Thoughts on the Impact of Jimmy Graham’s Contract

Later today Jimmy Graham will sign a four year, $40 million contract that will make him the highest paid tight end in the NFL. The $10 million a year average surpasses the prior high contract value for the position of $9 million per year which was set by the Patriots’ Rob Gronkowski in 2012. The question now is whether or not this contract is a game changer for the position and what impact it will have moving forward.

The NFL has long valued the tight end position as far inferior to the wide receiver position- the average value of the top five at each position is just $7.6 million compared to $13.7 million.  Graham’s contract will now be the first to move the tight end closer towards the top of the wide receiver market. His $10 million annual value will rank 7th among receivers, tied with Brandon Marshall of the Chicago Bears.

However, when we discuss the actual effect of the contract on the entire market, the devil really lies in the details. In the NFL no multi-year veteran contracts are fully guaranteed. When we determine the real impact a contract may have on other negotiations in the future we need to know the timing of the  cash flows and the structure of the salary cap charges to determine the likelihood that the contract will actually be earned.  If the final year of Graham’s contract were to contain $15 million in cash payments then the $40 million number is worthless to any future negotiations because the odds of that final year being earned by the player are miniscule.

Per Andrew Brandt we now have the cash flows of the contract to compare with the rest of the market.

Top NFL Tight End Salaries: Running Cash Flows

 

PlayerYear 1Year 2Year 3Year 4
Graham$13,000,000$21,000,000$30,000,000$40,000,000
Gronkowski$12,000,000$17,000,000$30,000,000$35,000,000
Davis$13,477,000$19,828,000$26,500,000$31,800,000
Gates$10,375,000$20,775,000$25,275,000$30,275,000
Witten$13,000,000$18,000,000$23,100,000$29,600,000
Cook$8,000,000$14,000,000$21,000,000$28,000,000

 

The three year cash flows of the contract do not indicate a contract that will necessarily be a game changer of a contract. Graham’s first year payout is tied for second among elite tight ends. His 2nd year payout is just slight above what Antonio Gates and Vernon Davis signed for in 2010. The three year total just matches that of Gronkwoski. These contracts were all signed at a time when the cap was certainly lower than it is now.

The basic components of the contract are very much in line with the existing tight end market and do not reach upwards until the fourth year.  The top players from this group received about 85% of their four year cash value in the first three seasons. Graham will receive just 75% of it. The difference here is a big consideration when we look at the impact of the deal.

Had he received the 83-85% payment, his three year total would have been around $34 million. That is groundbreaking. Not only does that far surpass anyone on the market, but it would have put him just $2-$3 million shy of the elite (by salary) wide receiver grouping of Vincent Jackson, Dwayne Bowe, and Mike Wallace.  Those players all earn $11+ million a season. Had he received closer to that figure I think we would have finally had a clear niche defined for the pass catching tight end, a subject that has become a big topic of debate over the last few years. .

I’d consider Graham’s contract slightly stronger than Gronkowski’s since Gronkowski had to survive five years of NFL play (and hes been hurt through most of the first two of those seasons) to get his three year total. Graham needs only to survive three years.  This is because Gronkowski signed a contract with two years remaining on his rookie contract. Graham will also earn more over the first two years than Gronkowski.

But Graham does not have great protection in his contract. According to Pro Football Talk, Graham will receive a $12 million signing bonus on his deal. Assuming no voidable years were used that would leave New Orleans with just $6 million in dead money in 2016 and $3 million in 2017 if they wanted to release him. Both are workable numbers, especially the 2017 number. With a $10 million salary in 2017, I would consider that $40 million number to be in great jeopardy and, quite frankly, its only that $10 million salary that makes this a contract that stands far apart from anyone else at the position. Without it this is no different than where things stood before.

Some have questioned the years of the contract. I believe that served two purposes. One is that if Graham continues to be a spectacular player, it would allow him a chance to cash in on another contract. This is in stark contrast to others like Vernon Davis who have realized there is no future money available to them because of the contracts they signed when they were younger.

Secondly it made for an easier negotiation for New Orleans. New Orleans has become a market setting team in recent seasons. Drew Brees, Jairus Byrd and Jahri Evans  were all market movers. They were here as well, but Graham was looking for high end receiver money. They could compromise with a $10 million annual value, but if they extended that contract into five and six year territory they would have had a much more difficult time justifying the contract and also would have had to include a higher guarantee to make up for more seasons. $40 million over 4 years more or less split the tight end and wide receiver salaries over that time frame. To do the same over five years would have required a much bigger disparity between tight end and Graham’s salary.

My guess is Graham accepted this contract with a strong conviction that the Saints can not keep him on the salary cap in 2015 at an $11 million cap charge and will thus add voidable contract years and restructure the contract. New Orleans has the worst cap outlook of any team in 2015 and they do use voidable years so this is a reasonable assumption. If they were to make that move then he might earn the full $40 million. Without it he is going to have to perform at a very high level, much higher than most tight ends do after that many seasons in the NFL.

Graham does receive about $6 million more over the next two years (mainly all coming in 2014) than he would have by playing the franchise tag game. That’s his big benefit. Thus far the Saints will receive no effective cap relief on the contract. Had they tagged him twice he would have counted for $15.5 million against the salary cap. Now he will count for $15 million. I have to believe that from their perspective they feel that this was a discount over playing the three year tagging game which would have cost them around $33.5 million in cash and cap. Now they will pay $30 million in cash and $27 million in cap over the same timeframe. That may indicate something about the window of opportunity the team sees for itself, which would also coincide with the expiration of Brees’ contract.  If they do not restructure the contract it strongly indicates a three year plan in place.

But overall I don’t view this deal as a transcendent contract the way many are. Its not a paper contract, but its not something that separates that much from what is out there. Like Gronkwoski’s deal a few years ago, there is no guarantee that the big money is ever unlocked in the contract. Without unlocking those years it doesn’t change the real structure of the tight end market. It’s a small step forward, but not the giant leap many think it is.


 

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