I don’t pretend to be an NFL salary cap expert, but when I was working in the league I knew enough to be dangerous. As a scouting director, I made it a point to know about compensatory picks because it obviously it had an effect on our draft each year.
Every year when NFL free agency begins, we start to see many social media posts and even articles about compensatory picks, and most of what you see on twitter or in print is totally false. Why? Because few outside the have have any idea how compensatory picks are tabulated. How do I know that? Because the people in the league who negotiate contracts for a living don’t know the exact formula. They can guess based on history and years of experience, but even then they aren’t totally correct. For the fan, the people at overthecap.com do a wonderful job trying to explain how compensatory picks are formulated. This can be a very complex subject, but for the purposes of this discussion I'll keep it simple and to the basics.
Since the salary cap came into existence, the NFL has never put into writing and sent to the 32 clubs the formula for awarding compensatory picks — and they never will. According to everyone I’ve talked to, it’s a “top secret” formula that has a way of changing a bit from year to year.
I have a number of friends working in the league — several of whom negotiate player contracts — and oversee the cap for their clubs. Over the past few days, I made it a point to talk or text two of them and a third person who is a retired front office executive and is one of the foremost authorities on the cap. I did this not only to refresh my memory but also to make sure that I was correct when I make a statement about contracts and compensatory picks.
There are many people who believe that if their team loses a player in free agency to a huge contract, their club will automatically receive a third-round pick as compensation. That just isn't the case. Comp picks are not calculated on single contracts but rather the sum of losses versus the sum of gains. A club could lose a single player to a huge contract but sign two other players to lesser contracts. The players signed and the value of those contracts have an effect on the net result, and thus that potential third-round pick is no longer there.
There are several other components to the formula, as the contract is not the only thing that plays into compensatory picks. Besides the contract, how the player performs, total play time, injuries and player honors are figured into the equation.
For example, if Player A signs a four-year, $35M deal, gets hurt in training camp and has to sit out the season, the team that lost the player is out of luck when it comes to receiving a high compensation pick. Why? Because the player didn’t play. Also, if he plays but plays poorly, the compensation isn’t as high. On the other hand, if he plays to the level of his contract and gets voted All Pro, it can help increase the compensation. That can also work for a player who leaves in free agency and signs a rather modest contract, outplaying the deal and receiving league honors. That helps to increase the overall compensation due.
There is a reason that compensatory picks aren’t awarded to teams until February. The league needs to see how the player performs for his new team. If that wasn’t the case, the league could award picks as soon as free agency is over.
Certain teams, like New England, keep getting a high number of compensatory picks because they always lose more than they sign. Often, the players they lose sign lucrative contracts, and the players add get shorter-term deals for far less money. The Patriots stay on the positive side of the equation because Bill Belichick seldom tries to hold onto players for that second huge contract. In most cases, a player has to be special for Belichick to keep him, unless he can re-sign the player for a moderate sum. Belichick is not about to overpay for a player. He would rather get rid of him a year too early than too late.
In the 2018 free agent period there were several high-priced contracts awaded, but there were only seven third-rounder allotted when compensatory picks were announced. The way some people talk during free agency, the number should be 20. That just isn’t the case — calculating compensatory picks is much more complex than many believe.