A lot of people, including many in the media, have a misunderstanding of how the salary cap and rookie pools are intertwined, beyond the misnomer of "a cap within a cap." This post is an attempt to explain exactly how the rookie pool works and how it relates to the cap.
First, a couple of definitions:
Rule of 51: This is the commonly used name for the rule explained in Article XXIV, Section 7, subsection (a)(i) of the Collective Bargaining Agreement. The rule states, "between March 1 and the first day of the regular playing season, only the following amounts from Paragraph 5 shall be included for players whose Player Contracts are not among the Team’s 51 highest valued Player Contracts, tenders and Offer Sheets (as determined under this Section 7): (1) Any amount that exceeds the Minimum Active/Inactive List Salary for Undrafted Rookie Free Agents; and (2) Any amount that exceeds twice the applicable Minimum Active/Inactive List Salary for all other players."
In simple terms, it means that during the offseason, for any player whose cap number is not among his team's 51 highest cap numbers, his base salary ("Paragraph 5" salary) does not count against the cap. The two exceptions listed above ("any amount that exceeds ...") are not known to have ever come into play, because teams traditionally give undrafted rookies minimum base salaries, and it would be extremely unlikely for a team to have a player outside its Top 51 with a base salary more than twice his applicable minimum.
As an example of how the Rule of 51 works, consider a team whose 51st-highest cap number for current players (contracts, tenders or offer sheets) is $400,000. The team's next-highest cap number is $397,280, which is for a second-year player with a base salary of $385,000, a signing bonus proration of $5,000 and a standard workout bonus of $7,280. Because this player is outside the hypothetical team's Top 51, his minimum base salary does not count against the cap, but the other $12,280 does. The same thing would apply to the rest of the team's players outside its Top 51: their minimum base salaries would not count against the cap, but everything else would. (All "dead money" also counts against the cap.)
Rookie pool: On a league-wide basis, the rookie pool (described in Article XVII of the CBA) is the total amount of money that can be spent on rookies, except that the minimum base salaries for undrafted rookies do not count toward the rookie pool. Each team's rookie pool is its portion of the league-wide total and is determined by the number, round and position of the draft choices it uses.
Basically, the entire first-year cap numbers for all of a team's draft choices must fit into its rookie pool, along with any first-year cap charges for undrafted rookies other than their minimum base salaries.
After the draft, teams are told the amount of their rookie pool, but they never are told the rookie pool value for each draft pick. However, astute teams — presumably all of them — could estimate with reasonable precision the specific rookie pool value of each pick prior to the draft. When teams sign a drafted player, his first-year cap number does not have to be equal, or even close to, the rookie pool value of the pick used to select him, as long as the team's combined rookie pool charges for all of its rookies don't exceed its limit.
How it all works
Saying that the rookie pool is "a cap within a cap" is a bit of a misnomer because the rookie pool actually is a separate accounting from the salary cap, although rookies count toward both limits. The calculations are different, though, so the amount a rookie counts against the rookie pool isn't necessarily the same as the amount he counts against the salary cap.
When a player is drafted, he automatically is tendered a one-year contract for the rookie minimum base salary (for 2009, that is $310,000). This amount immediately is applied to the team's rookie pool and salary cap. Because most teams have at least 51 players with cap numbers higher than the rookie minimum salary before the draft, the automatic tenders for drafted players won't affect those teams' cap at all. It sometimes is mistakenly reported that teams must have cap room in order to use their draft choices, but that applies only to teams that have fewer than 51 players signed or tendered at the time of the draft. And even then, it applies only to the number of draft choices a team uses until it has 51 players signed or tendered. So, for example, if a team had 49 players signed or tendered before the draft, it would need only $620,000 of cap room in order to make all of its selections. After the first two draftees are automatically tendered, the team would have 51 players signed or tendered, and the rest of the team's draftees would fall outside its 51 highest cap numbers and would not affect its cap.
When a drafted player signs his contract, the team is charged against its salary cap according to the Rule of 51, and it is charged against its rookie pool according to the rules in Article XVII.
Let's consider a seventh-round draft pick who signs a four-year contract with minimum base salaries and a $44,000 signing bonus and who was selected by a team with its 51st-highest cap number being $400,000 (for a second-year player with a $385,000 base salary). His first-year cap number would be $321,000, consisting of his $310,000 base salary and his $11,000 bonus proration. Because he was drafted, the entire $321,000 would count against his team's rookie pool, replacing his automatic tender. But because he is below his team's top 51 cap numbers, only his $11,000 bonus proration counts against the salary cap during the offseason.
Now consider a third-round draft pick for the same team. He signs a four-year contract with minimum base salaries and a signing bonus of $700,000. His first-year cap number would be $485,000, consisting of his $310,000 base salary and his $175,000 bonus proration. All $485,000 would count against his team's rookie pool and against his team's salary cap. However, by assuming his place in the team's top 51 cap numbers, he knocks the player with a $400,000 cap number ($385,000 base salary) out of the team's top 51. For that player, his base salary no longer counts against the cap, leaving only the other $15,000 counting against the cap. The net result is that the team's cap room is reduced by only $100,000 — the draftee's $485,000 is charged against the cap, but the second-year player's $385,000 base salary no longer is.
As you can see, as long as his team already has at least 51 players signed or tendered — as all 32 teams did by April 15 — a draftee's effect on his team's salary cap is far less than his rookie pool charge. Most people forget this when they consider how much cap room must be "set aside" for rookies. You'll often see people say that, for example, if a team has $5 million of cap room and a rookie pool of $4 million, it has only $1 million available to spend on other players. Of course, if the team already has close to or more than 51 players signed or tendered, that's wrong, because that team's rookies will reduce its salary cap by far less than $4 million, as shown above.
As long as a team has at least 51 players already signed or tendered, it is impossible for its entire rookie class to reduce its cap room by more than its rookie pool minus the amount equal to the minimum rookie salary times the number of draftees signed. For example, if a team with a rookie pool of $5.1 million already has at least 51 players signed or tendered, then signs all 10 of its draftees and any number of undrafted rookies, it is impossible for the team's entire rookie class to reduce its cap room by more than $2 million. That's because the $310,000 base salary of every undrafted rookie and every draftee who doesn't make the team's top 51 won't count against the cap, and every draftee who does make the top 51 will knock another player's base salary of at least $310,000 out of the top 51.
To determine the maximum amount that a team's entire rookie class could reduce its cap room, it is necessary to know how many players it has signed or tendered, how many of its draftees are likely to have first-year cap numbers that qualify for its top 51 and the cap numbers and base salaries for as many players at the bottom of its top 51 as it has draftees who will qualify for the top 51.
If all of that is not known, a reasonable estimate for most teams this season can be made by starting with the team's rookie pool, then subtracting $385,000 for each draft pick in the first four rounds and $310,000 for each draft pick in the fifth, sixth or seventh rounds. For example, a team with a rookie pool of $4 million and one draft pick in each round will use approximately $1.53 million of cap room to sign all of its rookies ($4 million, minus the $1.54 million for the four players displaced in the team's top 51, minus $930,000 for the three late-round draftees whose base salaries won't count against the cap). Using this method might not be precise for every team, but it will give you a pretty good estimate.