Looking Closer at the Colin Kaepernick Contract Extension

Pro Football Talk earlier today broke down the $126 million contract extension given to 49ers QB Colin Kaepernick. That gives us the ability to better understand the work that went into negotiating the contract. You can either read the PFT piece for the full breakdown or view his cap page at OTC for the cap hits, but the cliff notes version is as follows:

The full guarantee on the contract is around $13 million with $60 million being an injury only guarantee

Those injury guarantees vest on April 1 of each season

$12 million in total value is tied to per game active roster bonuses.

$12 million in total value is tied to relatively high percentages of playing time and various honors or team success

The basics of the deal go back to the point I made in the Kaepernick piece I wrote last season that the higher the overall contract value the more team friendly it would be in terms of structure and escape points, which is exactly what this contract is.

The 49ers could have used the franchise tag on Kaepernick to hold his rights for next year. This year the tag was around $17 million so next year it would likely have been around $18.5 million and fully guaranteed once signed. They also could have used the exclusive franchise tag which would have cost closer to $20 million assuming the Dallas Cowboys again restructure the contract of Tony Romo in 2015.

For cap purposes the 49ers will basically settle in between those numbers, spending an additional $19.4 million in cap room in 2014 and 2015 on their QB of which very little is guaranteed and $2 million is tied to incentives, essentially bringing him to the original tag numbers. If this went catastrophically bad in 2014 the 49ers could release Kaepernick next season and absorb just a $9.8 million dead money charge or immediately discuss a restructured deal. In essence that would mean they paid him an additional $12 million for his work in 2012 and 2013. While in practice we know this is not happening, it is a benefit to the team. Front end cash flows for Kaepernick are very low compared to his peers.

For Kaepernick to get the large contract value that he wanted there were things he had to give up, primarily guaranteed money and normal injury protections. This is a risky move for the player and a big bet on himself. He has catastrophic injury protection for career ending type injuries but small injuries can cost him millions.

The true guarantees in his contract are far less than what the number 1 pick in the draft would earn. My guess is if he came in at a much lower annual number (say $18 to $19 million a year) he would have received $40 million or so in fully guaranteed salary. As a comparison players like Jay Cutler received $38.5 million in fully guaranteed salary while Aaron Rodgers leads the way with $54 million. Even the last eras great young class of QBs to be extended (the 2004 draft class) all got over $30 million in full guarantees.

So I would say Kaepernick gave up $27 million in full protection. There is nothing wrong with that as long as you are confident in your abilities to remain a dynamic player. If you are a good player the guarantees mean nothing outside of injury protection since the team is more than happy to pay you. If you are the type to be changed by the big contract then giving up those guarantees is a problem.  For Colin as long as he lasts out the 2015 and 2016 seasons then the guarantee issue will be moot.

Kaepernick also had to give a great deal of team protection in the event of injury.  He has $2 million per year in roster bonuses tied to being active. That is a huge figure. The only other player at the position to have numbers that high is Cutler who has them at $2.5 million a year, but those are not included in the first three years of his contract. For Kaepernick they are there from day 1. The only other notable player to have such roster bonuses is Rodgers at just $600,000 per year in every year of his contract.

Now the 49ers do seem to make the gameday roster bonuses mandatory in their contracts as do the Packers, but the difference in amounts is staggering. At the least we would say he made a $1.4 million concession with this structure. It might be even more.  Most likely he’ll miss a few games over the course of his career as most do, but hopefully it won’t be significant time for his sake.

(Edit: I had mis-read the makeup of the contract for Kaepernick when initially writing this. This is now fixed. H/T to Jakob for pointing it out).

The $2 million a year in de-escalator clauses is also an unheard of thing for the position. It is basically a way to inflate the full value of the contract and reward him if he was to appear in a Super Bowl.  It’s basically a built in incentive that allows him to not miss out on the big contract he would receive if he won the Super Bowl.

