Analyzing the Colin Kaepernick Salary Decision

There hasn’t been much NFL news of note since the initial wave of free agency ended, but there is an interesting situation brewing between Colin Kaepernick, the Broncos, and 49ers. The 49ers gave Kaepernick permission to seek a trade but claim they still want him to be their quarterback. The Broncos have already made it known they would like to have him but at a reduced price or nearly $7 million from his current contract.  Apparently if he would agree to the reduced salary or an effective buyout from the 49ers where the 49ers pay some of his salary prior to the trade then this would be a done deal. The question is should Kaepernick agree to some kind of paycut?

Kaepernick is scheduled to earn $14.3 million this year on his current contract, $11.9 million of which is fully guaranteed and another $400,000 that is earned by simply showing up to workouts. $2 million is tied to being active and is the only salary he has no control over this season. The Broncos are willing to pay him $7 million which would essentially be on par with Robert Griffin III, another reclamation project, and Chase Daniel considered a high level backup with a chance to start.

I would be making the assumption that if Kaepernick agreed to this pay cut that the Broncos would be willing to void the remainder of his contract such that Kaepernick could be a free agent in 2017.  There would be no incentive for Kaepernick to accept a reduced salary unless Denver did that. Even an offer of additional guarantees or incentives would not really be a consideration in my opinion. There is no reward in that.

To see what Kaepernick should do I would perform a scenario analysis and look at the financial possibilities that could exist for Kaepernick. I’m only going to concern myself with salaries for the next three seasons since those are the salaries that would be effectively guaranteed in any contract.

Kaepernick Plays Great

It was not long ago that Kaepernick was considered a superstar on par with Russell Wilson of the Seahawks. It would not take much for Kaepernick to move back into that category that includes Wilson, Matt Ryan, and Cam Newton. Those players earned massive contracts that average over $21 million a season and paid over $53 million across the first two years of the contract. Here is how the scenarios would compare:

YearCurrentNewDifference
2016$14,300,000$7,000,000($7,300,000)
2017$16,900,000$41,133,333$24,233,333
2018$17,400,000$12,566,667($4,833,333)
Total$48,600,000$60,700,000$12,100,000

If Kaepernick could attain this level of play there is a clear benefit for him. He would be giving up a potential $7.3 million for the chance to earn an additional $12.1 million by 2018. Though we are only looking at these three years he would also likely have a 2019 guarantee that would not exist in the current contract. If you are a firm believer in yourself and the situation Denver presents it’s a no brainer to take it.

Kaepernick Maintains Starting Job

In this scenario Kaepernick doesn’t play as badly as he did last year but also doesn’t set the world on fire with his play.  Much like the Brock Osweiler’s or Sam Bradford’s of the world you would probably consider him good enough to start but you question his high end potential. In essence this is where Kaepernick was prior to last year’s performance.

YearCurrentNewDifference
2016$14,300,000$7,000,000($7,300,000)
2017$16,900,000$19,627,000$2,727,000
2018$17,400,000$14,790,000($2,610,000)
Total$48,600,000$41,417,000($7,183,000)

In this case Kaepernick is likely never going to earn what he would on his current contract. He’d be giving up $7.3 million with the chance to only earn $200,000 of that loss back. The only benefit of this contract is that 2017 and 2018 would be fully guaranteed, though if he plays well enough to keep a starting job those years are probably virtually guaranteed.

Kaepernick and Sanchez Split Reps

Here we have what happened to Kaepernick last season where he basically will get benched for half a season. He may show at times the possibility of being a competent starter but at other times would look so bad he would get pulled. At that point his new upside is Griffin and Daniels and would most likely track with Sanchez and Brian Hoyer. He would probably only earn half of his $2 million roster bonus if this was his level of play and we are also going to adjust his future salaries downward since he would clearly be cut from his existing contract if he had another year like 2015.

YearCurrentNewDifference
2016$13,300,000$7,000,000($6,300,000)
2017$5,900,000$5,900,000$0
2018$5,725,000$5,725,000$0
Total$24,925,000$18,625,000($6,300,000)

Surprisingly there is actually a little more upside in taking this contract than the prior scenario as he would only give up $6.3 million. There might be a little added benefit of sticking with the 49ers if he had low expectations for himself as its better to fail with one team than two teams when you consider free agent possibilities. In that sense this is probably equally bad for Kaepernick as the prior one.

