Coach Andy Reid had different thoughts. He rested his stars to ensure his team’s health for the playoffs, and neither player reached his performance threshold. Fortunately for Smith and Charles, both players have received extensions since the game.

Kaepernick had a de-escalator that will cause him to lose $2 M annually unless he is either named a first- or second-team All-Pro or makes it to the Super Bowl in a season that he took 80% of the snaps during both the regular season and the playoffs. The de-escalator is far more complex than this, but this is a watered down version.

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