I always hear this used especially during the off season when players are being signed to a new contract or cut. I still don't understand the significance and usage so what does "dead money" mean when referred to in the NFL?
It's a consequence of signing bonuses and the salary cap maths. Due to the non-guaranteed nature of contracts, NFL contracts are split into two parts: an annual salary, payable if the player is on the roster that year, and a "signing bonus" which is paid up front. For example, a 5 year, $15 million contract could be broken up as a $2 million annual salary and a $5 million signing bonus. For cap purposes, the signing bonus is prorated over the length of the contract, so that $15 million contract would have an annual cap charge of $3 million as you might expect.
The complication comes if a team decides to cut a player - in that case, the annual salary comes off the books, but whatever hasn't already been accounted from the signing bonus counts against the cap in that year. For example, if the team decided to cut our $15M player just before the fourth year of his contract, the "cap charge" for that player would be $2M for the bits of the signing bonus that got prorated into years 4 and 5 of the contract. However, they get nothing for that $2M (because they've cut the player!) hence "dead money".
Dead Money means money that can't be spent because it was paid to a player who is no longer on the team. It is the penalty for teams paying players up front. Simply put, The Jets sign Joe Player to a 5 year deal worth $15M during free agency before the 2014 season. The contract is structured so that Joe will receive $2M in salary every year he is on the team and will receive a $5M signing bonus. The 2014 NFL salary cap per team was $133M. After the 2014 season Joe earned $7M ($5M to sign + $2M in salary). Joe is slated to make his regular $2M salary in 2015, but before the regular season starts, the Jets trade Joe to another team or cut him. No matter what does or doesn't happen to Joe, the Jets now have $4M in dead money in 2015. The $5M signing bonus received by Joe in essence was the Jets spending future salary cap money ($1M against the the Jets salary cap in 2014, $1M in 2015, $1M in 2016, $1M in 2017, and $1M in 2018). When Joe's contract is terminated or traded by the Jets, those 2015 - 2018 amounts on the Jets book are moved to 2015 resulting in $4M the Jets can't spend in 2015. The 2015 NFL salary cap per team was $143M and the Jets can only spend $139M because they have $4M in dead money they can't spend.