Innovating NFL Contract Structure

Ahhh, NFL free agency. It’s the time of year where chaos ensues as players seek the biggest deals, and are more than willing to relocate to find them. As you may or may not be aware, one of the biggest knocks on NFL contracts is the fact that most of the reported isn’t guaranteed money.

“Huh? What do you mean it isn’t guaranteed? They signed a contract, and they’ll get what the legally binding contract states.” Oh no, no, no… This isn’t the MLB.

Contracts in baseball are as simple as Armando Galaragga getting an easy ground ball to complete a perfect game, wait… Nevermind, but you get the idea (thank you Jim Joyce, for ruining that analogy for us).

A pitcher signs a 3 year deal worth $60 million. That contract is clear as day, three years, and while the structure of payout may vary, the player will receive the reported $60 million over the three year span.

The NBA, and NHL also offer guaranteed contracts to their players. Again, a lot of the time a contract might be front loaded, or back loaded, but all in all, when that initial contract is reported for three years, $30 million, the player will be receiving $30 million over a three year span.

Now let’s go to the NFL. Things aren’t quite as simple (insert Jim Joyce analogy here). When you hear a player signing a contract for a said amount, there is an extreme likelihood that at least of half of it isn’t going to reach the players’ pocket. A lot of the money in NFL contracts are performance incentives, and another portion is only received if a player can stay healthy.

To give an example of an NFL’s contract complexity, we breakdown (well, try to anyway) Matt Stafford’s recent five year deal with Detroit Lions. The reported deal was a five year deal worth $135 million. Now, in any other sport this would be quite simple to breakdown, again, you may see a contract backloaded, but the math is easy to follow regardless. Let’s take a look at Stafford’s five year deal:

  • It starts with a $50 million signing bonus. This bonus is spread over the lifespan of the contract, so every year of this five year deal he’ll receive at least a $10 million bonus before taking the field.
  • He’ll also receive a ‘roster bonus’ of $37.5 million, and a $2.5 million ‘workout bonus’ over the contract’s span.

Add that up, and you get to a total of $90 million, which is all guaranteed. However the contract is supposedly worth $135 million, where did the other $45 million go? The other $45 million is included in his ‘base salary’ over the contract span. Now, the term ‘base salary’ in the NFL is quite misleading, as many would assume, thats the ‘base (bare minimum)’ of what you’re going to make. Well in the NFL, it’s actually the opposite. The base salary is made up of certain incentives such as:

  • If player makes the pro-bowl they receive $1 million
  • If player throws for 3,000 yards they receive $1 million
  • If player throws for 25 TDs they receive $750k

You get the idea…

The base salary can also be packaged in another form, by setting a set date to where it is fully guaranteed. For example, Stafford’s base salary is $13.5 million in 2019. Stafford signed this deal in 2017, but a stipulation of the contract was his 2019 salary was not fully guaranteed until (ironically) today, March 16, 2018. So if for some reason (say, injury, off the field issues) occurred before today, I’m sure there was a stipulation stating the team has all rights to decrease, or terminate his entire 2019 base salary.

Again, that wouldn’t be his entire salary in 2019, just his ‘base salary.’ As he would still be entitled to his guaranteed $16 million in 2019 signing, and workout bonuses. Make sense? Yeah, don’t worry, it doesn’t to the average human.
So now let’s get to the potential of new structured NFL contracts we may see in the upcoming years. We already saw one this year, as QB Kirk Cousins was offered a fully guaranteed contract by the Minnesota Vikings. So compared to Stafford’s 5 year ‘$135 million’ contract, let’s take a look at Cousins’ 3 year, $84 million contract (we promise, this one is much easier to follow):

  • Instead of everything guaranteed via signing, and roster bonuses, the Vikings chose to take the initiative to offer a simplified, fully guaranteed contract, with most of it coming within his ‘base salary.’
  • 2018: Cousins will make $24 million ($22.5 million base salary, $1 million signing bonus, $500k workout bonus)
  • 2019: Cousins will be bringing in $29 million ($27.5 million base, $1 million signing bonus, $500k workout bonus)
  • 2020: Cousins will be making $31 million ($29.5 million base, $1 million signing bonus, $500k workout bonus)

That’s it. That’s the contract. There are no other incentives, no buyout options, no opportunity to decrease or withhold part of the salary because of a potential injury. The math adds up, the average human can understand it, and the player doesn’t have to stress over statistics or accolades.

Now, which contract seems more reasonable? As ridiculous as it sounds, almost all NFL contracts are structured like Stafford’s. The Vikings took the initiative to redefine what an NFL contract entails, and how it’s structured. There’s a very good chance this was Cousins’ deciding factor when determining where his new home would be after failing to agree on a deal with Washington.

There are reports saying this won’t be a trend, and to that we say… You’re not right, but you’re not wrong. Sure, it’s not going to be a structure that is offered to everyone, but when guys like Aaron Rodgers, Russell Wilson, and Ben Roethlisberger are ready to sign new deals, you can bet that these types of franchise players will now have leverage at the negotiating table. If Rodgers doesn’t like the way his contract extension is structured in Green Bay, he can easily holdout to become a free agent.

If you’re an NFL GM, and Aaron Rodgers is on the unrestricted market, would you not be willing to structure the contract in a way that could separate you from other prospective suitors? Of course you would! Again, not everyone is Aaron Rodgers, so not everyone will receive these types of deals.

We foresee that NFL franchise/starting QBs are going to be the ones who start benefiting from fully guaranteed contracts. Outside of that, unfortunately, we’re likely going to have to deal with attempting to wrap our heads around more Stafford type contracts.

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