A Close Look at the Tyron Smith Contract Extension

Since we now have the basic details of the Cowboys extension with left tackle Tyron Smith, I thought it would be worth looking at why calling him the highest paid player at the position is not exactly accurate.

Though Smith carries the highest annual value of any tackle, $12.2 million versus $11.5 million for Joe Thomas, the cash flows will tell a slightly different story. Here are the running cash flows of the two contracts:

 

SeasonThomasSmith
Year 1$20,700,000$20,000,000
Year 2$30,900,000$30,000,000
Year 3$42,000,000$40,000,000
Year 4$51,000,000$50,000,000
Year 5$60,500,000$60,000,000
Year 6$70,500,000$70,500,000
Year 7$80,500,000$84,000,000
Year 8$97,600,000

 

For the first five years of the contract Smith will trail Thomas before pulling even in year 6 and then ahead in the seventh and final year of the contract. These numbers do not take into account the fact that Thomas has roster bonus escalators in his contract in year 6 and 7. If Thomas reaches both escalators, which are based on Pro Bowls, His six year payout will rise to $72 million and his 7th year payout to $84 million.

Those escalators are more or less built in to the Smith contract, which is likely how the Cowboys arrived at the $84 million total. If both players continue to play at a high level this deep into their contracts the contracts are at best equivalent and realistically will always favor Thomas. The final year payout for Smith will ensure that he will always be the highest paid player among the current crop of players, pushing his annual value to $12.2 million, a number Thomas can not reach with this contract.

I read some complaints on Pro Football Talk about how the contract is crazy for Smith to sign due to the length of the contract. This now ties him to the Cowboys until he is 33 years old. But that opinion fails to realize that in order to achieve this type of contract it is a concession that you must make. Thomas did the same year ago when he signed his record setting deal and he will be 35 years old when he can next hit free agency, two years older than Smith. While it is true that Smith likely had more earning potential than Thomas, who was 23 when he entered the NFL and signed until he was 27, this is the path to the big contract.

Thomas is not the only individual who sacrificed years to gain big money.  D’Brickashaw Fergsuon of the Jets signed a six year $10 million contract extension in 2010 that would tie him to the Jets until he was 34. Like Smith, Ferguson was under contract for two more years when he signed the deal. Ferguson was generally considered overpaid (though his annual value is inflated by around $750,000), but he clearly sacrificed to get that $10 million number. These are concessions that must be made especially since the limited injury risk is now being taken off the player and absorbed onto the team.

One player who took a different route was Ryan Clady of the Denver Broncos. Clady was a franchise player and considered the best tackle in the game outside of Joe Thomas. Clady opted for the traditional five year deal (though it’s doubtful the Broncos offered other options) which gets him to free agency at 32, a bit younger than the others on this list. When we look at the percentage of payout over the five year value we see the big difference. Smith will consistently get a larger percentage of his contract over the first few years of the deal, with it not really smoothing out until the fourth season of the contract.

 

SeasonSmithClady
Year 133.3%28.6%
Year 250.0%43.8%
Year 366.7%62.9%
Year 483.3%81.0%
Year 5100.0%100.0%

The other thing that we should do when looking at Smith’s extension is an alternative cash flow analysis. In this case we hold off on the extension because we are unhappy with the length of the contract being offered by the Cowboys. Here we play out the contract and will be subject to the franchise tag in 2016 and potentially 2017. For all the issues that may exist with the Dallas Cowboys salary cap they have already shown a willingness to use the tag multiple times on one player (Anthony Spencer) in years where the cap was difficult to navigate. If anything their cap will be better in the future.

Assuming the tag jumps by around $2.5 million in 2016 here will be the new money cash flows over the next four years:

 

YearCurrentTag
2014$9,000,000$0
2015$1,000,000$0
2016$10,000,000$14,100,000
2017$10,000,000$16,920,000
Total$30,000,000$31,020,000

If we discount these at a 7% rate the earnings in the current contract are actually higher than in the second scenario by about $700,000.  We have also eliminated our risks of injury or skill decline during that period. In the above analysis Smith would likely sign a contract in either 2017 or 2018. The terms would be 5 years at that point, which would bring him to either 2021 or 2022. Is that really a material difference than being under contract in 2023? Probably not.

Might he be trading off some money in this situation?  Its possible. The 2018 through 2022 seasons would see him earn $54 million. Would the market jump higher than that in that time?  Im not sure. Clady’s deal was worth $52.5 million over five years and would be used as the barometer, which would indicate $54 million is a fair number. The salary cap will be rising (by how much nobody knows), but we cant be sure if money will funnel to this position or simply go to higher quarterback wages.

All things considered this is a good contract for both sides. Dallas has a bit more control over his salary cap charges and will pay a bit more now to potentially lock up a player at what might be reasonable terms in the future. Smith has more or less reduced risk in the short term and not really sacrificed much in his overall earning potential to do it. While he may not really be the highest paid player, he can now claim he is based on that additional contract year. He’s not the first nor will he be the last player to do that.


