In the National Football League, the franchise tag is a designation a team may apply to a player scheduled to become an unrestricted free agent. The tag binds the player to the team for one year if certain conditions are met. Each team has access each year to only one franchise tag (of either the exclusive or non-exclusive forms) and one transition tag. As a result, each team may only designate one player each year as that team's franchise player. It has been designed to reduce player movement (often to bigger markets) which is often evidenced in other major pro sports leagues.
Usually reserved for players of great skill or of high importance to the team, a franchise tag allows a team's general manager the privilege of strategically retaining valuable free-agent players while seeking talent through the NFL draft or other acquisitions without exceeding the League's salary cap. A team may also franchise tag a player with 2 or more years left on a contract.
The designated franchise player will have his one year salary guaranteed if he elects to play for the team that designated him with the franchise tag and if he does not negotiate a contract with another team.
There are two types of franchise tag designations: the exclusive rights franchise tag, and non-exclusive rights franchise tag:
An "exclusive" franchise player must be offered a one-year contract for an amount no less than the average of the top five salaries at the player's position as of a date in April of the current year in which the tag will apply, or 120 percent of the player's previous year's salary, whichever is greater. Exclusive franchise players cannot negotiate with other teams. The player's team has all the negotiating rights to the exclusive player.
A "non-exclusive" franchise player must be offered a one-year contract for an amount no less than the average of the top five salaries at the player's position for the previous year, or 120 percent of the player's previous year's salary, whichever is greater. A non-exclusive franchise player may negotiate with other NFL teams. So other teams can negotiate long-term contract offers with the player, but if he signs an offer sheet from another team, the original team has a right to match the terms of that offer, or if it does not match the offer and thus loses the player, is entitled to receive two first-round draft picks as compensation.
Under the Capped years a team can designate one additional player only as a transitional tag. A transition player must be offered a minimum of the average of the top 10 salaries of the prior season at the player's position or 120 percent of the player's prior year's salary, whichever is greater. A transition player designation gives the club a first-refusal right to match within seven days an offer sheet given to the player by another club after his contract expires. If the club matches, it retains the player. If it does not match, it receives no compensation.