Mistakes With The 5th Year Option Decision

In the past rookies drafted in the first round were all signed to five and six year contracts, but in general the sunk cost was so high that a relatively low cost fifth year was a given for top picks even if teams were no longer that high on the player. The current CBA added a new wrinkle to that decision making process with a new fifth year option. Teams were given a gift in that they could see a player for three years before opting in to a higher value fifth year. Some teams are still screwing it up.

When we talk about screwing it up we are only talking about top 10 picks because the salary is so high. The fifth year tag is essentially like having an extra transition tag for the season except you opt into it a year earlier and it carries a full injury guarantee. That guarantee can present a problem when used on a question mark talent because the guarantee can get in the way of doing whats in the best interest of the team.

The first really bad use of the option came when the Redskins inexplicably used the tag on Robert Griffin III. Griffin had already fallen out of favor with the organization and was a walking injury waiting to happen. Soon after picking up his option someone woke up and seemed to realize that they now had a potential $16.2 million liability on their hands if RG3 either suffered a really bad injury at any time during the year or anything requiring surgery late in the season.  At the time his play was also not worth $16 million (he would sign with the Browns the following year for under $8 million) so even if he remained status quo its not like the team was going to see keeping him at $16 million.

So what did the Redskins do?  They benched him. And benching might be a generous term. He more or less wasn’t allowed to do anything football related. At one point I believe they had him playing scout team safety. The Redskins screwed this up so badly they ended up playing the year with a 52 man roster rather than a 53 man roster

This was an extreme event but when you screw up the option decision it is going to impact decision making. If you fall out of contention and the player isn’t worth his option value but is still a contributor what do you do?  Some teams would bench him. This isn’t exclusive just to draft picks but most of the time players don’t have injury guarantees deep enough into a contract to cause that to happen.

The most recent examples of that occurring both were with a QB- Colin Kaepernick and Tyrod Taylor.  The 49ers stuck Kaepernick on the bench until he agreed to a new contract that freed the 49ers of any future obligations if injured. The Bills went so far as to fire their head coach when he refused to sit Taylor, who the organization wanted benched because of his contract when the team was still in contention for a wildcard spot. These are rarer occurrences with veterans and something that should never happen with rookies since teams have so much control of the situation.

The latest folly with the option looks to be with the Jaguars and Blake Bortles. He’s a fine fantasy QB who puts up a bunch of garbage time stats that are meaningless for a real team.  Bortles has simply not been good at the professional level. If you asked me right now what would Bortles get if he was released in March Id say a max of a two year deal for $8 million a year. The Jaguars option for him in 2018 is worth $19 million.

As Bortles continues to struggle in the preseason the Jaguars decision making process is further compromised by their contract decision. If he isn’t showing the upside to necessarily be very competitive is it worth putting him in a position to get hurt? They can simply go to the no risk Chad Henne even if it may not give them the best chance to win. At least if no contract option existed they could go with the higher upside player for a few weeks in real action before making the move to Henne.

These mistakes should never happen. What’s the worst that happens if you don’t pick up the option?  Bortles is great?  Ok then you franchise tag him for about $22 or $23 million. Is the loss of $3 or $4 million that big of a deal. Absolutely not. Maybe he’s upset without getting the option?  Well if that’s the case you don’t want him anyway. Players need to be strong enough to deal with that. Look at how Kirk Cousins responded to the franchise tag when the team said they didn’t see him worth the money. That is what you want. Challenge the player to be great.

This is why a team like the Bills got it right with Sammy Watkins.  The guy had talent but not enough to justify the risk. At worst they could have just tagged him for a few bucks more. The Rams, who now have Watkins, did the same thing with Mark Barron eventually re-signing him to a market value contract. Had they picked up the option they would have been locked into $8+ million for a guy they weren’t sure of at the time. He ended up earning $10 million instead after the Rams got a full look plus they had him for the long haul. It was a win/win for them because they took the risk out of the equation by declining the option.

Teams need to take a much harder look at some of these decisions. One of my biggest pet peeves with NFL front offices is how much stock they sometimes put into draft status. Granted some of that is understandable since a player drafted in the top round generally has some type of skill that only a small percentage of players have, but that also leads to a bias in decision making. If you think about a player drafted in the 2nd or 3rd round who is a so-so player for the first few years of his career and then he has a great year as free agency approaches what usually happens?  Teams still process cautiously more often than not and offer a very good but not great contract. Think Andy Dalton and Kaepernick and compare their situations to a Tavon Austin, Lane Johnson, or Eric Fisher.

