Manning Rolls Salary Into Incentives…Does It Impact the League?

I’ve talked here a good bit about Peyton Manning’s contract situation with the Broncos and their desire to ask him for a pay cut. Well yesterday Manning sort of agreed to a pay cut, taking a base salary reduction of $4 million and turning it into incentives based on playoff performance. As I said before the Broncos had little leverage to ask for a paycut and likely played on the idea that Manning did not want to chance having to play his last year or two in another uniform, but it is the incentive structure I wanted to talk about.

Manning will earn $2 million if he wins the AFC Championship game and another $2 million if he wins the Super Bowl. These were the kind of bonuses that had been common in rookie contracts many years ago, where a highly drafted QB would be further rewarded for playoff success. However, these incentives were not as common in veteran contracts, specifically in the contracts of players as accomplished as Manning.

I’ve long held firm to  the belief that the NFL as a whole was a bit stunned at the prospect of Joe Flacco earning over $20 million a season, seemingly on the strength of winning a Super Bowl. That contract directly led to Matt Ryan earning even more than Flacco because from a statistical standpoint  there was no comparison between the two players. Ryan was consistently throwing for well over 4,000 yards and 25 touchdowns compared to Flacco’s upper 3,000 yard years and 20 touchdown seasons.

San Francisco was next up to extend a young quarterback in Colin Kaepernick. Kaepernick had appeared in a Super Bowl and championship game in his short career. He had great potential and was also looking for a monster deal. While he received a very strong contract it was unique in that the contract contained a large number of incentives that were tied to either being named to the All Pro Team or reaching the Super Bowl again.

The contract kind of sent some shockwaves around the contract world because Kaepernick was tying his future security and earnings to high performance levels. Most said it would mean nothing, but then when Andy Dalton signed an extension with the Bengals he also tied a large number of contract dollars to playoff performance. Odd but Dalton wasn’t exactly a household performer and had failed multiple times to win in the playoffs.

The feeling was that such contracts would not impact negotiations with Cam Newton (former first overall pick), Andre Luck (former first overall pick), or Russell Wilson (Super Bowl winner). Similarly the feeling was these would have no bearing on the next wave of veteran extensions such as Eli Manning and Ben Roethlisberger and in fact they did not when Alex Smith signed a four year extension with Kansas City.

But with Manning, arguably the greatest QB of his generation, now agreeing that millions of dollars in his contract be tied to ultimate team performance people should take notice.  I’m not sure that this is going to be considered an outlier structure anymore and perhaps the next wave of QB’s are going to be pushed into such contracts.

I’ve long held the belief that the QB position has become overpaid in part because of the overreliance on things like team wins or playoff wins. Maybe now this is the way teams will start to bring those numbers down in the future. I’d watch closely at the negotiations this spring and summer to see if this trend continues or if it ends with Peyton. My guess is we will soon be seeing it again.

  • Zinsch

    I don’t think that the QB position is overvalued. Do teams like the Bills with their 5 million QB like Orton have an advantage over teams like Green Bay with their 20 million QB? Probably not.

    • DragonPie

      I’d rather have Manning, Brady or Rodgers combined with a bunch of nobody receivers than have Orton with superstar receivers and linemen because those top tier QB’s are good enough to negate poor play from positions around them and can make lesser players appear better. Top receivers, for example are overpaid compared to top QBs in my opinion.

      • McGeorge

        I agree. also top QBs re better able to take advantage of good but not great WRs.
        Give the QBs you mention a couple of good WRs and they will be fantasy football favorites the following year.

  • Kirk Vollmer

    I think the incentive based contracts where the NFL’s response to Joe Flacco’s robbing of the Baltimore Ravens and causing the price for mid tier QB’s to rise dramatically. That way they can set it up to where they can tell their mid-tier guys that they can be paid like Joe Flacco once they show Joe Flacco levels of post season success. With Manning a few years ago he wouldn’t have been on that kind of contract. But after his poor play late last season there are understandably a lot of questions as to if his age hasn’t caught up with him. So his value is down right now to what a mid-tier QB’s value would be.

    • McGeorge

      The Ravens made a mistake and over paid Flacco. They should have used the reduced franchise tag on him (15MM) where another team could take him for two first round picks.
      However – there is a shortage of serviceable QBs. It’s not like you can say “I’ll let Flacco walk and get an average QB in free agency”. There aren’t any.
      The alternative to over paying Flacco, is signing ….
      Mark Sanchez?

      Also – all it takes is one stupidly managed team (and there are several of them) to over pay someone, giving the impression of rising pay scales for that position.

      Had the Ravens franchised Flacco at 15MM, and another team not taken him, they probably wouldn’t have had to pay him as much.

      • anon

        I never understood the argument that “it only takes one team”, basically implying that you might as well be that team since someone might be. It was a stupid contract. Ravens should have franchised him and taken the 1st rounders. Average QBs with all-pro players around him will win championships if someone tried it (it has in the past when assembled by accident). QBs are severely overpaid when you consider the majority of teams with great QBs have excellent other players. It’s no coincidence that Eli Manning, Matt Ryan, ect have large drop-offs in numbers as their supporting cast disintegrates. You would do better if you didn’t repeat stupid logic without questioning it.

        • McGeorge

          >>I never understood the argument that “it only takes one team”, basically implying that you might as well be that team since someone might be. I

          I agree with you. Just because someone else is stupid, doesn’t mean you should do something dumb.

          >> You would do better if you didn’t repeat stupid logic without questioning it.

          I’m not sure who this is directed at since I never said they should sign him else Oakland (for example) will.

          But there is a reason to over pay an average QB – the position is illiquid and there is a shortage of slightly below average QBs. If you could replace Flacco with Kyle Orton at 4MM, you would do so. The problem is there aren’t many (any) 4MM QBs who are somewhat below average.
          If there were then Geno Smith and Mark Sanchez wouldn’t have played as much.

  • McGeorge

    >>I’ve long held the belief that the QB position has become overpaid in part because of the overreliance on things like team wins or playoff wins. Maybe now this is the way teams will start to bring those numbers down in the future. I’d watch closely at the negotiations this spring and summer to see if this trend continues or if it ends with Peyton. My guess is we will soon be seeing it again.

    Jason and Zach,

    This is probably the only thing I disagree with you about.

    Because NFL football has evolved into a pass happy game, the QB has an enormous influence on the teams performance. Given the shortage of decent to good QBs, the good ones are under paid. In their prime, an elite QB (Brady, P Manning, Rodgers, etc) add 4-5 wins to their team compared to an average QB. Would you pay a 25 year old Tom Brady or Peyton Manning 300MM per year, if the alternative was Joe Flacco at 20MM/year?
    I think the answer is a clear YES.

    Look at the teams desperate for a QB, like the Jets. If Andrew Luck went Free Agent at 30MM per year would it make sense for the Jets to sign him? Compared to having Geno Smith at 2MM / year?
    That would be a 6-7 win game swing, putting the Jets in contention for first place.