Kaepernick Loses Job

This would be a situation where the play in preseason is so bad that the teams would decide to go with Blaine Gabbert or Sanchez over him. At this point Kaepernick would end up in a very low futures salary range probably close to $2 million a season. He also would earn none of his roster bonus as he would likely get the RG3 treatment and never be active on Sunday.

YearCurrentGreatDifference
2016$12,300,000$7,000,000($5,300,000)
2017$2,000,000$2,000,000$0
2018$2,000,000$2,000,000$0
Total$16,300,000$11,000,000($5,300,000)

Again there might be a little more potential in failing in San Francisco than Denver but I have a hard time believing anyone losing out to Gabbert would get any positive looks in the league.

Is $7 Million Worth it?

I don’t consider the final scenario very likely, especially if traded to Denver. Maybe a 10% chance.  The two middle scenarios I think would be equally likely and far more likely than putting himself back in the category of the other players. Id probably give those two middle scenarios a 35% chance each and a 20% chance of getting into the huge money category. Here would be the final analysis

ScenarioGain/LossProb.Benefit
Great$12,100,00020.0%$2,420,000
Average-$7,183,00035.0%-$2,514,050
Below-$6,300,00035.0%-$2,205,000
Terrible-$5,300,00010.0%-$530,000
Total100.0%-$2,829,050

Based on these numbers there is no reason for Kaepernick to consider a paycut to $7 million. The odds are he will cost himself nearly $3 million by taking the offer. While the Broncos will dangle success in front of him and the Osweiler contract as potential, but the reality is the Osweiler contract isn’t a benefit to him because he already has that deal in place.

The only way a $7 million salary would make sense is if the belief was that he had a 35% or greater chance of hitting the great category just to break even.

ScenarioGain/LossProb.Benefit
Great$12,100,00035.3%$4,271,300
Average-$7,183,00027.4%-$1,964,551
Below-$6,300,00027.4%-$1,723,050
Terrible-$5,300,00010.0%-$530,000
Total1$53,699

Considering how his career has gone the past two years I cant see the logic in considering that unless that situation in San Francisco is so toxic to him that he just wants out at any cost.

What is the Break Even Point?

The above charts give us the answer, but rounding up the most of a reduced salary that Kaepernick should take is $9.83 million.

ScenarioGain/LossProb.Benefit
Great$14,930,00020.0%$2,986,000
Average-$4,353,00035.0%-$1,523,550
Below-$3,470,00035.0%-$1,214,500
Terrible-$2,470,00010.0%-$247,000
Total1$950

At this salary the risk/reward is fair for Kaepernick if we believe there is a 20% chance of him being great. The most pessimistic one is about his chances for success the more money he would need to earn this season.

So to make the trade happen Denver either needs to up their offer or the 49ers are going to need to kick in an added $3 million or more to make it happen. I don’t see much of a reason for San Francisco to do that if they truly want Kaepernick. Even if Denver offers their first round pick I have a hard time seeing the logic in paying $3 million to obtain the 31st pick in the draft who they will have to guarantee somewhere around $7 million for the next few years.

If they think they can craft a deal with the Titans to move up then that decision probably changes. In that scenario they will dump a majority of Kaepernicks salary as well as the salary of the 7th pick as part of the trade. That would cost them $21.8 million total for the 1st pick this year versus $24.1 million to keep Kaepernick and the 7th pick. In terms of overall salary guarantees the trade of Kaepernick and move up would cost $30.8 million in guarantees versus $30.4 million if they stay firm, basically breaking even with more upside going San Francisco’s way.

Chip Kelly was part of one of these convoluted dream trades last year involving himself and the Titans which never materialized. Moving draft picks will be easier than moving  player as he tried to do with Sam Bradford, but if I were the 49ers I would want to have a very firm guarantee from the Titans that the trade is going to happen before I pay $3 million to dump Kaepernick.

  • Werner

    Perfectly featured. Kap already did bet heavy on himself and lost big with escalators failed when the team around him fell apart and his weaknesses well hidden behind a great O Line and a strong defensive showed. Better take the guaranteed Cash now and see who moves first, 49ers or Broncos.

  • NW86

    I can’t believe it’s really coming down to his 2016 salary. The 49ers are obviously willing to pay it to him, just to compete for the starting job. If Denver wants to trade for him and is willing to give up the draft pick(s) necessary to do that, they must think he has a good chance of starting there, and if that’s the case, $12M-$14M for 1 year is well worth it for them. Yes, their cap looks a little tight right now, but D. Thomas’s contract was made to be restructured this year and they can easily come up with the space. They have plenty of space in 2017.
    It seems like Denver just isn’t really sure if Kap is their guy and so they are dragging their feet, seeing what type of concessions they can get, so that if they do make the trade and it doesn’t go well in 2016, they can say “at least we didn’t give up too much or pay him too much”.