 

  • Dominik

    As an Eagles fan, I hope Dez Bryant gets the better contract which causes more troubles for the Cowboys.

    You can’t say this very often, but they did their homework in this case. The only real risk (injury) is through 2015-2017. In 2018, it would be 2m dead if they’d cut him. From ’19-23, they can cut him whenever they like.

    And if Smith doesn’t get injured or rapidly declines (why should he?), they have him under contract at a reasonable rate – not cheap, but perfectly reasonable for a top 3 LT.

    I get Smiths desire for injury protection and all, but I really hoped he would sign a way more player friendly deal.

    • NW86

      While I don’t disagree that this is a pretty good deal overall for the Cowboys, keep in mind that they Cowboys will undoubtedly restructure Smith each year for the next few years, pushing more and more dead money forward. That’s how they operate, and their cap situation always requires it. So, it’s a good deal that they will mess up over the next few years.

      • Dominik

        I don’t know. Yes, Jerry is the worst GM in the NFL, but why should he restructure this contract? You can’t extend the guy before 2021 or so, since you don’t know how well he will play when he’s 31+.

        Do you really think they will lower his cap number for, let’s say, 2017 and 2018, just to make him uncuttable in 2021 or 2022? If you assume: that would be stupid, so it’s the Jerry Jones way of doing it, fine. But I wouldn’t bet on it. I hate to say it, but I think he learned a thing or two about what it means to be in cap hell over the last year or so.

        The difference between Smith and, let’s say, Romo, is that Smiths contract doesn’t balloon. You should invest ~ 10-13m of cap hit into your All pro LT per season. That’s different than spending 27m (that’s his cap hit next year – too funny to be true, restructure it again and it will only be worst. He will beg Romo to take a pay cut, but why should he?) on your aging QB.

        • NW86

          I honestly mean no offense, but do you know how Romo’s cap number got to $27M? They aren’t paying him $27M next year. Each of the past several years, they have converted most of that year’s salary into a “signing/restructure bonus”. This allows him to pay him in that year, but spread that cap hit out over the next 5 years (if the player is under contract that long). Romo has actually never been horribly overpaid, they just haven’t accounted for most of what they paid him over the past several years. They won’t ask Romo to take a paycut next year – they will again restructure most of his salary into bonus next year, bringing his cap hit down under $20M, but increasing each of the following years, and the cycle continues, until they eventually have to let the player go and have to eat all the remaining dead money that they paid in prior years and haven’t accounted for yet. Basically the Cowboys have been in “win now, worry about the salary cap tomorrow” mode ever since the salary cap first came about.

          For 2015 the Cowboys have over $142M penciled in on their cap. Even after restructuring Romo, they still have to sign Dez Bryant and some other starters. The next logical place to restructure would be Smith, who will have a cap hit over $13M with over $11M of it in salary. I am 100% certain that they will restructure about $10M of his salary, reducing their cap number by $8M that year and increasing it by $2M each of the next 4 years. Then, with a now $14M cap number for 2016, they will likely go back to that well again, raising his cap numbers for 2017 forward, and the cycle will likely continue. That’s why they set the contract up this way, with a smaller initial bonus and larger salaries that can be restructured. That’s also one reason the contract is so long – to give them plenty of years to spread those future restructures out into.

          • Dominik

            Concering Romos salary, I wrote a comment myself on an Eagles blog:

            “Funny thing is: what will they do if Romo is injured and they get a top 5 pick? They literally can’t cut him, and I mean it like I say it. 37,408,000 dead money if they’d cut their then 35 year old QB.

            http://img3.wikia.nocookie.net/__cb20131216022447/vampirediaries/images/f/f9/Jenna-Marbles-I-Can%27t-Even.gif

            2016, for 36 year old Romo, it would be $19,135,000. I’m not making that stuff up.

            2017 10m and finally, 2018 is the time they could cut him at a reasonable price of 2.5m dead.

            Do you really want to draft a young QB with that top 5 pick? You have cap hits of 27,7m, 17,6m and 21,5m in three years for Romo in the books. You need to let this guy start.”

            And of course, you’re right about Romo. I’m really curious how this thing will end. The Cowboys are in win now, but the Defense is on a level that most rebuilding teams would laugh about. The Saints are in total win now mode, having Graham and Byrd in the books for 4 and 3.5m this year. That balloons to 11, 12, 13m for Graham and ~ 10 for Byrd over the next few year. But they actually could win it now. Cowboys are just ludicrous.

            If Romo doesn’t sign a new contract and really takes a pay cut, Brady like, there is no way the Cowboys get out of this, don’t they? Like you said, with 27m against the cap, they have to restructure next year, again. How will this end? If Romo retires in 3 years, they have all the dead money in the books, haven’t they?

          • NW86

            Yes, I agree, they have put themselves in one of the most ridiculous situations in the NFL with his contract.