Using M&A Collar Provisions to Solve the Underpaid Star Problem (Part 2 of 2)

In this two-part series, I will propose a unique contract structure that can potentially help teams and star players agree to terms by addressing some of the risks faced by each. In Part 1, I will identify the unique concerns of star players and describe a method by which corporate attorneys address similar concerns in an analogous context. In Part 2, I will use the concepts described in Part 1 to design similar provisions applicable to the NFL context.    

As I explained in Part 1, star players face a large degree of uncertainty as to the future market price for their services, and they desire to minimize the opportunity cost associated with being locked into a contract. The longer the potential contract, the more uncertainty and opportunity cost faced by the player. In M&A transactions, a similar risk exists during the period between the signing and closing of a deal due to the fluctuation of share prices on public stock exchanges. M&A practitioners sometimes combat this problem by using “collar” provisions that cap and shift uncertainty-related risk at predetermined levels of market fluctuation. Today, I will explain how this concept can be used within the context of the NFL.

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Using M&A Collar Provisions to Solve the Underpaid Star Problem (Part 1 of 2)

In this two-part series, I will propose a unique contract structure that can potentially help teams and star players agree to terms by addressing some of the risks faced by each. In Part 1, I will identify the unique concerns of star players and describe a method by which corporate attorneys address similar concerns in an analogous context. In Part 2, I will use the concepts described in Part 1 to design similar provisions applicable to the NFL context.

Every contract signed in the NFL carries risk for both the player and the team, but contracts involving star players carry somewhat unique risks. Most NFL players sign long-term deals with the knowledge that it is unlikely they will remain under contract for the duration of the deal, and thus their primary risk is that they will not receive all of the money they are purportedly scheduled to earn. These players simply attempt to maximize the amount of money they actually earn. The team, on the other hand, attempts to limit its risk related to injury or performance decline.

However, star players are much more likely to remain under contract for the duration of the deal, as they are less easily replaced by cheaper free agents or draft picks and more likely to continue delivering surplus value to the team.[1] Furthermore, the market price for star players tends to continually increase by a material amount. Therefore, the primary risk for a star player is the opportunity cost associated with being under contract and therefore being unable to receive a new, larger deal. Teams, however, understandably desire to capitalize on this surplus value, given the larger initial risks associated with star player contracts.

Continue reading Using M&A Collar Provisions to Solve the Underpaid Star Problem (Part 1 of 2) »

ECV 2015 Expected Outcomes Tracking Update

Due to the fact that rosters will remain mostly static between now and the preseason, I thought that this would be a good time to provide an update as to the status of the players for whom we provided a 2015 expected outcome earlier in the offseason. As a reminder, we ran the Expected Contract Value model on each player under contract for 2015 (as of the very beginning of the offseason) with a scheduled cap number of $2 million or more, and we listed each player’s likelihood of remaining under such existing contract for the 2015 season.

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“Resetting the Risk Clock”: Rationalizing Contract Disputes Using Expected Contract Value

“Resetting the Risk Clock”: 

Rationalizing Contract Disputes Using Expected Contract Value

Adrian Peterson would like a new contract. Specifically, he would like the Vikings to release him so that he can sign a new contract with a different team, but I suspect that this is mostly because the Vikings have made it clear to him that they will not give him a new contract. Peterson has said that his issues with his contract are caused by a desire to “secure his future.” That certainly sounds reasonable. But why has Peterson initiated this dispute this year? Why not next year, or last year? And why aren’t the Vikings willing to budge in this situation? We can use Expected Contract Value to explore these questions and dissect the anatomy of a contract dispute.

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Spending on the NFL Passing Game

With this being kind of a slow time of year in the NFL I thought it would be fun to look at the teams that are spending the most in the NFL on their passing games. To evaluate the teams makeup we will look at their top three wide receiver (or tight end) and the top quarterback average salaries to get an idea of what teams are investing in their passing attack. We’ll also compare the numbers with last year’s adjusted yards just as a guide for how efficient or inefficient their spending will be if they perform the same as last year. Continue reading Spending on the NFL Passing Game »

Expected Contract Value: Quarterback Contract Comparison

Expected Contract Value:  Quarterback Contract Comparison

As a result of the contract extensions signed by Cam Newton and Ryan Tannehill, as well as the ongoing discussion related to the contract negotiations of Russell Wilson, many NFL commentators have recently engaged in an exercise of contract comparison with respect to the largest quarterback contracts signed over the past several years. In terms of methodology, the usual suspects have been well represented: total stated contract amount, average annual value, fully guaranteed money, and three-year payout. But as I have previously explained, none of these metrics are adequate for valuing or comparing contracts. Continue reading Expected Contract Value: Quarterback Contract Comparison »

How Did The May 12 Shift Affect Signings With Regards To 2016 Compensatory Picks?

One of the presumptive reasons for the NFL moving up the June 1 date to May 12 was to allow teams to sign unrestricted free agents transitioning to street free agents earlier without those signings counting against them in the compensatory draft pick formula. Now that the league offices have closed for June 1, I thought I’d quickly take a look to see what effects this change had. Continue reading How Did The May 12 Shift Affect Signings With Regards To 2016 Compensatory Picks? »