Teams should think about the whole career just like they would do with those later draft picks. Don’t get blinded by the draft status or position. All you are doing is hurting yourself. The Jaguars have nobody to blame but themselves if they don’t feel that they can even consider dressing Bortles from this point forward. Sure it would be nice if he turned into Aaron Rodgers but there was no need for them to simply forget about the other side of the equation that he’s more likely to be Blaine Gabbert.

Your Contract Questions About Aaron Donald

Per a report today from Adam Schefter, Aaron Donald of the Rams intends to hold out into the regular season if he does not receive a new contract. This really should be no surprise given that he decided to push the issue this year and play his lone trump card. Once you get beyond a certain date you are going to cost yourself money by simply ending the hold out with nothing to show for it. So I have gotten a bunch of questions on the topic and will do my best to answer them here rather than random Twitter replies. As usual these are my interpretations of the rules and it is possible that they are not 100% accurate and any opinions on the contract are just that- my opinions not some inside info or anything like that. I will gladly update if anyone supplies me with any verified corrections.

  1. Why do you say that this was his only “trump card”?

Rookies generally have very little leverage when it comes to forcing the issue on a new contract. The lone leverage they have is by refusing to report and play with the team. However rookies also only reach true free agency if they play a certain amount of years in the NFL. First round rookie contracts run for 5 years, assuming that an option is picked up on the contract. In order to qualify for free agency when their contract expires they must earn an accrued season in 4 of those 5 years. By holding out this long Donald can no longer earn an accrued season this year. If he were to hold out again next year he would be unable to earn another accrued season and be stuck at 3.

The difference between 3 and 4 years is gigantic. At 3 years a player becomes a restricted free agent and can be tendered at 110% of his prior years salary with draft compensation coming back to the team in the event he signs elsewhere and they elect not to match the contract. Its essentially a low cost, slightly lower compensation version of the franchise tag. So you can pretty much be certain that he will not hold out next year if a contract extension doesn’t come his way this season.

There is also more money at stake right now in the event of a holdout due to the potential of bonus forfeiture on top of fines. Next year this is no bonus proration to forfeit. Teams, I believe, would also be far more willing to not fine a player if the agreement is finally made to either get the player back to the team or to extend him.

Obviously I understand the threat of injury that these players face but in terms of keeping a good relationship with the team, having more leverage with a hold out and even finances I think next year would have been the time to do this.

  1.  How much money is Donald losing?

Right now the Rams have the right (but not the obligation) to fine him $40,000 per day. I haven’t calculated the dates here but as a loose guide he is also potentially forfeiting $350,000 of his signing bonus. At the start of the regular season he would lose about another $250,000 and $106,015 for each game missed. He was only scheduled to earn $1.8 million this year so essentially he would lose his entire year’s salary to fines and forfeiture if he just ended his holdout with nothing to show for it. Again that’s the reason why he has to be pretty firm to come out ahead in some way.

  1. Does his contract toll?

As of today no it does not. For the Rams to gain an additional season out of him he would have to miss the entire year. IIRC, players who fail to report can not be reinstated in the last 30 days of the season, so basically that’s the end of November. If he is still holding out then an extra season will be added to his contract. So the timeframe for this is really from now to Thanksgiving.

  1. Does anyone hold out that long?

I believe back in 2010 when there were some very different rules in place that Logan Mankins and Vincent Jackson held out for some time, though neither was technically under contract (they were 5th year RFAs). Both came back in time to make sure they would earn a year towards free agency, with Mankins coming back after 8 weeks and Jackson after 6 and then serving a 4 game suspension. Kam Chancellor a few years back held out for two weeks I think.

  1. Does Donald have any leverage?

Star players always have some leverage, but I would think its minimal. I remember when Darrelle Revis held out back in 2010, which may have been the last real rookie contract holdout of merit, he benefitted greatly from not only being recognized as the best defender in the NFL but by the fact that the Jets just came off an AFC championship game. Revis was also immensely popular at the time and there was both media and fan pressure to get a deal done and that Revis was being wronged by his contract. They needed him on the field and after pleading from the coach came to a deal on the eve of the regular season.

The Rams haven’t been a good team nor are they in a position like the Jets were. For as good as Donald is, right now he is not the difference between a potential title and a disappointing year. This is a work in progress and one seemingly focused more on offense and the development of a QB. The Rams can probably hold out longer than he can. The Rams are also in a new city and admittedly I don’t know if there is that kind of connection with the fans or media that Revis had.

