Cash Flows of NFL Contracts

Had a really good conversation on contracts with the guys at PFF today and right at the end of it some wacky news popped up about Dak Prescott that didn’t make much sense to me (and later I along with some others found it was a false rumor) but really opened up some strange discussions on Twitter about contracts. This also ties in with one of the first things we talked about on todays podcast which is what are the things you first look at when you see a contract and this seemed like as good a time as any to talk about that further using Prescott as example.

While reports on contracts often are about annual values, maximum values, and/or injury protection the real meat of the contract is the cash flow of the contract. From the perspective of the agent the more money up front the better. From the team side the opposite is true and they want to push more money to the back. All the other things are important to some extent but how the players get paid is really the primary factor with things like guarantees and structure being used as a way to mitigate the risk for the sides to some extent.

For the most part when we benchmark contracts we look at what’s referred to is “new money”. For whatever reason a lot of people find this confusing and get all mixed up with it but basically all this means is if a player is already under an existing contract we back the existing money and years out of the contract.  When analyzing a contract I usually refer to the money earned over and above what was called for in their prior contract the “Year 0” earnings. For example if a player had $25M remaining on his old contract and his new contract called for a $49M payment in the same year he would have a “Year 0” salary of $24 million. It’s essentially a prepayment on the new contract years. Year 1 of the contract would be the first year the player would have been eligible to be a free agent has he simply played out his prior contract.

If you are looking to sign a top market contract your goal is to also likely set new cash benchmarks at the various points of a contract. The following is the breakdown of the running cash new money cash flows of the top multi-year QB contracts of currently active players.

PlayerYear 0Year 1Year 2Year 3Year 4Year 5
Russell Wilson$53,000,000$71,000,000$90,000,000$114,000,000$140,000,000
Jared Goff$30,000,000$57,500,000$83,000,000$108,000,000$134,000,064
Aaron Rodgers$39,900,000$61,000,000$83,000,000$108,500,000$134,000,000
Carson Wentz$29,600,000$55,000,000$77,001,000$102,001,000$128,001,000
Matt Ryan$33,250,000$54,750,000$75,250,000$98,250,000$122,000,000$150,000,000

As you can see the numbers that are on the front end of these contracts are massive. The average of the group is about $60 million in new money earned by the time they have finished what would have been the first year of a contract signed in free agency. Since Dak does not have a “Year 0” to consider you can jump right into Year 1 to see the kind of money he would be looking at. This is one of the reasons why I found the statements I was reading about a $45M salary being selfish. You can not find any QB on a big contract that doesn’t earn much more than that on the front end of the contract.

The reason why the front end numbers are important for a player is because those are the years of a contract that are easier to earn. Even if a player’s salary is not protected by a guarantee the front end contract years are usually where the player is more effective. There is usually still a honeymoon period between the team and player at that point. Usually the players dead money at that point is often so high that it is harder for the team to move on anyway.

Getting back to the benchmarks the top line numbers are basically Wilson at every level with $71M, $90M, $114M, and $140M. Those numbers are gigantic and lap the field. Its $10M more than any other player at the start of the contract and $7M more in the 2nd year. One of the best ways to compare this is to break down the contract into value per year at every stage of the contract.

PlayerYear 1Year 2Year 3Year 4
Russell Wilson$71,000,000$45,000,000$38,000,000$35,000,000
Jared Goff$57,500,000$41,500,000$36,000,000$33,500,016
Aaron Rodgers$61,000,000$41,500,000$36,166,667$33,500,000
Carson Wentz$55,000,000$38,500,500$34,000,333$32,000,250
Matt Ryan$54,750,000$37,625,000$32,750,000$30,500,000

While Wilson did not earn anything close to the supposed demands of a contract that fluctuated with the cap and other oddball things you can see how strong it is. His contract on a per year basis is $1.5M per year more than Goff and Rodgers but the gap is much wider on the front end, which are the most likely years that the players will earn. It is important to note that QB is a little different than other positions because the career is much longer than other positions but the concept still remains the same.

When constructing an offer for Prescott his numbers have to fit somewhere in here. That is another reason why the $45M final year was kind of ludicrous. If its part of the $175M he would wind up well below the average for the other players until that last year since you would be taking $20M of money in the first four years out so you could throw it in the final year of the contract. That is maybe a tactic for a lesser player at a lesser position but would probably be considered somewhat insulting for a QB.

