A Thorough Look at Sean Lee’s Contract

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With the details out on Sean Lee’s new contract (hat tip to Todd Archer) we can begin to examine the contract and the way in which this works out to be a good deal for Lee while also being a reasonable one for the Dallas Cowboys.

The first thing to note is while the contract is a 6 year extension we can throw that 6th year out when comparing the contract to some of the other deals on the market. The 6th year is nothing but a placeholder for potential restructures or extensions down the line. It doesn’t contain a funny number designed to artificially inflate or deflate the value of a contract. Lee will actually earn $7 million in the final year of his deal, exactly the amount of the annual value of the contract. For the most part we can just look at it like a void year and consider this a 5 year, $35 million dollar deal.

Cash Flows

Perhaps the most important aspect to a player of a contract should be the cash flows of the deal followed by the likelihood of earning that money. Lee’s APY of $7 million ties with Miami’s Dannell Ellerbe and is less than that of the Jaguars’ Paul Posluzny ($7.5 million) and Browns’ D’Qwell Jackson ($7.7 million). However, when we look at the cash flows of the contract Lee’s deal compares very favorably in the initial stages, despite being a smaller contract than Posluzny’s and Jackson’s.

ilbcashflow

It will not be until the third season of the contract extension where Lee’s cash begins to decline below that of his peers. That is a strong deal for Lee especially when we begin to consider expected cash flows of the contract.

Expected Cash Flows

While we often get wrapped around numbers like total contract value, annual value, and even guaranteed money very rarely do we take into account the expected value of a contract. I often call this “virtually guaranteed” money.  It is a topic I often talk about on the site and shows the importance of dead money in a contract.

Cutting a player that received a large signing bonus can become prohibitive to a team’s salary cap. If there is little cap money to be saved by releasing a player is there a point to releasing him?  The answer is probably not. If he is still productive you have to not only factor in the dead money adjusted savings but also the cost of replacing the player with an equivalent talent. For example if you are going to save $3 million on an unproductive player and feel he can be replaced by a UDFA making $500,000 you will likely cut the player. However if the cost of replacement is going to be $2.5 million or $3 million is it worth cutting a player, even if his play level no longer justifies the overall contract price?  Not really.

Odds are if a player brings you small savings in cap dollars it means they are earning little cash in the current year and were already “prepaid” in the form of a bonus some time earlier in the contract. While the salary is not guaranteed the dead money caused by signing bonus acceleration acts as a powerful deterrent to cutting a player.

ilb cap savings

When we look at the above grouping there are distinct differences in the savings a team would realize by parting ways with a player. Remember how we said that it will be year 3 of the extension where Lee finally begins to fall behind the others at the position. Well Lee is virtually guaranteed to see the 3rd year of his contract because there is almost no benefit to cutting him that season, unless his play falls off a cliff.

Ellerbe is going to have to perform at an extremely high level over the first two years of his contract to see that 3rd year. It is almost a certainty that he will see his contract reduced or be cut outright. Jackson could have difficulty seeing 2014 if his play level does not remain at a high level. Posluszny did make it to year 3.

Escalated Values

Lee’s contract is further improved by the inclusion of high end playtime escalators worth $1.5 million a year beginning in 2015. Each escalator earned increases the contract’s true annual value of the contract by $300,000. Because he already has such high cash flows early on, earning an escalator in 2015 or 2016 puts his cash flows over 3 years on par with Posluszy and only $500,000 less than Posluszny over 4 years. Considering Lee’s APY will be $7.3 million compared to Posluszny’s $7.5 million this is a major win for Lee even if he is the “lower price point” player. If two of those escalators are earned his true APY is $7.6 million he will earn more than the higher priced Jackson over 4 years.

Because the playtime required to earn the escalators is so high it validates the presence of Lee on the team and should eliminate any concerns of being cut despite the higher savings that could be realized by cutting him. Though Lee’s escalator is guaranteed if earned in 2015, the remainder are not. If he earns his 2016 escalator his cap savings will jump to $2.5 million, the same as Posluszny’s in the same year. That is reasonable and again 80% playtime means a high cost of replacement player.

Wins for the Cowboys

Well I just spent a lot of time explaining why this is a great deal for Lee and how it actually pays him much more than many expect based on the reported annual value of the contract, so how is it still team friendly?  For that we have to look at the cap charges of the contract.

The only year where Lee stands to be a potential cap burden is in the first year of the contract for the Cowboys. His cap charge in 2014 is $7.5 million and if we factor in the $2 million in lost rollover that is allocated to 2013 we can really consider his net cap charge to be $9.5 million. The following two seasons his cap charge will only be $4.5 and $5 million respectively. Of course we are assuming that Dallas does not go down the usual route of contract restructures, which ends any win that Dallas would have.

Based on the base values of the deal, the market allocation for Lee vs the others for cap dollars over three active years and three active plus a fourth “dead money” year is as follows:

Ellerbe

Lee

Jackson

Posluszny

3 Year

$19,700,000

$19,000,000

$20,700,000

$18,500,000

3 Year + Dead

$22,500,000

$21,000,000

$23,500,000

$22,500,000

All things considered I think those are solid numbers for Lee who is a better player than Ellerbe. If you begin to add escalators to the contract Lee moves on par with the higher priced players but considering Lee’s performance I think that is very acceptable.

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  • Ben Fitzgerald

    JJ is an idiot, this is practically a loss for Lee as you can pretty much expect to get more than market value from JJ.

  • mike jones

    I rarely think linebackers that fo not rush the passers are worth are worth even above average money in today’s pass happy league. However one’s that can cover should receive a bit of a premium in today’s nfl should receive a premium, and ones that can hold down the middle linebacker position in the Tampa Two while covering the deep third well a significant premium. This deal is much more rational than the Ellerbe one. Full disclosure: I’m a dolphin fan and generally a fan of the current regime.

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