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.

  • Dan Kunze

    Is it possible that the agents are willing and want to get these deals done to make a payday? Obviously if they walked a player though them the player *should* see that they are not inking the best possible deal. However I will never forget reading in Freakonomics how real estate agents are incentivized. Most of the time they are working on 3% so an extra ten grand on the sell price of your house only means $300 to them. So they may talk you into lowering the price or moving off of a certain level to get a deal done since the effect on them is virtually zero. I have a feeling that the agents do this a lot and just want to get deals done so they can get paid. No real proof, but this topic here might be an indicator.

    • Frank Yi

      This could be. I don’t know what agent turnover looks like, but it’s possible that players might be firing agents who fail to get them an early extension, thus causing the agents to take these kinds of deals that may look good to the players in order to secure a commission, rather than risk missing out on what should be a better payday later.

  • Werner

    I might think, thqt it is not (only) about the commission, but about the effect on new client acquisition. I “got XYZ a 50′ Extension two years before Contract End” is a nice sales pitch, even so the truth should be “I cost my Client the chance for 20′ upside in free agency by jumping for a premature deal”. But by knowing the mantra of non guaranteed contracts and the high value of perceived safety of earnings”, Clubs have hefty leverage to lock up players for cents on the dollar.

  • DDJR

    My hypothesis on this one is this. I think Linvil and Griff are being team first guys here much like Brian was on taking a pay cut. They know it helps loosen up the cash a bit more long term to keep there team together. I think they trust in Zim and want to ride with this squad over the money. Next Year Danielle, Barr and Kendricks are up if they can get them signed they will have pretty much there entire core defense signed for the next 5-6 years thats huge. Plus it helps leave more open money to figure out a deal with Sam long term and or what there going to do with Teddy.

  • Erik Van Dootingh

    A big focus of these deals is to keep the % of cap hit fairly stable after 2018 when they will need to reserve ~$20 million a year for Hunter.

    Age is also clearly a factor. The Griffen/Joseph deals were much different than the Rhodes deal in that Rhodes got a bigger signing bonus and has more dead money after year 2.

    • Andrew Stead

      for sure, but I think the point is the 2nd K v the 3rd K. Non-QB stars always get paid with their 2nd K, and Rhodes did. Griffen and Joseph were both paid reasonably well when they got their 2nd Ks (Griffen had never started, so there was a discount there; Joseph was a steal in hindsight,, but the market for NTs used to be soft). It’s the 3rd K where teams can be clever.

      Being “team first” is a crock sold by owners. If one wants to live somewhere, that’s fine, and means one is getting something of non-monetary value. That exists whether one is an entertainer or a plumber, and has nothing to do with “team.”