Per ESPN’s Field Yates, the Patriots recently extended the contract of guard Josh Kline for two years at a max value of $5.1 million and base value of $3.5 million. While that isn’t exactly major news I thought it brings up a very interesting concept of buying out free agent years which some teams employ as a method of both cap management and contract mangement. The Patriots probably do this more than anyone in the NFL so I thought it might be worth exploring for those who really get into the nuts and bolts of the way some teams do business.
When I talk about “buying out” free agency what I mean is that the team pre-emptively strikes a contract before the player reaches free agency. Typically this just requires two traits in a player- he has to be an undrafted type of player and he can only have had limited success prior to the current league year. Kline met both those traits. He was an undrafted free agent in 2013, who was cut and then spent time on the Practice Squad before getting the call up for good later that season. He had a total of 5 starts in the prior two seasons, but has become a permanent starter this year.
Kline would have been a restricted free agent this offseason had he played his contract out. He would have been given one of two tenders by the Patriots- either the basic right of first refusal or the second round tender, with the latter being applied if they felt he was too valuable to risk losing. The minimum cost for the tenders would have been a non-guaranteed $1.619 and $2.474 million. Kline, or a player in his position, can opt into the RFA process and then hit unrestricted free agency the following season.
If Kline established himself as a two year starter he might be able to command a contract in the range of $3.5-$4 million a season. Instead what the Patriots effectively did was pre-exercise their RFA rights and in return buy out an additional year of free agency on a discount. In return for that one year buy out Kline gives up a year of free agency for a lower cost contract plus a $750,000 guarantee.
Kline’s new money that will be paid out by the end of 2016 is $1.9 million, a figure somwhere in between the two tender values. $200,000 is tied to being active on Sunday, which could potentially bring the number down to $1.7M, generally the same as the lowest cost tag. If he hits his max incentives for 75% playtime, which he will if he starts next year, his take home will be $2.7 million, basiclly just above a 2nd round tender. His max cap charge, which is likely barring injury, next season is $2.2 million. The team will lose $250,000 in carryover space this year to bring the two year cap charge to $2.45 million, again virtually the same as the 2nd round tender.
Basically you can see that all they did was opt into a 2nd round tender, except one that has more protection for the team. Any injury would result in the loss of the either $400,000 or $800,000 in likely incentives and a portion of the $200,000 in roster bonuses. If tendered at the 2nd round level and he was injured the team would take the $2.47M cap charge and cash charge on with no recourse. Thats a smart way to manage the cap, especially for a relatively unknown player in a starting role.
The team also gets their discount in 2017 if Kline does continue to hold down the starting job and play effectively. His max compensation in 2017 is $2.4 million, which is anywhere from 1/3 to 1/2 of what he would make in free agency if he kept his position as a decent starter on a good team for a few years. The most recent example of a relatively unheralded guard to hit it big was Geoff Schwartz of the Giants who signed for over $4 million a season. So the earning potential is out there for a player like Kline.
But by being proactive and buying out that year of free agency for $750,000, the Patriots can save themselves a few dollars in cap and cash over the next two years and then decide if they want to be the ones to pay Kline starter money or let another team be the ones to fork over that money while they replace him with someone else.
Jason is the founder of OTC and has been studying NFL contracts and the salary cap for over 15 years. Jason has co-authored two books about the NFL, Crunching Numbers and the Drafting Stage, which are widely circulated in the industry and hosts the OTC Podcast. Jason’s work has been featured in various publications including the Sporting News, Sports Illustrated, NFL Network and more. OTC is widely considered the leading authority on contract matters in the NFL.