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2020 NFL free agency: Explaining the ‘30 percent rule’ and what it means for Tom Brady and the Patriots

Related: With Tom Brady rumors swirling, free agency has begun in New England

NFL: New England Patriots at Houston Texans Troy Taormina-USA TODAY Sports

The NFL is 15 days away from the start of free agency, and also the beginning of the 2020 league year. As things currently stand, and with the newly proposed collective bargaining agreement yet to be voted on by the players, the upcoming season is scheduled to be the final one covered by a labor deal. This can change quickly, as a simple majority vote ratifies a new CBA, but at the moment teams are operating under the “Final League Year” umbrella.

This, in turn, has major implications on all 32 franchises. They are allowed to use both a franchise and a transition tag this offseason (under normal circumstances teams can use just one) to keep impending free agents from the open market, for example, or will not be able to designate any released players as post-June 1 cuts to defer parts of a potential dead money salary cap hit into the next season. And then there’s the so-called “30 percent rule.”

Article 13, Section 7, Point A of the CBA that was signed in 2011 defines that rule as follows:

No NFL Player Contract extending into a season beyond the Final League Year may provide for an annual increase in Salary, excluding any amount attributable to a signing bonus [...], of more than 30% of the Salary provided for in the Final League Year, per year, either in the season after the Final League Year or in any subsequent season covered by the Player Contract.

What does this mean, exactly? Let’s say a player signs a contract this offseason that pays him a salary of $10 million in 2020. If no new CBA gets ratified, that deal must operate under the “Final League Year” and the “30 percent” rules. As a result, the salaries in the subsequent years of the deal cannot rise more than 30 percent on an annual basis. Our hypothetical player would therefore receive a maximum salary of $13 million in 2021, $16 million in 2022, and so on.

This is rather important because it eliminates a team’s ability to back-load contracts with the goal of creating short-term salary cap relief. There is a way around this as noted in the excerpt above — use a signing bonus to circumvent the rule and keep a players’ compensation low in year one — but it is not popular with clubs, for one simple reason: signing bonuses are fully guaranteed and prorated equally over the length of a contract, thus further limiting flexibility when it comes to financial team building.

So, what does this all mean for the New England Patriots and their biggest free agent in particular?

Quarterback Tom Brady is only a little more than two weeks away from hitting the open market for the first time in his legendary career, and both the “30 percent rule” and the timing of a potential contract extension are important in his case. The latter is pretty straight forward, though, as Brady’s remaining signing bonus proration would either hit the Patriots’ books in its entirety in 2020 or not depending on if he signs a new contract pre or post March 18.

His current deal, after all, actually runs for two more seasons that will void on the first day of the 2020 league year. If the void is triggered by Brady not having signed a new contract at that point, $13.5 million would hit New England’s cap and therefore drastically change the team’s flexibility in free agency. In case Brady does re-sign with the team before March 18, however, the proration remains split out over the two dummy years previously added to his deal: $6.75 million would hit the cap in 2020, $6.75 million in 2021.

The “30 percent rule” is a bit more nuanced, on the other hand, because it impacts not just the potential structure of a Brady deal in relation to his compensation but also other players on the roster. How? It essentially eliminates one of New England’s favorite ways to create short-term salary cap space: converting salaries into signing bonuses. While signing bonuses are not covered by the rule, as noted above, such a conversion would still not be possible because of the salary aspect.

This was illustrated last month by salary cap guru Miguel Benzan in response to an erroneous report in one of the region’s biggest newspapers that a salary-to-signing bonus conversion of cornerback Stephon Gilmore’s deal could give the Patriots more cap space in 2020:

As we have learned by now, (non-signing bonus) compensation increases between 2020 and 2021 of more than 30 percent are prohibited under the current CBA’s “Final League Year” stipulations. This means that New England cannot just go around and convert salaries into bonuses in order to create resources with which to re-sign Brady — the team would have to find more creative ways to generate cap space without violating the rules in place.

How could those ways look like? Jason Fitzgerald of Over The Cap offered an example in a recent article breaking down how the “Final League Year” and its rules impact the financial side of football:

There are creative ways around this by using escalators, incentives, option bonuses, and other mechanisms so it just requires more time for team and agents (or self represented players) to finalize a deal. But we have already seen this going on in 2018 and 2019 and it led to a whole bunch of confusion in particular when Carson Wentz, who signed a deal in excess of $30M a year, had a contract that averaged millions less on paper to comply with the 30% rule but had a million and one ways to unlock the full contract value through escalators and incentives that had a 99.99999999999% chance of being earned.

As for other players and a quest to generate more cap space in 2020 — New England is currently projected to be under the cap by $29.07 million, according to Miguel’s calculations — the Patriots might have to find ways to get them to agree to somewhat funky-looking contracts in order to comply with the rules. This is not impossible, but the current framework makes everything a bit more difficult from the team’s perspective while limiting the ways in which more space can be cleared under the books.

Of course, all this could become irrelevant quickly if a new CBA gets voted on by the players within the next two weeks. If the labor deal extends beyond 2020, the “Final League Year” would cease to exist (for now) and allow the Patriots to go back to their usual approach to business. Until then, however, the “30 percent rule” works like the proverbial Sword of Damocles hanging over New England’s head.