  1. Does Donald void his guarantees?

Yes, but as a practical matter it makes no difference. Guarantees are all wonderful to talk about but when you have a player of this caliber hes not going to be cut.

  1. Why haven’t the Rams signed him yet anyway?

I can’t say for certain, but it is worth nothing that the Rams traditional way of doing business is to extend after the conclusion of the preseason in late August or early September. My guess is had he reported as a show of good faith they would get a deal done sometime between preseason game 4 and the kickoff of the regular season. Of course maybe they were way apart on numbers and he felt that it wasn’t going to happen anyway, but that is the general timetable for LA.

  1. What might Donald be looking for?

I’d think at a minimum he wants to be the first $20 million a year defender. I think that could be easily doable given some of the Rams recent contracts which have been very optimistic. The guarantees could be trickier. If the goal is to surpass Suh the Rams would need to guarantee him, at signing, $60 million. That’s a ton and the Suh contract was just silly when it happened.   The going rate for other players would be around $42M+ at signing and $65M+ for injury.  I’d target $49M at signing to take into account the $7M or so he is originally guaranteed and $70M for injury just to hit a new benchmark number that sounds cool.

  1. What could be some contract hangups

I’d imagine one possibility is the amount of raise that the Rams would offer him. The Rams don’t have much cap room (around $5 million by my estimates) and Donald’s base is so low its not as if they can lower his cap charge. But more than that again comes down to Rams tendencies. If you look back on their extensions for Robert Quinn, Michael Brockers, and Tavon Austin the Rams generally put very little new money in the existing contract years.

Quinn received about $3.8 million in a raise, while Austin and Brockers were close to $3 million. Over the existing two years for Quinn and Austin the grand total of new money was $12.6 million and $6.1 million respectively. None received big signing bonuses. While their overall first year payout (for Donald that would be the new salaries from 2017-2019 if extended) as a percentage of the three year payout is on par with everyone else in the NFL they are not giving away money like other teams in the year the extension is signed.

Another issue could be contract length. The Rams, wisely, have stuck with shorter deals on their extensions which gives them a pretty good deal of flexibility and I think a better chance to strike deals. In order to reach the kind of threshold numbers I’d assume that Donald would be looking for they would need to do a 6 year extension.

The final issue deals with the CBA. The league is now at the point where the expiration of the CBA occurs after the 2020 season. There is a small rule in the CBA that prevents teams from avoiding cap charges in the CBA seasons and deferring them to potentially uncapped years. This is called the 30% rule which limits the amount of raise in every year after 2020 to 30% of his 2020 salary. So the two sides need to be willing to pack enough into that year to make the contract work out. This shouldn’t be a problem if extended this year but it does reduce some flexibility if doing a contract that will run through 2024. There are some other small issues with guarantees but I doubt those come into play for anyone until 2019.

  1. Is the salary cap an issue?

It should not be long term. Like I said above the Rams will run very close to the cap which they generally do, I’d imagine by design and can help with situations like this, every year. Moving forward, though, they will be in the top 1/3 of the league in cap room. Their QB is only in his second year so they don’t have a QB contract to deal with and they can also move some players around if they need to in order to keep players like Sammy Watkins if he was to break out.

  1. Is there a compromise if no long term contract can be reached?

I’d look towards some other team moves to come up with a compromise. What the Steelers did with Antonio Brown was move money forward in his contract to bring his salary more in line with his play without redoing a whole deal. The Patriots added incentives to Rob Gronkowski’s contract. Years ago the Titans did a small raise for Chris Johnson. I’d have to check the rules on raises and extensions for next season if they did that, but Id think this might work. In return Donald should be held accountable for the highest forfeiture of bonus but not fined.

Thoughts on Devonta Freemans $41.25 Million Contract

Mike Florio of Pro Football Talk just broke the official numbers for Devonta Freeman’s $41.25 million contract extension which gives us a chance to look at it and offer some thoughts. Overall I like the contract for Freeman which I think is an excellent illustration of how to use contract structures to get over the hump of the full guarantee at signing. However, it is also clear that this is not the top contract on the market, though it is very close.

From Freeman’s perspective here is what I really like about the contract- a huge signing bonus relative to the P5 values of the contract at the frontend of the contract. This is the old way that contracts were done which always did a far better job insulating a player from release than the more current system of high P5s with two years of full guarantees. A large part of that is the Falcons front office which skews towards the older style of cap management, which is both a blessing and a curse.

