«

»

Jul 13

Vesting vs Full Guarantees Focusing on the Broncos and Ryan Clady

One of our Twitter buddies had the following tidbit regarding Ryan Clady and his contract discussions:

 

On the surface that seems like a no-brainer of a contract for Clady. An $11 million APY in this market with $33 million guaranteed is a heist for the player. But whenever you see reports like this the first thing that should come into mind is whether the guarantees are real guarantees or not?

Guaranteed salary can take on many forms, only one type of which is truly guaranteed. We touch on this more in depth in our Caponomics videos, but the basics are that in the NFL you can be cut for skill, injury, or salary cap reasoning. Unless upon signing your salary is guaranteed for all three terminations the guarantees are nothing more than fancy words designed to make a deal sound amazing in the press when in reality the deal may be worth nothing close to the reported numbers.

The Broncos in particular rarely seem to fully guarantee players salary. They often use a “vesting” mechanism in which the player will convert a partial guarantee into a full guarantee by meeting some condition, typically being on the roster on a certain date. The vesting guarantees can be long horizon (more team friendly) or short horizon (more player friendly).  In the Broncos case it is normally the latter.  The structure of such guarantees are of even more importance when dealing with the Broncos who do not usually give their players large signing bonuses, which act as a deterrent towards early release due to salary cap implications.

So how do these deals work in practice?  We can first look at Peyton Manning who received a $96 million dollar contract. Technically the deal contains $96 million in guarantees, but the reality was just the first season was guaranteed. If released after that season and before the trigger event Manning would not have received another penny. To trigger his guarantees Manning has to pass a physical before the 2013 LY which activated $40 million in full guarantees, unless an injury occurs related to his original neck injury.  In 2015 and 2016 he has the ability to lock in yearly guarantees by passing a physical. This was both a player friendly structure (frontside) and team friendly (backside) with the rolling guarantee structure.

Wes Welker signed a 2 year $12 million dollar contract that was reported to be 100% guaranteed. That was only the case in regards to injury.  If Welker makes it thru the season in one piece and is released prior to the start of the 2014 League Year the Broncos will not owe him a penny. He needs to be on the roster to activate his guarantee.

Former Bronco Elvis Dumervil received tremendous press coverage when it was reported that his contract contained over $43 million in guaranteed money. As things turned out most of those guarantees were against injury only with him required to be on the roster every year for the guarantees to really mean anything. Dumervil missed out on $12 million in 2013 when he was released before the vesting date. Dumervil’s contract was incredibly team friendly.

So as we turn to Clady the question is just how much of the $33 million will be truly guaranteed and how much will need to be earned?  I would think it is doubtful that it would be fully guaranteed as the Broncos simply do not concede on that point. On top of that there is considerable precedence at the position. Joe Thomas,  D’Brickashaw Ferguson, Jake Long, and Duane Brown all have partial guaranteed contracts with possibilities of earning full guarantees along the way. None had their deals fully guaranteed upon signing.

Thomas’ deal could be a good starting point for an idea of potential structures.  Thomas’ contract was reported to contain $44 million in guaranteed money. The only amount fully guaranteed upon signing was a $6 million dollar signing bonus, $4 million roster bonus, and $8 million dollar Paragraph 5 salary. Another $20.5 million was guaranteed for injury and would become fully guaranteed by being on the roster a few days following the Super Bowl each year, a date that is considered more player friendly that dates pushing into the actual league year. $5.5 million was only guaranteed for injury.

Using that same structure and eliminating the portion of the guarantee that simply doesn’t vest we can get a signing bonus around $5 million and $10 million in fully guaranteed money that will be paid out in 2013. His 2014 salary would be $9.3 million and 2015 salary would be $8.7 million, both of which would be guaranteed for injury only and converted to full guarantees if he is on the roster in February of each year. Using that structure Clady’s cap charges would be $11 million, $10.3 million, and $9.7 million with backend charges of $11.5 and $12.5 million. His dead money in those last two years would only be $2 million and $1 million respectively which would fit in with the Broncos current Manning window.

So I’ll be very interested to see how it all breaks down, but I would not be surprised if its something similar to what I have outlined above.I think the key is just how much money they can push the Broncos on in the first two years. Those are two seasons where the guarantees are most likely to be realized. If Denver tries to push more vesting guarantees into 2015 then it is a deal Clady may reject unless he can earn those guarantees by being on the roster in 2014 rather than 2015.