The Chiefs, Eric Berry, and the Tag Decision

Arrowhead Pride had an interesting article today about Eric Berry and the reasons why the deal didn’t get done with the Chiefs. It was based on a comment by Mike Florio about the franchise tag values setting a market for players and in this case a disparity in valuation. I thought that made for an interesting topic to discuss and some of the mistakes that often get made in how we use annual values per year when assessing contracts. I’d also like to see if Berry is or is not making the right decision, if this was indeed the holdup.

One of the points Florio made while filling in for MMQB this week is how this year contracts did not get done at the deadline the way they did in the past. It has always been my opinion that the Franchise tag is a terrific tool for driving prices down for certain players but for others it can be a detriment in signing the player because the value is above the true market value of the player and that can make it difficult to sign the players.

In general the group of tagged players this year was substandard compared to last years group of actual stars. Von Miller and Muhammad Wilkerson were the two whose tag figures were under their market worth in terms of annual value.  Justin Tucker was probably right on market and Alshon Jeffery and Eric Berry were close. The other players, in particular Trumaine Johnson, likely would have earned far more from signing the tag before trying to get extended.

Arrowhead Prides takeaway was that the Chiefs were generally looking at a $9.5M a year contract whereas Berry was simply looking at the Chiefs options and saying they were going to get boxed into a corner in 2017 and be forced to tag him a second time for a $23.76M payout, or just under $12 million per year.

While that logic may sound fine the fact is most superstar players earn far more per year on the frontend of the contract than the backend of a contract. In general payments are made up front and the teams are now absorbing the risk on the contract.  The reward that awaits the team is in the event a player does very well the fourth and fifth years of the contract often come at a bargain price and they can better structure the early cap hits. For example this is the structure of a $12 million contract of a current NFL player:

Year 1Year 2Year 3Year 4Year 5
Running Cash$19,000,000$30,000,000$41,250,000$50,500,000$60,000,000
Running APY$19,000,000$15,000,000$13,750,000$12,625,000$12,000,000

If this particular player does well the reward is that his salary will be less than $10M a year on the backend of the contract. His cap numbers should be under more control especially as a percentage of the cap and the team now drives excess value out of the contract. But if the player fails, such as the Chiefs experience with Dwayne Bowe, the $12M contract is really going to cost $15 or just under $14 million a season.

When we look at the safety market from a year by year cash perspective you’ll see something similar. The contracts that should be in question for Berry are those of Earl Thomas, Devin McCourty, and Harrison Smith. The average APY of the group is $9.9M, injury guarantees of around $27M, and full guarantees at $17M. Those numbers are probably in line with a Chiefs offer. But here are the average cash flows of the three deals:

Year 1Year 2Year 3Year 4Year 5
Running Cash$16,166,667$23,166,667$31,250,000$39,666,667$49,375,000
Running APY$16,166,667$11,583,333$10,416,667$9,916,667$9,875,000

These numbers are right in line at $10M per year with what Berry would earn on the franchise tag for two seasons.  That doesn’t make Berry incorrect in wanting a bigger number and a structure that may be closer to the example contract, but it shows why the Chiefs would be hesitant to go there. Few teams really buck trends when it comes to deal structures in part because any contract you sign can probably be used against you later on by another agent.

If Berry was truly looking for a $12M contract its possible he was looking for the $12M structure as well which is nowhere near in line with the safety market. Its possible that he was willing to take a contract that just had steady cash flows all through the contract, but that would take some of the reward out of the deal for the Chiefs. He also may have just wanted a shorter contract which could have accomplished a $12M per year number.

Some teams have actually learned to exploit this fact on shorter term contracts. For instance Nate Solder of the Patriots has an APY that ranks 7th or 8th in the NFL, but because it’s only a two year contract.  The Patriots gave up the rewards of the backend of a contract and in return save about $7 million in cash over two years and the hassle of negotiating a long term deal and added money that may come with it. There is more risk assumed by both sides in that situation. That could have worked here as well, but not at $12 million. It would need to be less.

The question is will this be the correct decision for Berry. What he has done here is take on the majority of contract risk by not accepting a market offer. Had he signed a contract extension with the Chiefs it would be safe to assume that he would have received $27 million, or 2+ years of injury protection. Now he just has $10.8 million in protection.

Though Berry’s situation is slightly different from others I think that the rate of injuries that would kick in that kind of protection is pretty low so I think he might be making the right call when it comes to injury protection. Beyond that I’m not sure.