Freeman’s $15 million signing bonus is nearly 70% of the takehome of the first three contract years and 56% of the first three new years of the contract. Those are really terrific numbers. The next closest to that is LeSean McCoy at 48% of his three year value. The rest of the top veteran backs are extremely low percentages, basically between 10 and 30%.

That should mean that Freeman is a lock to earn the new $20.25 million in the contract from 2017 through 2019. He would have to fall so far off a cliff for a team to consider cutting him to save all of $3.75 million given the initial investment in 2019 and even if they did that P5 is so low that he would likely earn $1M as a free agent if it ever came to that. So I think this is very solid and will now be a fundamental starting point for Le’Veon Bell next year when working off percentages to try to maximize his signing bonus with the Steelers.

Now immediately when I saw the numbers the name that came to mind is McCoy of the Bills. It’s pretty clear from the structure that they followed the Bills model with him very closely, but Atlanta more or less used a classic trick of throwing some backend money in the deal to inflate the APY. This allows Freeman to be considered the “highest paid” but realistically he won’t be.

PlayerYear 0Year 1Year 2Year 3Year 4Year 5
Devonta Freeman$14,500,000$16,500,000$20,250,000$26,750,000$33,000,000$41,250,000
LeSean McCoy$0$16,000,000$21,050,000$27,300,000$33,625,000$40,050,000

For the most part Freeman will trail McCoy by about $600,000 each year in total earnings.  It’s rare for players to reach the 5th contract year, especially running backs, but Freeman needs that season to surpass McCoy in earnings. So while the Falcons were willing to budge on the APY they negotiated the contract in a way that was more beneficial to them and one in which they feel they are not the real market setter at the position.

Still the contract blows away the likes of Doug Martin and Lamar Miller who would be the next set of veterans. It’s a strong deal and probably far stronger than he would have found in free agency where interest in running backs has been lukewarm at best.  This is the right fit for his skillset and for the Falcons as well which is why its worth making the deal rather than dealing with the uncertainty for the year and ending up with someone else next year.

His cap hits are generally manageable until 2020 which is the first real uncertain season. By then the team should have its core locked up for the future and will be able to move away from some of the higher ticket items that might clog their cap. If they can get two very good and one decent year out of Freeman they should be happy even if they have to cut him in 2020.

The Devaluation of the Running Back Continues

Devonta Freeman signed a new contract today that will make him the highest paid running back in the NFL at $8.125 million per year. I mentioned on Twitter today how every time a running back signs these days its just a reminder of how much the position has been devalued in today’s game. I mentioned LaDainian Tomlinson just as a well known benchmark for the market and figured I’d expand on that here.

Running backs used to be the staple of the offense for many teams for a pretty long period of time. Most long time fantasy players certainly remember how much stock was put into that position and in turn many of those players gained following that they may not have had otherwise outside their own fanbase. So I wanted to go back in time, and I’m sure I am missing plenty of names here, just to illustrate what the market looked like during that time period.

The following table has some of the annual contract values of the bigger name backs of the era and what that annual value would be in today’s cap dollars of $167 million.

PlayerYear SignedAPYCap LimitInflated Value
J. Lewis2006$8,700,000$102,000,000$14,244,118
L. Johnson2007$8,600,000$109,134,000$13,159,968
S. Jackson2008$8,700,000$116,729,000$12,446,778
F. Taylor2006$6,600,000$102,000,000$10,805,882
F. Gore2007$6,900,000$109,134,000$10,558,579

The numbers are pretty staggering. Each of these players would be the equivalent of a player earning at least $10.5 million a year today. The only running back who earns that much is Le’Veon Bell of the Steelers who plays on a 1 year franchise tag. The next closest is Freeman who just signed for the $8 million number.

Now I understand that some will say that Freeman simply isn’t a true top player (I doubt the same argument would be there for LeSean McCoy who earns $8 million), but I think most would agree he is pretty good. He’s a nice versatile player that is a perfect fit for the Falcons offense. But we can also go backwards with this and see what his $8.125M per year would be worth in that timeframe, which is anywhere from $3.7 to $5.7 million a year. Some players who would have been in that range are players like Rudi Johnson, Lamont Jordan, and Travis Henry.  It’s less than Marion Barber received in Dallas.

The change in the position really started when many of these big contracts were regretted after a season of being signed. I’d say that was around 2007 or 2008 when the one back approach was being eliminated and more focus was paid on receivers in the passing game.

