Initial Thoughts on JJ Watt’s $100 Million Contract

According to John McClain of the Houston Chronicle JJ Watt has signed a six year contract extension worth $100 million that will make him the highest paid defensive player in the NFL. The contract would contain $51 million in guaranteed money.

The first thing that jumps out to me  are the numbers in the contract and the similarity to Mario Williams of the Buffalo Bills. Williams had signed a six year contract worth $96 million with the Bills a few years ago that had been considered an outlier for a number of reasons. The maximum value of that contract was $100 million and the total guarantee on that contract right around $50 milion (the real guarantee was $24.9 million).

So my assumption here is that they matched the contract of Williams except the incentives are a part of the base contract value. Williams’ cash flows over the first three contract years were $25 million, $15 million, and $13 million. I would imagine that those will be the baseline numbers used for Watt.

Because Watt has two remaining years under contract, techincially the new extension money does not start until 2016. When we calculate his year one cash total what we need to do is add up all his salary from 2014 through 2016 and subtract his original 2014 and 2015 salaries from the contract. Per McClain Watt will earn $20,876,385 in 2014 and 2015. That means his new money in that period is $12 million. Id anticipate his 2016 cash salary will be $13 million or slightly higher.

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I’ll be very interested to see the cash flows and guarantee structure of the full contract. If the only bonus in his contract is the $10 million signing bonus that leaves very little salary cap protection for Watt. Williams received $25 million in prorated money. The fact that this is a 8 year contract for cap purposes it makes the last three years of the contract completely “pay as you go” and essentially worthless years unless there is some unique structure involved. Houston usually has per game active roster bonuses in their contracts so Id imagine this is a major part of the contract as well.

When I had looked at Watt a few weeks ago I thought he would have opted for a shorter term contract with less money, but strong cash flows up front to improve his odds of a second go around with free agency. This contract now ties him up until 2021 if he continues to perform well.

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Regardless, this contract now sets the market for the young pass rusher in the NFL. There is no question that this is a valid contract, unlike the Williams one, and this represents about a 26% increase over the annual value of Clay Matthews’ contract. For Robert Quinn, Muhammad Wilkerson, Greg Hardy, etc…this contract is great news because their pay was going to hinge on what Watt could negotiate with the Texans.

From Houston’s end the timing was right if they were to sign a mega deal. At the moment they have no big name or money QB on the horizon. The team is clearly transitioning away from Andre Johnson as the face of the franchise and it was important to lock Watt up as the new face. From their perspective they could have had Watt for the next three years for around $23 million and dealt with three years of questions about commiting to him long term and potential holdouts. They will likely spend an extra $11-$13 million over the three year period for peace of mind and favorable salary cap terms.

When I get the full contract details I’ll update his page accordingly and try to do a side by side with Williams’ contract.

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  • McGeorge

    I hope the Jets can retain Wilkerson for a fair price, and he doesn’t insist on 15MM/yr and leave, because the Jets won’t overpay like that.

    • Well hes not the pass rusher or disruptor that Watt is. JMO, but the Jets would be better off signing him now than waiting, even if its a $14M price tag. I cant really pinpoint what the Jets plan is at all right now. They are basically the cheapest payroll in the NFL over the last two years. I get they have not had many guys to pay, but Wilkerson and a FA corner were two spots they should have spent on and for whatever reason did not. Wilkerson they still might while cornerback is a dead topic. Kerley is the other guy who could get a new deal. They had the money and just elected to cheap out for Dimitri Patterson who got cut already. Ill be disappointed if the Jets dont extend someone this year.

      • Jim

        On Wilkerson’s part, I think he could see $16m/year, if he plays out the next two seasons, and we see a medium-to-large increase salary cap. I mean really, what kind of the leverage will the Jets have they have $30-40m of cap space and their most important asset, who has been a perfect soldier, is heading into free agency? If they truly don’t think they can get a deal done, Idzik would trade him next off-season, ala Revis. I would hate to see it, but who knows, maybe that’s a possibility if Coples a true 3-4 DE, has a breakout year, they have Richardson, and a couple of NT’s they like, and someone offers Idzik a top-10 pick? There is only so much money you can devote to the D-Line.
        Again, I would hate to see it, but Idzik is an outside of the box thinker.