Those concessions all benefit the team as does the initial cash flow of the contract, but as we move into year 3 the contract takes a turn to benefit Kaepernick, as it should if he is perfectly healthy and continues to develop into an All Pro type player. The three year total on the contract matches Joe Flacco’s take of $62 million. I am sure that is no accident as Flacco I think is recognized as the baseline number for a good QB whose money was mainly earned in the postseason on a successful team.  In that year Kaepernick breaks away from the Romo’s and Cutler’s of the world (who have better cash flows early on) in terms of earnings.

Starting in his 4th season (assuming again health throughout his contract and a big 2014 season) he will begin to distance himself from Flacco. Surpassing Flacco seemed to be the big concession from San Francisco on the contract if it plays out perfectly. Despite the higher annual value on the deal he will never surpass Matt Ryan in real earnings. Matt Ryan will earn $103.75 million in 5 years while Kaepernick maxes out at $102.6 million. In a league where QB salaries are built on postseason success that is a big one for San Francisco as Ryan’s teams have been a disappointment in the playoffs and were eliminated by Kaepernick’s team two years ago.  Rodgers makes $110 million in the same timeframe so Kaepernick lags greatly there.

Here is the full yearly cash flow breakdown across the position that illustrates when the Kaepernick deal has the potential to make him one of the biggest earners

Kaepernick cash

I would not expect this type of contract to become a standard in the NFL. I think the Matt Stafford and Mark Sanchez models of higher guarantees on short term “evaluation” extensions are probably more in line with what teams would prefer for their younger QB’s. This contract to me is more about creative ways to make a contract that makes both sides happy.

San Francisco gets their guy at pretty reasonable figures during the “evaluation” period with outs coming every season and virtually nothing guaranteed. They are protected from injury. Kaepernick gets the huge money if his “evaluation period” goes well and he does get $60 million safeguarded from a career ender.

If we treat the $2 million de-escalators as incentives then we bring the total down to a more reasonable $19 million a season. If he never makes it back to the Super Bowl or gets the honors brought his way the cash flows are much closer to Romo and Cutler than the Super Bowl winners.

Kaepernick cash 2

I would not picture Andrew Luck or Russell Wilson having to use this type of contract structure. RGIII with his injury potential might have to look more at something like this and Carolina can argue with Cam Newton about the same. The interesting thing is that Kaepernick has never really been hurt, it’s more like an assumption that he could get hurt with his playing style.

Often we hear in contracts that the team is paying for what they think the player will be. In this case it’s more the player showing a real belief in who he will be. They knew the 49ers did not want distractions this year going into what is probably the last year that they can afford a deep roster so it made for a good time to make a deal that makes both sides happy.


 

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  • Jim

    So if he blows his ACL in training camp or the preseason of any season after this, he basically loses $4 mil for that season, am I reading this correct? And any week between Wk 1 and 13, he loses $2 mil + $125k per missed game?

    I guess that’s the interesting part of the story to me, as career ending “on-the-field” injuries (or off-the-field for that matter), are almost unheard of at this point, especially at the QB position.

    And the fact that there’s such relatively little “dead money” hit every year after 2015. Even Sanchez had huge dead money hit (more than his cap charge), preventing the Jets from releasing him after the 2012 season.

    • http://www.nyjetscap.com/ Jason Fitzgerald

      I had read the deal wrong but if he were to blow out his ACL he would lose $2 million for the year in his gameday bonuses and another $2 million in de-escalation, unless the ACL happened after he played 80% in a year and also was named second team All Pro or made the SB already. Once he does that he triggers the incentive. And yes the big injuries are almost unheard of. It seems pretty rare that the injury guarantee really comes into play in most cases.

      • Jim

        So if he plays 80% and reaches the SB or AP 1st or 2nd team in 2014, does that mean, the de-escalation clause is out the window for the rest of the contract? Or is it a year-to-year thing? Sounds more like an “incentive” than a “de-escalation”.

        • http://www.nyjetscap.com/ Jason Fitzgerald

          Yes it does. Almost every other team would include such incentives as NLTBEs or incentivized escalators. Its purely done to pump the value of the APY while giving him the knowledge that if he “bet on himself” ala Flacco he could still earn that money even if he took the deal now.