Still Adrian Peterson and Chris Johnson were able to land massive contracts in 2011 that were more or less on par with the top contracts of the earlier era. The difference was that the Arian Foster’s, McCoy’s, and Matt Forte’s were not really able to build on that. They still signed outstanding contracts but there were closer to the lower names on this list. Back then there was still a game of leapfrog on top deals being played or at the least coming very close to the market leader.

The final burst to me came when the Panthers shockingly signing Jonathan Stewart to a $7.3 million a year deal in 2012. That was one of those contracts where everyone has to take note and say there is something not right here. I think that caused teams to get stronger in their stance against the running back. There hasn’t been a contract that silly at the position until the Jaguars signed Chris Ivory last season to a $6.4 million a year contract.

This is really the only position in the NFL to see this level of long term stagnation. Even if Bell signs a long term contract for $11 million a year, which is still low, he’s going to be the only guy with everyone else $2 million or more behind. He’ll become the outlier like Peterson and Johnson became.

You can’t make separate rules for different positions, but the RB position is one where they would really benefit from only having to sign 2 year contracts if drafted or maybe a max of 3 years with the ability to renegotiate after 2 years. Players would still be looked at as very valuable if signing at 24 or 25 rather than 26 or 27, but barring any rules change it doesn’t look like the market dynamics will change anytime soon.

Contract Extensions and Lack of Real Guarantees

Kevin Seifert of ESPN had a good piece today on the Vikings recent changes in their contract philosophy, notably the extension of players with two years remaining on their contract. This was in reference to the Vikings making big investments in DE Everson Griffen and DT Linval Joseph, who both had two years left on deals signed a few years back.  It is a strategy that more teams should follow.

Extensions of contracts are done for many reasons, but the Vikings are really doing something here that costs them very little to reduce their own risk and its something they should benefit from. In my mind if you are negotiating an extension the framework for the negotiation should be that you are avoiding the free agent process and looking to come to an agreement that effectively mimics what would happen in free agency.

This is where the concept of “new money” comes into the picture. New money is the amount that he player earns beyond the terms of his original agreement. For Griffen, whose numbers were reported on by multiple outlets, that was $58 million over four new years. Essentially the contract is telling us that if Griffen were a free agent he would earn $58 million on the open market.

Obviously there is some give and take with those numbers (by extending him 2 years out the Vikings should be taking on more risk hence there should be a discount factored in) but I think they are pretty fair as are Joseph’s, which were reported at $50 million over four years. But time and time again we see the guarantee or virtual guarantee aspect of these contracts fall by the wayside.

When you sign a player in August to an extension it tells us one very important thing- that player was in no way, shape or form being released this season. Secondly it tells us that barring a really devastating injury they were not being released the following season. If that was even a consideration by the team they would never enter into negotiations for a major contract extension and they would simply play the contract out. These two years of salary were virtually guaranteed to the player.

Griffen was scheduled to earn $15.5 million in 2017 and 2018. $7 million of that was clearly guaranteed and the other $8.5 million almost a virtual certainty. How much is Griffen going to earn now over those two years?  $19 million. According to PFT how much of it is fully guaranteed? About $15 million, or essentially what he was already guaranteed to earn.

This is where these contracts fall off the rails for me. When we look at contracts for free agents what we are looking at are full guarantees on the new contract somewhere between $20 and $40 million.  If our extension is designed to take free agency out of the equation how in the world does a $3.5 million raise over 2 years justify absolutely no real guarantees for when the extension kicks in? Its not as if they are paying a large signing bonus to make it hard to release the player on the cap or just from a psychological standpoint.

For teams this is brilliant. You are buying a $3.5M option and in return locking in a player at 2017 dollars for absolutely no risk down the line. There are plenty of other teams that are doing this and for whatever reason it is never picked up on by the player side to demand more.

In our premium sections this is the reason we present “effective” or new guarantees when comping players because while we get so tied up with “new money” the secondary part, which should be “new guarantees”, is never a consideration. This is basically a classic move by a team, especially for younger players with option years, to be able to significantly reduce the real guarantee by simply guaranteeing existing salary and then just throwing in a bunch of injury guarantees to get a big number out there to make everyone happy.

At least with some of the younger players teams will lay out more money upfront but when we get into veteran contracts like these with the Vikings it opens a whole new avenue for teams. Only a few select players (non QBs of course) in the past were able to get a third big contract in the NFL and this is a terrific way for teams to not really take much of a risk but have it look as if they are making a big one.

