With the uncapped year looming in 2010, many rookies and their agents may be wondering what effect it will have on their contract negotiations this summer.

“Outside the first two rounds, the uncapped year should not affect rookie contracts this year,” said NFLPA Director of Salary Cap & Agent Administration Mark Levin. “First and second-round rookies will have to navigate their way around more restrictive rules this year regarding incentives, roster bonuses and salary guarantees in the uncapped years. Rookies drafted in rounds three through seven will continue to sign three or four-year minimum salary contracts with a market signing bonus.”

All 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 annually is about 2 percent of total league-wide revenues.

Each NFL Draft slot is assigned a portion of the Rookie Pool, with the first pick in the first round receiving the highest amount, and the last pick in the draft being assigned the lowest 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,” Levin said. “For example, a club drafting first in each round will have a considerably higher pool allocation than the club drafting last in each round.”

Each club must then 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 that rookie’s contract. For instance, a club signing a third-round pick to a four-year contract with a base salary of $310,000 in 2009 and signing bonus of $800,000 would have $510,000 deducted from its Rookie Pool ($310,000 salary plus the $200,000 signing bonus proration).

Rookie contracts are negotiated under many rules spelled out in the Collective Bargaining Agreement (CBA). The most basic is the “25 percent rule,” which states that a rookie’s salary may not increase annually by more than 25 percent of the first-year salary (not including signing bonus amounts). So 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 rookies receive is the length of the contract. The CBA sets the maximum number of years for a rookie contract. Rookies drafted among the first 16 picks of the first round may sign up to a six-year contract, and those in the bottom half of the first round may sign for a maximum of five years. All other drafted players may sign for a maximum of four years. Limits on length of contract affect compensation as signing bonuses, option bonuses and other types of guarantees that typically increase along with the length of contract.

Other forms of compensation rookies frequently negotiate are performance incentives and base salary escalators. 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 or escalator is LTBE, it counts against the cap, and conversely, if an incentive or escalator is NLTBE it does not count against the cap.
 
“Rookie contracts often are very easy to negotiate,” Levin said, “but it is imperative that a rookie maximize the value of his initial contract, because few get to take that ‘bite of the apple’ in free agency down the road.”