Adrian Peterson and Guaranteed Contracts

Today Vikings running back Adrian Peterson sent out a series of tweets regarding NFL contracts not being fully guaranteed and management holding the only right to terminate the agreement. Peterson is currently in a contract dispute with the Vikings over the fact that Peterson wanted to leave Minnesota and join another team in 2015.  Peterson has recently changed his stance somewhat about the contract, turning from opportunity to financials, asking the Vikings to make more of a commitment to him by apparently guaranteeing the remainder of his contract, which has fallen on deaf ears. Though Peterson is not the person to be at the front of the “guaranteed” contract movement I think his situation brings up some interesting discussion points with NFL contracts that are worth exploring.

Peterson’s argument about guaranteed contracts in the NFL is a very common one. Players can get stuck playing on contracts that might not be representative of their performance with little or no recourse, while the team side can opt to release a player at any time. This season alone we have seen contract disputes involving Peterson, Chargers safety Eric Weddle, Bears running back Matt Forte, Bears tight end Martellus Bennett, and Jets defensive end Muhammad Wilkerson.  They won’t be the last either.

But many of these situations bring to light the predicament that some of these players are leaving themselves in by signing contracts that run for excessive years.  For those who outperform those contracts there is no recourse outside of holding out, which rarely leads to success for the player.

The general framework of a NFL contract is the same for almost every star player in the NFL.  The typical star player receives two years worth of guaranteed salary and a third year of injury guaranteed salary. As we move lesser down the chain those numbers reduce to two and one years. Yet agents continue to negotiate contracts that go far beyond those guaranteed salary seasons, tying a player to a team with almost no upside and no further protection. Many of those contracts follow a waterfall structure in which the backend payouts are typically lower than those at the front end of the contract. For whatever reason this has become standard practice and it’s just as responsible for some of the poor situations that players find themselves in and one they should be able to control in a negotiation.

If you go back and read over Bryce’s Expected Contract Value metric an agent and player should get a strong indication, if they did not have one already, about the way that the team views the contract offer and what they likely perceive to be the true payout on a contract and annual player value.  Peterson signed a six year contract extension in 2011 that would tie him to the Vikings for a potential 7 seasons. Per ECV there was about a 38% chance that Peterson would be released in 2015, despite the high cap charge. A likely reason for that was the negotiated salary was not high enough to warrant his release compared to the worth that the Vikings put on the player. Though I don’t have his exact number in front of me for next season I would imagine it will flip because Peterson did not receive a “waterfall” style contract. Instead they negotiated increasing backend salaries to artificially inflate the value of the contract.

It’s no win situation for the players on these deals. If the running back market exploded, Peterson would have potentially ended up on an under market contract. If he failed to play well he would have just been released or asked to take a pay cut. Again Peterson is probably not the best example for this since nobody feels any sympathy for him and his salary for 2015 is very strong for the position, but his unhappiness should be a message to consider in the future.

Players should either seek to match contract years with expected payments or to include void clauses to protect themselves in the event they outplay their contract. If a team only values a contract as a three year deal internally, then the only reason for them to include additional seasons is for proration purposes. The same salary cap treatment can be had by including either voidable contract years or team options similar to Darrelle Revis’ contract with the Patriots that has almost no chance of being earned.  In both cases it essentially accomplishes receiving a fully guaranteed contract that a player can escape in a timely fashion.

Even better is the void option, in which a player can earn the right to void his contract by reaching certain performance milestones. This is not common, but is being used a bit more in recent years. Alex Mack actually has the right to void his contract with the Browns after just two seasons. While this was included because of Mack’s status as a transition player, the fact is he has the rare opportunity to keep his contract at a market value by controlling his free agency.

The Saints had given Junior Gallette a void clause a few years ago if he reached a very high sack number. He had a chance to get there and that helped prompt the Saints to extend him to a market value contract just one year after the lower cost extension.  The Rams have included void clauses for players at various salary levels.