For teams that are re-signing players after their contracts expire rather than doing what the Vikings and a few other teams are doing it’s a big mistake. These is so much more benefit to extending as early as you can to reduce your risk to both cap increases and player skill declines in the future rather than waiting until the last possible minute, but the player side does need to wake up and see what these teams are really doing before giving up their future for what amounts to a pretty small increase in guaranteed money.

On Odell Beckham and Contract Decisions

The other day Odell Beckham said that he wants to be the highest paid player in the NFL. I’d say there is about as a good of chance of that happening as me being named the next general manager of the Jets, but lets explore further. Mike Florio of PFT did outline a case in which the Giants should consider signing Beckham to a massive contract, which of course I disagreed with, but I think it brings up a good point about things to consider when negotiating an extension for a player.

While we all get caught up in numbers on contracts and thinking about who wins and loses, the main purpose of a negotiation is to come to an agreement that both sides are happy with. When it comes to NFL contract decisions there is a great deal of risk for both sides and in many ways the contract is the transfer of risk from one party to another.  When you take into account the value of that risk you can better come to a fair price.

A player like Beckham, who has two years remaining on his current contract, right now bears the majority of the risk. Beckham, who is worth over $17 million a season, is currently playing the next two years for about $5.15 million per year. Since Beckham is already a proven player there is no risk involved for the Giants at this point since a $5 million receiver generally only produces around 600 yards and a few scores a year. He’ll do that in his sleep. But for Beckham he has to bear the risk of both injury and lessening productivity. While the latter seems unlikely in the next two years the former is a real concern.

Once Beckham signs a contract with the Giants the contract will both increase in size and also grow in guaranteed salary. Once a large portion of the contract is guaranteed the team is the side now bearing the risk of both injury and sliding productivity. As players age both are a real concern.  The benefit for the Giants is if Beckham stays injury free and plays well beyond the guaranteed portion of the contract the team will likely have a bargain at the position. So how do you value this?

Florio brings up a relatively basic decision tree in his analysis. In his matrix he anticipates that the Giants will franchise tag Beckham in 2019, 2020, and 2021. He then anticipates a potential franchise tag in 2022 if allowed by the league. Add the numbers up and the Giants will be paying Beckham over $127 million over the next 6 years, so it makes more sense to do a deal that averages more than Derek Carr’s because that will be cheaper in the long run. The problem with just taking that basic scenario as a given, and why teams don’t use that as even remotely probable, is because it fails to take into account all the various things that can happen between now and 2022 to change the value of the player.

In 2022 Beckham will be 30 years old. He currently averages around 1,300 yards and 11 TDs a year. Since 2000 how many seasons have there been for players 30+ years of age to put up that many yards and double digit touchdowns? 6. Marvin Harrison (he did it twice), Randy Moss, Terrell Owens, Brandon Marshall, Rod Smith, Mushin Muhammad and Joe Horn. There are plenty of productive players but we are talking about the consideration in the above analysis that a 30 year old receiver would be worth nearly $45 million in 2022 to give the Giants any real benefit in taking a deal today that would make Beckham the highest paid player in the NFL. That 30 year old better be 24 year old ODBJ special to be remotely worth that kind of coin.

Players are good one day and bad the next. Remember Santonio Holmes in New York?  He got kicked out of a huddle by his own teammates. Mike Wallace and Percy Harvin were worthless big ticket items. Was it the money? Was it age?  Granted they are not the same class of player as Beckham but Moss himself went through a period in his late 20s where people questioned whether he was finished before landing in New England.  These are the risks that the team is going to need to be compensated for to sign an early contract extension.

The first thing ‘Id look at in assigning a probability to a fourth tag scenario is how often do we see three tags occur?  I think the last and maybe only player to have it used three times was Walter Jones of the Seahawks about a decade ago. Even two tags is a bit of a stretch. Most often the two tags have been used for kickers. Kirk Cousins and surprisingly Trumaine Johnson are on it this year. I believe prior to this the last positional player to get two tags was Anthony Spencer of the Cowboys in 2011.  For everyone else it’s a one time proposition. Why? Because so much risk stays on the player when they are forced into playing on the tag and the cash on the tag is far lower than on a new contract, even if the tag carries a high APY. Its team leverage.

