Looking at Restructuring Tony Romo’s Contract

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Recently there has been a lot of talk about the Cowboys restructuring the contract of Tony Romo for salary cap flexibility. Romo has the highest cap charge in the NFL in 2015 at $27.773 million and bringing that figure down would make it easier for the Cowboys to re-sign Dez Bryant, one of their lineman, and either re-sign DeMarco Murray or acquire Adrian Peterson. I wanted to look at some of the ins and outs of restructuring a contract and what is best for the Cowboys to do with Romo this season.

Comparable Situations

It’s important to note that a restructuring is not a new contract. It is simply a way of changing the way the money is accounted for against the salary cap. Usually it means taking the player’s salary and turning a majority of it into a signing bonus that is spread out over the remaining years of a contract.  Every restructure will make it more damaging to release a player in the future. With that in mind Dallas needs to first determine what they believe are the true remaining seasons for Romo, who will be 35 years old in 2015 and has a bad back.

Romo has been very productive the last two seasons and has averaged 251 yards, 2.17 touchdowns and 0.63 interceptions per game. Among 33 and 34 year old quarterbacks since 1990, those numbers rank, at the worst, in the top 15 of the last 25 seasons and in some categories he is top 5. I want to use this group of players to help decide when I will most likely have to part ways with Romo in the future.

While we can look at statistical projections, the fact is that the contract parameters are already complete so our most important item is to identify the point at which Romo will not be productive enough to be on the team. We’ll look at that a few ways.

Our group of players will include all players who averaged at least 200 or more yards per game average over their age 33 and 34 seasons since 1990 (25 total players) and we will track the performance of those players in the table below. The Active column represents the players still getting reasonable game action and the Inactive column are the players who have been cut, hurt, or demoted and rarely play. The 220+ and 200+ yard columns are the percentage of the remaining active players who threw for at least this many yards. The final column looks at the percentage of players that produced an AY/A of 6.5. The numbers are adjusted to take out active players who were not old enough to qualify.

AgeActiveInactive220+ yards200 + yardsAdj. Yards >6.5
3588.0%12.0%50.0%77.3%59.1%
3663.6%36.4%64.3%85.7%64.3%
3768.2%31.8%60.0%66.7%60.0%
3857.1%42.9%58.3%66.7%41.7%
3910.0%90.0%50.0%100.0%50.0%

What this chart tells me is that age 35 is the last season where I should expect a productive QB. At 36 and 37 we begin to move more into the territory where our expected return (inactive plus ineffective) is making the turn towards non-productive.  Still I can hold out hope through 37 that we have a reasonable chance of being productive. Essentially you don’t wan’t to run too high of a risk in this age 37 season if you can afford it. By 38, 43% of the original group dropped off and looking at the adjusted yards from the remaining group, over 60% are not going to really qualify as higher level players. Essentially their yards are more meaningless than what we are seeing at age 37 and there is approximately just a 25% chance of having a productive player at that age. Age 39 is essentially a void year.

The Current Contract

Romo has 5 years remaining on his contract. $15 million is (or will soon become) guaranteed and the remainder of the contract is not guaranteed. The prorated charges represents charges from a $25 million signing bonus paid in 2013 and bonuses from restructurings in 2011 and 2014 that added bonus money to be paid in the 2011, 2012, and 2014 seasons. The dead money represents all remaining prorated money in the contract plus any remaining guarantees. These are the costs of releasing Romo prior to June 1. A post June 1 keeps only the current years charges on the books while all remaining prorated money would hit the following season.

AgeYearBaseProratedCapDeadSavings
352015$17,000,000$10,773,000$27,773,000$44,908,000-$17,135,000
362016$8,500,000$9,135,000$17,635,000$19,135,000-$1,500,000
372017$14,000,000$7,500,000$21,500,000$10,000,000$11,500,000
382018$19,500,000$2,500,000$22,000,000$2,500,000$19,500,000
392019$20,500,000$0$20,500,000$0$20,500,000

This is a contract clearly designed to run no later than age 37, which works in line with our look at comparable players above. Age 37 year provides an out at $10 million in the event that things take a turn for the worst in 2016. Provided that the team would have no more than one other major release that season they could absorb a $10 million cap hit and remain near the league average for dead money in a given year.

So let’s look at what we can do with the contract from this point forward

The Max Restructure:

In a maximum restructure we are reducing Romo’s base salary to the absolute minimum and converting the balance, $16.03 million, to a signing bonus.

AgeYearBaseProratedNew ProratedCapDeadSavings
352015$970,000$10,773,000$3,206,000$14,949,000$45,938,000-$30,989,000
362016$8,500,000$9,135,000$3,206,000$20,841,000$31,959,000-$11,118,000
372017$14,000,000$7,500,000$3,206,000$24,706,000$19,618,000$5,088,000
382018$19,500,000$2,500,000$3,206,000$25,206,000$8,912,000$16,294,000
392019$20,500,000$0$3,206,000$23,706,000$3,206,000$20,500,000

This maximizes our savings in this year by giving Dallas over $12.8 million in additional cap space, more than enough to franchise Bryant and use their existing space for other needs. The tradeoff here is that we have now eliminated our escape route in 2017 and left ourselves with a much bigger number in 2018. A $24.7 million cap charge in 2017 for a 37 year old is extremely high even if we assume a rising salary cap.  That would possibly leave Dallas in a bind again scrambling for cap room and not a lot of leeway in asking for a pay cut.