One of the things that worries me with Berry is that he’ll turn 28 at the end of this season and that means any team signing him next year will be signing a player who will turn 29 at the end of the first year of their contract. If he does indeed get tagged twice now we move onto 30. The closest data points Id have to those players would be Malcolm Jenkins ($8.75M/year) and Eric Weddle ($6.5M/year).

To value the decision you really need to identify what salaries would accompany various scenarios.  The first scenario deals with getting one franchise tag and then receiving a new contract in 2017. If there is no significant decline in skills or only a minor injury I believe that even going on 29 he can earn a top line extension. If there is a decline in skill or some more serious injury, his earnings will likely fall into the Tashaun Gipson/TJ Ward category. I wont consider the disaster scenario in this case where a catastrophic injury occurs.

The second scenario is that he ends up tagged a second time and then makes the turn to free agency as he is about to hit 30. I think from here there are three possibilities. If he plays extremely well he should be able to mirror the Malcolm Jenkins contract. If he is average or injured the Weddle deal is the one. If the decline is worse he is likely looking at being like Tyvon Brach at $4M a season. I do not believe the high end contract will exist at that age.

Take Offer$16,166,667$23,166,667$31,250,000$39,666,667$49,375,000
One tag/High$10,800,000$26,966,667$33,966,667$42,050,000$50,466,667
One tag/Low$10,800,000$18,050,000$24,050,000$29,425,000$35,800,000
Two Tags/High$10,800,000$23,760,000$34,260,000$42,760,000$51,010,000
Two Tags/Mid$10,800,000$23,760,000$32,760,000$36,760,000$43,260,000
Two Tags/Low$10,800,000$23,760,000$27,760,000$31,760,000$35,760,000

Overall I not sure if there is enough upside given the salaries in the safety market to discount what would have been a market contract offer by KC. If he plays at a high level on the one tag he’ll stand to make about 6% more ($2.4Mish) thru 2019 than on a market contract. If he does two tags and plays high it’s a 7.8% increase ($3.1Mish).

But the other scenarios don’t really paint as good of a picture. If he were to fall this year he would probably be looking at earning $24 million through 2018 compared to somewhere around $29 million (his 2018 salary if he played down would depend on a restructure).  If he were to land in the Weddle range he would probably end up about even but with no upside in the contract if he played well again. On the Branch level he’s be behind. Really the only way that this gives a big reward is if he did receive a $12M per year contract that had that excessive two and three year cash flow.

The major concern I would have with that the market for safeties moving teams has not been great. While I am projecting a market salary if he continues to play at a high level, we haven’t seen a ton of those moves really happen, let alone a jump into a completely different contract structure. Smith, Thomas, and Jenkins were all extensions. McCourty opted to stay in New England on the eve of free agency likely knowing that the big market jump didn’t exist. Jairus Byrd is really the only player to hit free agency and set a record contract at the position. The players like Gipson, Ward, Williams, and Weddle were somewhat of a disappointment when free agency came. So it is quite possible that KC presents the best case scenario. If they decide to pull out next year, regardless of how well Berry plays he may not even land the high scenario, let alone the huge contract it looks like he felt the Chiefs should put on the table.

For other positions where there is a bigger gap between contract offer and possible market offer there is probably more of a case to be made for playing on the tag in hopes of maximizing overall value by a pretty significant margin. For example Kirk Cousins stands to make $20 million this year and $60 million by 2017 if he plays great. If he accepted the Redskins $16M per year offer he probably make $24 million this year and just $35 million over two years. That is a huge potential jump of $25 million for probably $8 million of risk. Those numbers are firm because the QB market is well established for what Cousins would look for. Berry’s potential jump is like $2-3 million and that’s over a longer period of time. The risk is probably in the ballpark of $3-4 million. The higher reward scenario seems very unrealistic.

As long as the Chiefs offered a fair market contract (and obviously that is the assumption we are working with based on reports) the risk/reward ratio might not be good enough here. Because there are so many more variables in play with being tagged two times I think Berry’s safest path at this point would be to ensure he doesn’t receive a second franchise tag. That can be negotiated into this contract or he can just hope the $13M price is too high for the Chiefs on their cap next season. I don’t consider the latter likely so he’ll need to withhold his services through camp to get the no tag designation.

Though the two tag scenario presents the path to the highest salary, that also requires the best play possible from Berry for two seasons. The one tag scenario will bring almost the same number and require less greatness to earn it.  Berry thinks he can get a $12M contract on the open market then he stands to do well, but Id be very leery of that happening given what has happened in the past with this position. Overall I’m not sure if the reward here stands to be enough to pass up a long term contract offer. I guess we wont know until next year who made the right choice.