  • Jakob Inführ

    I interpreted the de-escalator differently: He needs to play 80% AND get to the Super Bowl or be in the All-Pro Team. He needs to do this once, and then the deescalating stops.

    • http://www.nyjetscap.com/ Jason Fitzgerald

      You are correct. I mis-read it and didnt get a chance to fix it. It should be correct now. Thanks.

  • Perfundle

    I can’t imagine Harbaugh resting Kaepernick merely for the sake of avoiding triggering the de-escalator. I don’t see how that could possibly go over well. In fact, I see far more potential for abuse in the other direction regarding the All-Pro clause. Kaepernick only needs to make the second-team, right? What if there’s
    another season like last year where a QB (not Kaepernick) is clearly the
    best QB in the league and everyone is expected to vote for him. All it
    takes is for one writer of a rival team to give Kaepernick one vote, and
    suddenly he’s second-team All-Pro without necessarily deserving it.

    • http://www.nyjetscap.com/ Jason Fitzgerald

      Yeah I read it wrong so that wont happen (Harbaugh sitting that is).

  • Ryan Kelly

    Great analysis Jason. Those two cash flow charts are also really helpful. It’s definitely an interesting and creative deal.

  • Ryan

    How are you seeing his 3 year money as 62 Mil? From what I’m reading, if he doesn’t make the All-Pro or the SB, he makes 13M in 2014 in signing bonus and salary… 13M in 2015 in Salary and Roster bonus if the de-escalator hits, and 14.3M in 2016 for the same. If he does make the SB even in 2014, his 3 years for 2015-2017 is 15M, 16M, and 19M. Just a bit confused there. Flacco has monster signing bonuses.

    • http://www.nyjetscap.com/ Jason Fitzgerald

      When you compare contracts you compare the entire new money in a deal. Assuming Kaepernick hits it in 2014 (essentially the Flacco contract bump that he received by winning the SB) his new money would be the signing bonus, salary and workout in 2014 plus salary, workout and roster in 2015 plus salary, workout and roster in 2016 plus salary, workout, and roster in 2017 minus original salary from 2014.

      That works out to be 13.073 + 14.8 + 16.3 + 18.9 – 1.073= $62

      This is why its tricky to compare contracts when they are not equal when signed. ESPN is making that mistake with all their posts on 3 year values on their various blogs. Kaepernick made $1 million in his one last year because of where he was drafted. Matt Ryan, who signed a deal with one year left as well, made $10 million because he was drafted. Thats not fair to compare in that manner since that money was a sunk cost and had nothing to do with the negotiation of the contract. Flacco has no old money because he was a true free agent. So to try best to make it apples to apples use the extension years as the first years and consider the old contract years as kind of prepayments on the extension. The Flaccos of the world always get a better structure because proration usually carries through to the end of the extension, but moneywise we have to try to bring them as close to equal as possible.

  • Ryan

    I don’t think it’s fair to the 9ers to consider this a 6 year extension flat. Flacco made huge bonuses pushing his immediate salary 62M way up for the first 3 years. Kap’s deal is basically 13M for 2014, 13M for 2015, and 14.3M for 2016. His 3 year money is inflated if you think of the deal as strictly 2015-2017 with the 13M signing bonus included. That 13M is offsetting the last year of his rookie deal… which would make this considered a 7 year contract for between 16-18M based on incentives… and heavily backloaded.

  • PhataLerror

    Let’s call the contract what it really is: A series of one-year prove-it contracts for a quarterback that has proven only that he can be carried by a great coaching squad and a great supporting cast. What Kaepernick’s contract has done is set a new market for quarterbacks outside of the ‘Tier-One-and-So-On’ structure, which will be great for teams like the 49ers that have trouble evaluating a quarterback that has incredible physical measurables, but little consistency, and no demonstrated history to beat the elite defenses of the NFL when those defenses are accompanied by a quality offense.

    The 49ers have successfully leveraged Colin Kaepernick’s confidence against him, and if Kaepernick doesn’t start playing at the level that so many fans think him to already be at, the 49ers can cut him or trade him with little cap consequence.