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Second Restructure Option

In our second restructure scenario rather than going for the maximum conversion we’ll take a middle of the road approach and just convert $12 million of Romo’s salary into a bonus.

AgeYearBaseProratedNew ProratedCapDeadSavings
352015$5,000,000$10,773,000$2,400,000$18,173,000$44,908,000-$26,735,000
362016$8,500,000$9,135,000$2,400,000$20,035,000$28,735,000-$8,700,000
372017$14,000,000$7,500,000$2,400,000$23,900,000$17,200,000$6,700,000
382018$19,500,000$2,500,000$2,400,000$24,400,000$7,300,000$17,100,000
392019$20,500,000$0$2,400,000$22,900,000$2,400,000$20,500,000

Again I don’t think this is a great option because we are still setting ourselves up for what could be a bad situation in 2017.  This is better than the first option, however, and would free up $9.6 million.

Third Restructure

In this restructure we are converting just $7 million to a bonus.

AgeYearBaseProratedNew ProratedCapDeadSavings
352015$10,000,000$10,773,000$1,400,000$22,173,000$44,408,000-$22,235,000
362016$8,500,000$9,135,000$1,400,000$19,035,000$24,735,000-$5,700,000
372017$14,000,000$7,500,000$1,400,000$22,900,000$14,200,000$8,700,000
382018$19,500,000$2,500,000$1,400,000$23,400,000$5,300,000$18,100,000
392019$20,500,000$0$1,400,000$21,900,000$1,400,000$20,500,000

Of the options so far I think this is the most reasonable. We created $5.6 million in cap space and done a better job normalizing the cap charges moving forward. Though the $14.2M dead money figure is high, I can live with it as long as I assume no other major mistakes on the roster.

A Different Option

So far we have worked in the parameters of a traditional restructure where we convert base salary to a bonus. But why do we need to do that?  Romo’s original deal is unique in that his age 36 cap charge is relatively low with a salary of just $8.5M. We can take a portion of salary that is set to be earned in 2015 and push it to 2016. First we will look at a $6 million carry forward.

AgeYearBaseProratedCapDeadSavings
352015$11,000,000$10,773,000$21,773,000$43,408,000-$21,635,000
362016$14,500,000$9,135,000$23,635,000$25,135,000-$1,500,000
372017$14,000,000$7,500,000$21,500,000$10,000,000$11,500,000
382018$19,500,000$2,500,000$22,000,000$2,500,000$19,500,000
392019$20,500,000$0$20,500,000$0$20,500,000

This is definitely a good option for the team. We save $6 million this year and put it off to the following season, which have just about normalized our cap charges.  I don’t have to touch his dead money in 2017 so my emergency exit button is still intact and in 2018 there is almost nothing left if I’m lucky enough that he made it there.

This is really the ideal way to work within this contract and maintain flexibility. If the number in 2016 looks a little too high there is some wiggle room to include a small bonus as well, such as a $3 million signing conversion:

AgeYearBaseProratedNew ProratedCapDeadSavings
352015$10,000,000$10,773,000$600,000$21,373,000$46,908,000-$25,535,000
362016$12,500,000$9,135,000$600,000$22,235,000$25,535,000-$3,300,000
372017$14,000,000$7,500,000$600,000$22,100,000$11,800,000$10,300,000
382018$19,500,000$2,500,000$600,000$22,600,000$3,700,000$18,900,000
392019$20,500,000$0$600,000$21,100,000$600,000$20,500,000

It’s pushing us a little higher in 2017, but it’s not impossible to deal with and it’s better than some of the initial restructures that we looked at.

These are the types of constructs I want to work with. There are plenty of ways we can go but I want to negotiate as much as I can the reallocation of my 2015, 2017, and 2017 base salaries rather than just converting bonus money. I can work a bit with guarantees to make sure the absolute earnings stay the same and in most cases any deferred money would need to be paid the next March as a roster bonus, but I need to minimize any impact to the 2017 and especially 2018-19 seasons.

I do get a good deal of questions about the “Tom Brady” option, but I don’t see that as viable here. There is too much money already in this contract for Romo to just walk away from it. That contract is not a reasonable option for any player to consider. When Romo turns 37, if he is still playing at a decent level, the sides can probably have that type of discussion and the above deals won’t prevent that discussion from taking place, but that is years away from being a relevant discusion.

We’ll see what the Cowboys do but there should be plenty of avenues to realize $6-$7 million in savings this year without really wrecking the salary cap in the future.

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  • Ghoston

    The players association won’t take the last 2 options with guaranteed money still on the deal. The Cowboys will do the max restructure and worry about it when 2017 comes which is so long from now. He might retire? they can designate a June 1st cut or a paycut instead of a restructure but we will have to see how he plays. 2018 looks like an easy cut as there are no guarantees left and the 8mil hit shouldnt be a problem.