There are other options as well for players to consider. Contract escalators that are guaranteed and tied to franchise tag levels would be a good start. These were common for rookies in the last CBA but have not been used for veterans and the thought of them has fallen by the wayside now that there is no negotiating rookie deals. Building contracts that force the hand of the team early in the life of the contract is not used enough. What Larry Fitzgerald accomplished from day 1, by using gigantic salary cap charges and signing bonuses helped him never face the problem of being under market or even in real danger of being released. He more or less received a functional guarantee through contract structure. Joe Flacco, Ndamukong Suh, and Mario Williams all are doing the same.

When we see how quickly deals are now done in free agency I think there are times when the players are losing sight of the goal of maximizing real earnings. There is such a push to get a name on ESPN or the NFL Network with a story about some massive contract number that perhaps the players are losing out on real money with too much focus on total numbers in the negotiation process.

Going back to Peterson, he earned an average of $13.76 million in the first three seasons of his contract. Those were his virtually guaranteed seasons. Anything after that is clearly an option for them, yet his salaries in the two years thereafter were less than what the Vikings were willing to pay him in “virtually guaranteed” money. To the fans around the world such a player is viewed as incredible for being productive for so long. But to the teams he is simply a value commodity that they have signed for a discount. The player loses out.

Teams can only prorate salary for five years in a contract. Peterson, who received a $12 million signing bonus, could have taken a 3 year extension and it would have only increased his cap charge by $600,000 per year. Would the Vikings have signed for the same cost?  Perhaps they would have gone slightly lower but that’s what the negotiation is for. The bigger problem is what sounds far more impressive on ESPN- $41 million contract or an $85 million one?  That’s an easy answer, even though both would have a similar expected value and the bigger number contract only carries additional downside for the player.

The lack of guaranteed contracts in the NFL is what it is. That is not changing anytime soon and expecting it to change is not the right approach. The right approach is working hard to find ways to structure contracts that are either rising with the market or give the player the opportunity to re-enter the market while he is still a “hot” commodity. Signing long term contracts in a non-guaranteed environment is not worth it for the player. It provides almost no upside for the player at all. Some players are winning that fight, but the majority don’t even seem to be aiming to get in the ring.

  • wva88

    There is an important point that most commentators miss when they talk about NFL guaranteed contracts: The real impact is on the players, not the teams.

    In a first-order analysis, an NFL team will pay a fixed amount in salary in a given season. Again, for the sake of simplicity, lets assume the salary cap amount is identical to the cash actually paid. If guaranteed contracts were to suddenly appear, it would not change the amount of money each teams spends on salary, it would just change who gets that salary.

    Lets say Peterson had a fully guaranteed contract that paid him $10M for the 2015 season and he spends the season sitting on the coach in Texas. That $10M would not come out of the pocket of the owner, but from the other players on the Viking’s roster. That is $10M not available (remember the salary cap) to spend on the players who are actually on the field.

    I think it is clear that the NFL Players Association has determined that they prefer compensation to be linked with production. See for example the mutual desire to cap rookie contracts. I think the NFLPA – as an organization – and the individual players would prefer to see the people on the field get paid. For every case of the player who gets cut and loses $5M from a non-guaranteed contract, there are a number of other players who will actually receive that money.

    • Dr__P

      Rookie salary schedules more properly reflect that rookies have less power in the UNION than veterans.

  • eddiea

    I like the idea of guaranteed contracts,but it wouldn’t work. The Cap doesn’t usually rise,yr to yr, for everyone to be guaranteed. Remember,for yrs it only went up $3M-$4M and draftees were guaranteed $5M-$8M, depending on number of draftees a team had. So basically with Hard Cap having a draft pick was/would, be a waste since a team couldn’t sign said player (s). I may be wrong,on my thinking/analysis, but maybe a team could guarantee say 4 or 5 players. Also,these 4 or 5 can only have one contract,total NFL CAREER,no matter length of said career or how many teams they play for
    ,

  • Kirk Vollmer

    I’ve mentioned it before but I don’t think it’s wise for the players to hand teams those “option” years at the end of their contract by going beyond 5 year contracts. While they might get a little bigger signing bonus for it initially, I think in the long run they usually (barring major injuries) cost themselves money.