Contract Analytics: Cordy Glenn | Terron Armstead | Josh Norman | Shawn Williams | Jordan Reed | Allen Hurns
Harrison Smith signed a five-year extension with the Vikings reportedly worth a face value of $56,528,000, of which $51.25 million is considered “new money” and $15.278 million is guaranteed at the time of signing. The Expected Contract Value of the deal is $37,370,859 (66% of the face value):
|Face Value: $56,528,000|
|Year||Salary||Expected Outcome||Expected Value||Guaranteed|
|Expected Contract Value:||$37,370,859 (66%)|
Smith already possessed a fully guaranteed base salary of $5.278 million prior to signing this extension, so his additional guarantee consists entirely of the $10 million signing bonus. In exchange for securing this signing bonus, Smith sacrificed five years of free agency and – most importantly – the opportunity for upside that comes along with it. While Smith’s annual salary may be the highest of any safety now (depending on how you view APY), it is quite possible that he will no longer even be in the top 5 by the time this contract enters its second half. That is not inherently a problem, as that would be the case to at least some degree for any contract. The question is whether sacrificing five years is worth a $10 million signing bonus, given the salaries that are scheduled.
Smith’s deal is touted as the largest ever for a safety, and Expected Contract Value agrees with that assessment. However, while Smith has the largest Expected Contract Value ever for a safety, it is important to keep in mind that his deal (and Byrd’s) is 6 years long, while Thomas’s and McCourty’s were each only five years long. As a result, Thomas and McCourty can expect to earn a higher percentage of their contracts than Smith, and they each have an opportunity to earn additional money one year sooner.
|Player||Season||Face Value||Guaranteed||ECV||% Expected|
While Smith alleviated his risk by an amount of $10 million and in exchange forfeited upside over 5 years, the team incurred $10 million worth of risk in exchange for manufacturing some amount of surplus value over 5 years (2017-2021). The amount of surplus value that the team manufactured depends largely on the amount of salary cap space that the team deems Smith to be worth on a one year, fully guaranteed contract in 2016 (Smith’s “Intrinsic Value”). Let’s imagine, for the sake of example, that Smith’s Intrinsic Value to the Vikings in 2016 is $10 million, and that the team anticipates salary cap growth of 5% per year. Once the Expected Contract Value probabilities are taken into consideration, the team would expect roughly $5.14 million worth of surplus value of the life of the contract.
|Season||Estimated Intrinsic Value||Salary Cap Number||Potential Surplus||Contract Expectation||Expected Surplus|
|Total|| || || ||$5,141,587|
The amount of expected surplus value changes based on Smith’s deemed Intrinsic Value and the projections for salary cap inflation. Expected surplus value increases if deemed Intrinsic Value and/or projected salary cap inflation are higher.
In addition to the expected surplus value, the team also secured some amount of optionality value. Each offseason beginning in 2017, the team will have the ability to choose to retain Smith without incurring any new risk or paying for a market value contract (which is distinct from the surplus value of his cap number as compared to his Intrinsic Value). This optionality value is difficult to quantify, but the value is smaller with each offseason due to the cumulatively increasing probability that the team would have already released Smith in a prior offseason.
We saw in the case of Allen Hurns that the Jaguars manufactured $10.14 million worth of expected surplus value and 4 years of optionality value in exchange for $15.4 million worth of risk. From that perspective, manufacturing $5.14 million worth of expected surplus value and 5 years of optionality value in exchange for $10 million worth of risk does not seem like as good of a return for the Vikings. However, the total risk is lower, and one could make the case that upside should not increase linearly as risk increases. Further, we have been estimating Intrinsic Values without calculating them by any objective method.
From a team-wide perspective, this contract moves the Vikings from 27th in the Commitment Index rankings to 23rd, as the true cap commitment beyond 2016 only consists of $8 million worth of prorated signing bonus. The team’s Commitment Index score is 66, which corresponds to a net true cap commitment equal to 66% of the hypothetical team possessing the commitment of the mean of all 32 teams. The Vikings will have a number of recent draft picks due for extensions over the next year (Sharrif Floyd, Xavier Rhodes, Anthony Barr, Teddy Bridgewater, etc.), and the team will be in a position to extend those players without becoming overly committed. The Vikings should be in a position to spend in free agency 2017 and should design such free agent contracts to be frontloaded in 2017-2018 to allow the team to move on in 2019 as the cap numbers for the extended players begin to increase more rapidly (i.e. 2017 extensions for Bridgewater/Barr would likely not have high cap numbers until 2019).
It should be noted that the team’s strategy of trading up from the top of the 2nd round to the bottom of the 1st round was very forward-thinking, as it provides the team with an extra season of leverage over the player due to the 5th year team option associated with 1st round draft pick contracts. While the term “salary cap management” is often thrown around casually in circumstances to which it does not necessarily apply, this trading-up strategy can be fairly characterized as a savvy salary cap management strategy due to the discounted contracts that are possible with an extra year of team leverage.
|Year||Cap Number||Probability||Dead Money||Probability||Expected Cap Number|
|Total:|| || || ||$37,399,000|
Expected Contract Value was created by Bryce Johnston and Nick Barton.
Bryce Johnston earned his Juris Doctor from Georgetown University Law Center in May 2014, and currently works as a corporate M&A associate in the New York City office of an AmLaw 50 law firm. Before becoming a contributor to overthecap.com, Bryce operated eaglescap.com for 10 NFL offseasons, appearing multiple times on 610 WIP Sports Radio in Philadelphia as an NFL salary cap expert. Bryce can be contacted via e-mail at firstname.lastname@example.org or via Twitter @NFLCapAnalytics.
Nick Barton is a junior at the McDonough School Business at Georgetown University. He is majoring in Finance and Operations and Information Management. Nick currently interns with an NFL team . His prior work experience includes interning with CollegeSplits and Dynamic Sports Solutions, and working as a research assistant for the Center of Applied Research of the Apostolate.