      • McGeorge

        I’m ok cheaping out on a CB for this year, since the Jets are still rebuilding and unlikely to go far, even if Geno improves. But cheaping out on Wilkerson is not a good idea, unless there has already been some behind the scenes negotiations. Maybe they were waiting on the JJ Watt contract and will continue discussions. I’m ok with letting a player walk who wants too much, provided you draft well and can get someone else who is at least average, and can use that money to sign other good players at reasonable prices.

  • Jeremy D.

    Thanks for the analysis. Can you explain this line:

    “The fact that this is a 8 year contract for cap purposes it makes the last three years of the contract completely “pay as you go” and essentially worthless years unless there is some unique structure involved. ”

    Why is that the case? thank you!

    • Ryan Feder

      Due to the fact that you can only prorate signing bonus money five years, the remaining two years of his rookie contract overlap with the new extension. So the proration of the signing bonus will end in “year 5”, leaving three years with no proration.

      Barring some groundbreaking structure with guarantees, none of Watt’s P5 will be guaranteed in those remaining three years, so the Texans will have the final three years with zero dead money repercussions both from no signing bonus proration and base salary (p5) guarantees: making the final three years a ‘pay as you go’ deal.

      • Jeremy D.

        Wonderful, thank you. I knew about the pro-ration, but didn’t know (or, more likely, forgot) that it was a max pro-ration of five years rather than over the life of the contract.

      • Kirk Vollmer

        On that note, I’ve always sort of wondered. . . can you explain to be why a good player would take a contract that leaves him even one year not to mention several years with no pro-ration left on the bonus? To me it just seems like they are doing the team a favor when they do that leaving the team years that they can essentially treat as “option” years. Wouldnt’ they prefer to sign a new contract at that time and get another signing bonus? The only thing I can figure is that perhaps as part of the deal the team pays for those “option” years up front through a higher signing bonus then they would have otherwise given.

        • Ryan Feder

          The short answer is that there are a number of factors. But your last line about the team “paying for those years” is really a great way to look at it.

          All of these deals operate on a sliding scale of flexibility vs cost. The clubs clearly want the most flexibility and lowest cost while the player wants job security (opposite of club flexibility) and highest cost.

          You hit the benefit for the Clubs with these additional years on the head, as they act like option years. If Watt or any player outplays this deal, the club gains the leverage for a future deal and can either “exercise” these option years, or release with no dead money as long as they didn’t restructure the deal to push dead money later in the deal.

          For the players (and agents), the benefit of these additional years really is for recruiting. The player and agent can now boast a higher figure for their deal. Saying I signed a 6 year 100+ million dollar extension carries a lot more weight than saying I signed a 4 year 60+ million dollar extension. It is huge for recruiting purposes for the agent, and also a point of pride for the players, even if they realistically wont see that money.

          So essentially, like you said… the team pays higher cash up front, money that Watt will absolutely see, and as the trade-off, receive flexibility in the later years.

          • Kirk Vollmer

            I suppose given the violent nature of football the player would always rather have the money now. While you discuss him being able to have more bargaining power in the future that always pre-supposes that he doesn’t encounter a major injury before hand. A blown ACL between now and then would of course hurt his value. So Watt walking away with the big money now gives him insurance against injury.

        • Ryan again hit on most of the key points. FWIW this is why I suggested Watt take a shorter term contract for less money rather than the bigger funny money deal that could lock him up for too long. I think there are many on the team side that think the players are foolish for doing deals now rather than later when they can get more favorable contract structures.

  • twelsh36446

    They over payed Clay Matthews, but Watt is a little different because the guy can flat out pay.