    • NW86

      I’m not sure it would be a problem with the NFLPA as long as they kept the money guaranteed, but I do agree they probably won’t do that. This contract was obviously set up for multiple restructures from the beginning, with all those years on the end ready for the proration charges, and the small 2016 salary there ready to keep that year’s cap charges modest despite all the prior years’ restructures.

      I don’t think they’ll go max restructure, but they will do something between options 2 and 3 – a traditional restructure changing about $10M or so from salary to signing bonus. The first thing they will do is restructure Tyron Smith, along with any cuts they’re going to make. Then they’ll see how much more space they need when free agency arrives, and that will determine the amount of Romo’s contract that gets restructured. That will get him down to about a $20M hit in 2015, less than $20M in 2016, and if he’s playing well and they feel like they have a shot at the SB, they can live with the ~$23M for one last shot in 2017. There is no way this contract lasts until 2018

      • Ghoston

        Tyron Smith will definitely be restructured as they have 5 dummy years on that contract. all his guarantees are gone after 2015, I am sure he and his agent are begging for a full restructure and make it where in 2016 he will be 14 mil against the cap and 14 mil dead money. Romo basically signed a 7 year deal with 2 dummy years in at contract. So this was going to happen, and who knows what he will be in 2017 and who knows what the cap will be and we agree that in 2018 romo is a goner.

  • Dan Cicala

    I think this article’s overly conservative in its conclusions. A couple of things:

    1) I think it’s very hard to say anything conclusive about Tony Romo’s prospective decline because there are so few players to compare him to historically (it’s very hard to compare any QBs historically). What I do know is that it’s a mistake to act like bloating the sample size will lead us to solid conclusions. Tony Romo is much better than any old QB who threw for 200+ yards/G from ages 33-34, so comparing him to them as a whole, unweighted population isn’t going to get us very far. If we look at mere baseline stats (instead of differential) to track that population’s decline, it’s going to get us even less far.

    Of course, it’s problematic to look put much faith in small sample sizes, but in these situations, looking at case studies does us more good. There are only 6 players in the history of the NFL to have a career passer rating of 90 plus and who are at least 37-years-old today … and one of them is Chad Pennington. Tom Brady is coming off a season that’s in line with his career numbers at 37; Manning is still one of the kings of the hill at 38; Steve Young played well through 37, but then fell off once he turned 38; Kurt Warner played to his career numbers through 38 and then retired while the gettin’ was good; Joe Montana is hard to speak to with the injury at 35, the overtaking by Steve Young at 36 and then … well, he was still good by ’93-’94 standards, but obviously a massive decline … assessing Montana’s last years probably deserves its own blog post breakdown; and that’s it. If we wanna throw some other great ones in there, Elway statistically got better with age (the QB position was changing over the course of his career) before retiring at 38; Favre was all over the place and essentially lived through 3 completely different QBing eras, but it’s very hard to argue that he fell off the face of the earth after his 37th birthday; Marino got decidedly worse from 36-38; etc. So, still a mixed bag, but it seems that QBs who are decidedly better than their competition at the position survive longer into their career as it takes a much longer decline before they’re among the bench-worthy.

    Throw in Romo’s recurring back problems, and it’s even harder to make historical comparisons.

    So, thanks for the high-level numbers, but I don’t think they tell us much about what exact year in his contract it becomes prudent to expect Romo to still be a starting QB.

    2) There is no such thing as an open market for starting NFL QBs. As such, the thought process shouldn’t be comparable to, say, the fear of overpaying an ace starting pitcher in baseball, where teams who budget wisely will have themselves several players to choose from every winter. The top QB free agents this year are Mark Sanchez and Jake Locker.

    Whenever Romo is cut or retires, the QB position will make almost nothing for the Dallas Cowboys pretty much regardless of what they do with Romo’s contract situation. Now, if they’re paying 10s of millions of dollars in dead money to a QB who isn’t even on the team, that will preclude them from having the relative success of the ’09 and ’10 Jets whose low cap number at QB allowed them to succeed with crap at QB, or to hit the salary cap jackpot like the Seahawks have the last couple of years with a low cap number at QB AND good production from the position, but these are exceptional cases.

    But even if the worse-comes-to-worse, it also won’t put the Cowboys in salary cap hell. Really the best they can plan for is to ride Romo’s back into the ground (giving him the best pieces to contend with in the meantime), and if it gives out earlier than they’d like, then they’ll be forced to play the 1st-day QB drafting lottery with okay-not-great support around them, and if it lasts longer than they might have guessed, then they’ll have a little more cap space to try to beef up the roster around what is likely to be a poor-to-mediocre QB while they play the 1st-day QB drafting lottery.

    I know it sounds imprudent, but that’s the nature of the NFL–there’s no great way to plan a team for when you don’t have a franchise QB. You get the most bang for your buck when you invest your resources in the years when you’re most naturally set to compete (ie: the years that your QB isn’t crap).