    • PetEng

      Been leaked that they want Kaep @ 7MM/year for the 2016 & 2017. No way he takes that deal.

      • Thats almost insulting to a guy scheduled to earn $14 million this year. Even if they guaranteed all of it its insulting unless there are massive incentives in the deal.

        • Jim

          At the end of the day, Kaep needs to figure what he wants. For a guy who’s already earned some $30m in his career, does he really want to keep collecting his paycheck sitting in the 49er dog house for another year? That’s not much of a life. Same reason a lot of people stay at jobs they hate because the money is too good. If you think you have a better shot at starting and thriving in Denver, go for it.

  • McGeorge

    1. Kap shouldn’t agree to a pay cut. This is the last payday he’s likely to receive.

    2. If SF doesn’t eat some of his contract, then they can keep him. OR eat 3MM and get 9MM off their books, and maybe get something useful in terms of trade value.

    3. I’d LOVE to see Denver start Mark Sanchez. I’d love watching him on Monday Night football, throwing picks, fumbling the ball, throwing the ball inaccurately on short passes. And bets of all – seeing him wind up for a bomb, and the eyes of every safety opening wide as they are thinking “Oh pleas throw my way, I’d like a pick 6 on national TV”

    —————————————————–
    Jason, I disagree with your comment below.. If SF can get a #1 for Kap, and eat 3MM, i’t easily worth it. If they think Kap is a bust, they are reducing their cap hit my 9MM, and getting an extra #1. A great deal for them.

    >>So to make the trade happen Denver either needs to up their offer or the 49ers are going to need to kick in an added $3 million or more to make it happen. I don’t see much of a reason for San Francisco to do that if they truly want Kaepernick. Even if Denver offers their first round pick I have a hard time seeing the logic in paying $3 million to obtain the 31st pick in the draft who they will have to guarantee somewhere around $7 million for the next few years

  • MattR

    My only issue with this analysis is that I think the odds of Kaepernick being “terrible” are significantly higher than 10% if he stays in SF. If I did my math right, Kaepernick’s expected payout if he goes to Denver based on the percentages and salaries you listed would be 34.2547 million. If you think staying in SF changes the percentages to 10% great, 25% average, 25% below and 40% terrible then his expected payout would be only 29.76125 million using the SF salaries you listed (which is 4.5 million lower than what he would expect to get in Denver). Great and average pay the same in SF, so if you up it to say he has a 45% chance of one of those while lowering the terrible percentage to 20% (which leaves the same 35% chance of below that he would have in Denver), his expected salary increases to 33.85375 million which is still a bit less than he would get by going to Denver. So IMO, Kaepernick’s decision should choose Denver and take the pay cut if he thinks it gives him a significantly better chance to not be terrible.

    • The thing is the drop to terrible is so difficult in the NFL, at least from a contract perspective. Recently the only QB I can think of that made that drop was Josh Freeman who went from being on pace for a $12-$14M contract to out of the league. Most guys (at least those who only play with one team) of this skill level are able to at least hit that Sanchez level of salary. Freeman was killed by going to Minnesota, being unprepared and busting there. In that respect Kaepernick probably has a better chance of falling into that category by going to Denver and failing there. Right now I think hed get the RG3 treatment

      • MattR

        Fair enough. I wasn’t necessarily arguing that my percentages were correct. More that the two sets of percentages shouldn’t be the same when calculating the net effect of choosing Denver’s contract offer vs his current contract with SF (while providing examples that show the effects of changing the percentages).

        Out of curiousity, when you said “get the RG3 treatment” did you mean being deactivated all year by SF or were you referring to what his next contract would be (or both)?

  • Jim

    Do you think there is anyway that if Kaepernick were to agree to lower his salary by let’s say $3m, NFLPA nixes the deal, like the MLBPA would not allow the ARod from Texas to Boston trade back in I think it was 2003 (Texas had to make the deal with the Yankees instead)?

    • No. Ive never seen them get involved in that way. I mean if they didnt get involved in some of those Brady deals I cant see any logical way thy would think of it anywhere else.

  • PhataLerror

    Kaepernick’s best opportunity to maximize his earning potential probably rests on doing almost nothing on the 49ers’ team throughout 2016, and then retiring from the NFL in order to take a shot at MLB. As a pitcher, you don’t need touch or anticipation, nor do you ever have to move off of your spot.