There is no reward or give and take in paying Beckham three franchise tags plus another $28 million in a contract signed in 2017.  Given the way most players age the Giants would make out better 99% of the time simply tagging each year and walking away when the value isn’t there anymore. From a cash perspective it’s almost always cheaper for the team to go year to year unless they hit that third tag.

The right way to really value the contract is by performing a scenario analysis to help mold your decision tree. Let’s look at the receiver market and the potential outcomes for Beckham. The four scenarios for Beckham are an extension, 1 tag and a new contract, 2 tags and a new deal, 3 tags and a new deal, and finally 4 tags as proposed by PFT. Just to make the numbers easier Ill assume a 10% raise from the Brown deal if he takes a new contract today. To put the numbers in context here is what the top player earn over 4 year periods.

PlayerYear 1Year 2Year 3Year 4
Demaryius Thomas$22,000,000$35,000,000$47,500,000$56,000,000
A.J. Green$26,574,000$37,074,000$47,824,000$60,000,000
TY Hilton$18,458,000$26,458,000$37,458,000$50,458,000
Dez Bryant$23,000,000$32,000,000$45,000,000$57,500,000
Julio Jones$25,324,000$36,824,000$47,324,000$59,824,000
Antonio Brown$29,075,000$44,200,000$55,500,000$68,000,000
Beckham- 4X$18,280,000$40,210,000$71,790,000$117,270,000
Beckham- 3x$18,280,000$40,210,000$71,790,000$103,772,500
Beckham- 2x$18,280,000$40,210,000$72,192,500$88,830,000
Beckham 1X$18,280,000$50,263,000$66,900,000$79,330,000
Beckham 0x$31,983,000$48,620,000$61,050,000$74,800,000

The most important things to consider here are the cash flows. By going the franchise tag route Beckham is taking a $13 million risk for a gain of about $2 million the following year, and a $5 million gain over 4 years. If he makes it to the second tag its now an $8 million risk for a $10 to $14 million gain.

So how do you quantify that risk and reward?  While its not easy to find a great subset of players for Beckham because he has been so good, we can estimate from some younger stars in the NFL the odds of being good enough to be tagged for a third time or offered a massive contract at the age of 29 after two tags.  (You could also use franchise players as a point of reference, but that is more time consuming to do).

The list of players I came up with using PFR that averaged at least 1,000 yards between the ages of 23 and 25 were Randy Moss, AJ Green, Larry Fitzgerald, Brandon Marshall, Dez Bryant, Calvin Johnson, Anquan Boldin, Antonio Brown, Julio Jones, Alshon Jeffery, TY Hilton, Mike Wallace, DeSean Jackson, Darrell Jackson, Braylon Edwards, Santonio Holmes, and Marques Colston.

Of those probably just 1 (Edwards) wasn’t worth a tag consideration at the age of 27 so the risk of non-productivity between now and 2019 is limited. How many were worth it coming off the age 27 season?  Green, Fitzgerald, Marshall, Johnson, Brown, Jones, Hilton, De. Jackson, and Colston. So there is basically about a 55% chance that hes worth a second tag and a 45% chance he will either need to take a one year “prove it deal” or a lower level market long term contract. You can tinker with those numbers with a bit with a sensitivity analysis as Beckham is far more Green, Fitzgerald and Megatron than Wallace or Edwards, but you get the idea.

Who would be worth a third tag/big extension after age 28? Thus far Green is the only clear one that would fall off. Jackson and Colston certainly would not be worth a third tag, but would get a high market contract. Other than Johnson, I’m not sure any would really be seriously considered for a third tag.

You can get pretty complex with this stuff and make a very solid matrix of outcomes, taking into account complete failure, but for the sake of just doing a basic look at Beckham I’ll look at those two year numbers as a 55% of happening and a 45% chance of being worth around $10M (2nd tier money). As we move into the three tag scenario Id only give him about a 5% chance of the third tag and a 1% chance of the 4th tag. When we move into extensions in those years I think you can arguably go with a ratio of about 35% chance of a high market contract and 65% chance of a mid tier contract. Again Ill just completely discount the odds of a very low end contract.

So if we look at all our potential outcomes what does the 4 year salary come out to be?

