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Mar 24, 2021

The window for NFL teams to use their franchise tags has officially expired, as of March 9. The NFL franchise tag provides players with a lucrative one-year salary, preventing them from reaching free agency while also serving as a valuable commodity for teams to strategically plan their rosters for the upcoming season. Moreover, it is a one-year contract that guarantees a pre-determined salary for players. This amount is set by taking the average top five salaries by position for the previous league year, or 120% of a player’s salary the previous season – whichever value is greater. Every team can only use one franchise or transition tag (see below) each year. The tag serves as an accelerant for renegotiations, while it also buys both the player’s and team’s time to continue negotiating a long-term contract by the mid-July deadline.

Franchise Tags

There are two types of franchise tags, exclusive and non-exclusive. A player who receives an exclusive tag is locked into his team and cannot negotiate with any other team during the free agency period. A player who receives a non-exclusive tag is allowed to negotiate with other teams, but if a competing team makes a free agent offer, the original team has the right to match it. If the original team chooses not to match the offer, they are awarded two first-round picks as compensation.

Transition Tag

This is similar to the non-exclusive tag, except the player gets paid an average of the top ten salaries at each position, rather than the top five. The players are free to negotiate with other teams, but unlike non-exclusive players, the original team gets no compensation if it fails to match an offer.

The NFL franchise tag does in fact count towards each team’s salary cap at the amount of the franchise or transition tag amount for the current year, and provides teams with the ability to extend the bargaining of a player’s long-term contract. As such, teams prefer not to use the tag as it ties up a huge chunk of their salary cap for just one year. By the same token, the players don’t always want to be tagged because there is no financial security beyond the one year; leaving them with no leverage other than the ability to hold out. If both sides fail to reach a long-term agreement before the July deadline, the player is secure for only the upcoming year.  

Franchise tag amounts vary by position, with a quarterback tag estimated to be $24.1M and a punter or kicker to be $4.8M. A transition tag is slightly less than the franchise tag due to the fact that it is the average of the top ten salaries at each position versus the top five. In addition, players can be tagged up to three times by the same team; however, in the case where a player is tagged in two consecutive seasons, the team must pay 120% of the player’s previous salary, and in the case of three consecutive seasons, 144% of the previous salary. Since these are the averages of the highest-paid salaries by position, these consecutive tags can have tremendous implications on a team’s salary cap.

The NFL announced that the salary cap for the 2021 season would be $182.5M, which is down $15.7M from the prior year cap of $198.2M. This is the first time the League has seen a reduction of the salary cap since its creation in 1994, as a result of the decrease in expected earnings due to the COVID-19 pandemic. Given that teams have historically signed long-term deals with the assumption of continued growth in the salary cap, many teams are faced with tough decisions in the upcoming year to meet the salary cap limitations.

Now more than ever, teams may not be as willing to sign consecutive tags due to the reduction of the salary cap for the 2021 season.

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Megan Doone

Megan Doone is an Audit Senior Manager serving both public and private companies including sports and entertainment, health care, real estate and technology and industries.

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