Don’t be surprised if one of the hardest parts of any offer is first bridging the gap as to where these cash flows wind up. The compromises are generally what you see with the others. Goff and Rodgers have contracts that average the same amount of money but if there was an epic disaster that caused the teams to bail (and there were no full salary guarantees) the Rams would have saved $3.5M because they were able to push some money later into the deal. Similarly if you look at Matt Ryan and Carson Wentz you can see an average per year that has Wentz earning $2M more per season. Yet the two earn basically the same number through two years and its not until the end of Wentz’ contract that there is more divergence. These are all ways to find compromises so that both sides come out of the negotiation happy. But those are moderate deferrals not millions upon millions.

If you base an offer on the structures of the other contracts you would wind up with cash flows in the range of $60M, $87M, $113M, and then $140M. That gives you the average per year of the Wilson contract but a cash structure that is better than most of the others but only catches up with Wilson on the backend.

The fifth year is an interesting topic. The big contract change in the movement from 5 to 4 year contracts really began with Wentz and Goff with an assist from the three year contract signed by Kirk Cousins in free agency. The Seahawks were a four year contract team and there was nothing unique about Wilson getting a four year contract. The older guard on four year contracts were old players. There was no reason for teams to really worry about five years there as they are a different subset of comparables.

The difference you get with Wentz and Goff is that those players were obligated for at least 5 years of control due to the fact that they had option years in their rookie contracts. So a four year extension represented 9 years of a players career. For Prescott a four year contract represents 8 years of control. If four years is a sticking point I would imagine that Dallas’ argument is what’s the difference between tagging Prescott this year and then doing a four year deal next year?  They risk prices going up due to team success but the only real market risk is Deshaun Watson with the Texans. Personally if I was a team I would prefer to get in before that only because the Texans have shown some odd tendencies at times but I would not go crazy about it.

There is leverage in that scenario for Dallas at least to a point. Dallas will have Prescott under contract this year for $31.4M. That number is far far far less than any of the other players on this list. Even f the tag dragged for two years the two year salary of $69.08M is way way way less than the two year salary of any of the players on the chart as well. If they tag this year and do a deal next year at $35M per year for four years its an average of $34.3M over five seasons. As long as Dallas keeps the salary down under $35.9M the five year value would not exceed $175M or exactly what he would earn taking a five year contract now.

Even if prices go up there is value in getting that fifth year under contract. Lets say Dallas had to go to a $38M offer that ran from 2021-2024. That would average out to $36.7M per year from 2020-2024. While that may be more on paper than what Dallas is offering now they would get that final year under contract. Even if that final year costs say $35-$38M it is probably less than it would cost to tag Prescott in 2024 if they agreed to a four year contract today.

The franchise tag is really only a benefit for the player if they are playing the long game. That is something you can do better at QB than any other position but you basically are giving up money now for the chance at earning it two years later. The odds would be against a team using a third franchise tag so you would be free to cash in on the market. That’s big. Take in $69M and then another $60-70M in the first year of a contract in 2022.  If you are willing to wait and leave for another team that is the most lucrative path but its not one that most players take.

I would think the key to a five year contract is to take into account what the market would be next year if he played out this tag. In essence value this as “old money” and negotiate a four year extension on top of it. If they take $38M as the number its going to be five years for $36.7M mentioned above. Its not that far off a $35M per year contract. Bring it down to $36M and its effectively a four year, $37.2M extension.

From there you can go back to the cash flows to find a way to make it worthwhile to do the longer term beside the fifth year. Based on the Ryan contract I would assume a fair 5th year salary to be around $33.5M. That leaves the four year number at $146.5M. Let year 1 trail Wilson and run around $63M to be closer to what the rest of the market is. By year two he earns slightly more than Wilson ($90.75M to $90M), and then $4M more over the three year period and the $6.5M more in year four. That would likely give both sides positives in the contract and different ways to value the deal to make everyone happy about what they wound up doing rather than playing out the season and then going back to the drawing board.

But whenever you hear a leak about an offer see if you can find any rumors of the contract breakdown before you really evaluate it. And when something sounds completely out of whack like a back end $45M payment its probably worth questioning completely before really running with it as anything remotely valid.