ScenarioProbability4 Year ValueOutcome
2020 High Extension/Tag24.8%$79,330,000$19,634,175
2020 Low Extension20.3%$48,280,000$9,776,700
2021 High Extension20.0%$88,830,000$17,766,000
2021 Low Extension30.0%$60,210,000$18,063,000
2022 High Extension0.56%$103,772,000$581,123
2022 Low Extension3.4%$81,790,000$2,780,860
2022 Tag1.0%$117,270,000$1,172,700

So basically if Beckham fails to reach an agreement and begins the franchise tag route, odds are he will earn around $70 million over a four year period.  The lowest end salary would be just under $50 million, which is worst case for him. Again you would do various estimates for some of the probabilities since Beckham is so good as well as more estimates for future contract values based on market growth rates for receivers, but in general any offer above $70 million across 4 new years is a contract that should be given strong consideration by Beckham.  It locks in value and better front end cash flows while eliminating the risk associated with playing things out and landing a low tier contract.

How much over $70 million the Giants would need to go would depend greatly on Beckham’s risk tolerance and that’s what the Giants are really negotiating against when doing a deal. My feeling is once you reach close to $79 million it becomes a no brainer for him as they essentially pays him the same as the scenario of playing on the tag one time with far more money up front.

Even though that is a hefty price, the Giants benefit from that as well because they roll his $8M salary next year into the guarantee package giving them more ability to move on from the contract if Beckham goes off the rails like some of the other players. They also eliminate the risk of major market movement, though I don’t anticipate that as being very likely at the position at the top. Also no holdouts or other headaches related to his contract next year.

But this is one of those areas where you end up doing this for a living its important to understand all possible scenarios and determine whats the best way to incorporate that all into a strong offer sheet so that both sides can get a fair deal done. If you study the nuts and bolts of the dollars in these deals see if you can determine what the concession points may have been and in what way both sides thought they benefited. If Beckham wants to actually get a deal done he and the Giants will find some common ground that makes it work for both of them, but that common ground is not relying on the least likely scenario. Beckham asking for $25M a year is about as reasonable as the Giants offering him $7 million a year.  Those are least likely outcomes for a career any way you slice it. It makes for great talk, but isnt going to get anything done.

Texans Could Have Some Contract Problems

The Houston Texans could be entering a tricky situation in the next two years on the defensive side of the field regarding player contracts.  The three players in question are JaDaveon Clowney, J.J. Watt, and Whitney Mercilus.  JaDaveon Clowney is entering year 4 of his 2014 rookie contract and is scheduled to earn $17,303,227 through the 2018 season.  This offseason the Texans exercised the 5th year option in Clowney’s contract worth almost $14 million for the 2018 league year.  Current reports indicate the Texans intend to monitor Clowney’s progression and health in 2017 before starting contract extension negotiations in the 2018 offseason when Clowney has one year remaining on his contract.

Clowney had a very productive 2016 campaign.  The stat line may not support that assessment but the game tape does not lie.  With the return of J.J. Watt on the other side of the defensive line, this could provide Clowney more “one on one” opportunities to pad his stat line, increasing his market value heading into the 2018 offseason.  If Clowney’s progression continues on the current trajectory he could be in line for a large contract extension; possibly a contract worth more than multiple all-pro J.J. Watt.

Watt will have 4 years remaining on his player contract heading into the 2018 offseason; 4 years of non-guaranteed salary totaling $57 million dollars.  Considering that Watt potentially lines up both on the interior portion and on the end of the defensive line, it is difficult to classify his market value based solely on 3-4 defensive end players.  $14.25 million per year for the next 4 years with zero guarantee liability puts the Houston Texans in a favorable position with Watt.  This assumes Watt returns to previous form after multiple back surgeries.  If Watt does continue to provide production similar to his past seasons, his camp could push for a new contract based on the edge rusher market, and depending on the size of contract Clowney receives.  This could be another Duane Brown situation for the Houston Texans as Watt may want seek out new guaranteed money if his production returns.

Another player that could be affected by a Clowney extension is outside linebacker Whitney Mercilus.  Currently Mercilus has 3 years remaining on his 2015 contract extension totaling $16.5 million.  This contract is one of the most favorable veteran contracts currently in the NFL when comparing production versus cash paid to the player.  One could argue that Mercilus is already out performing this contract based on his production.  Mercilus is in a similar position as Watt as he is entering the non-guaranteed salary portion of his player contract.  This is another example where the Texans have a productive player under contract for multiple years with low salary liability.

Watt & Mercilus will be watching two specific situations and how they play out over the next 12 months; the Duane Brown situation and the JaDaveon Clowney situation.  Brown is attempting to get a new contract extension with two years of non-guaranteed salary remaining; and Clowney is in position to receive a contract extension that could be valued higher than Watt’s contract extension.