Justin Houston’s Contract, Historical Cap Data and Cap Projections through 2021

Opinion on Justin Houston’s Contract, Historical NFL Cap Data and Cap Projections through 2021

If you enjoy the analysis in this article, please e-mail Caponomics @ gmail.com to join the e-mail list.

Six-years, $101 million for an outside linebacker…

I should clarify something with the salary cap comments that I make in regards to contracts that I feel are out of whack with the realities of what I’m studying in the writing of #Caponomics. Sure, a team can win with a salary that’s out of line with my ideas and out of line with what’s happened in the past, but my main objective with the research I’m doing and the writing that’s a communication of that research is to explain how teams can have the best chance at winning a Super Bowl. In no way do I think that I’m some know-it-all whose work and cap percentages are something that are set in stone as building an NFL roster is part art and part science.

There’s the art of understanding what you’re trying to build, building a team in your vision through the players you’re putting on the field, thus certain styles of athletes at certain positions will have a higher value than they could have in other offense. For instance, a huge part of why I broke my own Caponomics rules yesterday with Dez Bryant’s contract when I suggested the Cowboys give him a deal that had him exceeding Jerry Rice’s Super Bowl record cap hit for a WR of 8.56% is that he is that important to the Cowboys Air Coryell offense. In my opinion, considering that he’s a spitting image of Michael Irvin in this offense, then I believe that he could be worth more than that 8.56% from Rice rather than allowing him to walk in free agency and have to find a replacement.

The science aspect of this is understanding the cap figures that lead to championships. While you can certainly go outside of the parameters that are set by the past champions, I don’t advise going too far outside of them. These parameters include who the highest paid player at your position is, who the highest paid non-quarterback is, what the highest figures for the Top 3 cap hits are, and so on. For example, the 2014 Lions with Ndamukong Suh (16.85%), Matt Stafford (11.89%) and Calvin Johnson (9.82%) combined for a Top 3 total of 38.56%, which was 10.73% higher than the Super Bowl record of 27.83% set by the 2002 Bucs with Warren Sapp (9.82%), Brad Johnson (9.57%), and Simeon Rice (8.44%).

On top of that, Suh and Johnson were higher than the records at their position, Sapp and Rice. Stafford would have been the second highest quarterback charge of the Super Bowl group behind Steve Young’s 13.08% in 1994. As I’ve written many times, Young and Rice have cap hits that are inflated by the uncapped 1993 season, during which the 49ers re-signed 17 veterans to contracts, thus allowing them to avoid the cap in a huge way. While I think teams could win Super Bowls with a Hall of Fame quarterback and/or wide receiver at that 13.08% and 8.56% level, I think it’s a hard road to go as they also combined to be the highest Top 2 cap charge for a champion by a few percentage points at 21.64% of that year’s cap.

The reason I’m explaining this is to get into Justin Houston’s contract and a shocking tweet from Jason in that filtering out the highest paid quarterbacks and eight of the next 10 highest paid players are defensive players. Yesterday, after the Dez Bryant article, a commenter wrote about the length of the articles, which I agree, they’re too long, but I find it tough to balance giving the reader the full understanding of the thinking that goes into my conclusions and brevity.

Something I’ve also learned regarding my long-form writing is that considering I am a 25-year-old who doesn’t have a resume to back up his opinions, I feel that I should let people know exactly why I’ve come to these opinions or else run the risk of sounding like a pompous, fill in your favorite French word here. I saw this in effect today when I tweeted that the Chiefs have ensured they will never win a Super Bowl paying an outside linebacker $16.8 million per year because he’ll be a 10% plus cap hit in almost every year, which will make it almost impossible to win. I got a response from someone along the lines of, so what do you think they should have done?, but with a little more attitude. Of course, I can’t explain what I think they should have done in 140 characters, which is why I love the long format. Seriously, twitter is such a horrible way to communicate ideas and that’s something we should all remember lest we make asses of ourselves from time to time with opinions that we know are backed up with our set of facts, but that we aren’t communicating through the platform.

Okay, so looking at Houston’s contract, Jason Fitzgerald wrote that he received a record setting six-year, $101 million contract. According to Jason LaCanfora, he will earn $32.5 million in full guarantees and $52.5 million in injury guarantees. By March 2017, Houston will earn $52.5 million, which Fitzgerald writes “might be the biggest contract for defensive players not named Suh.” Jason writes some other facts about the deal, but simply put, it’s massive and could be a record setter in terms of cash flows. To put it in perspective for the common layman like myself, in the words of Busta Rhymes, Mr. Houston is making “Arab Money.”

Fitzgerald does a great job explaining the way that the franchise tag is effecting negotiations and is being reflected in the contracts that are being signed with player’s like Houston getting a couple million more than what he would have gotten on the franchise tag for two years. He goes on to explain the way that the contracts for Suh, Gerald McCoy, and Robert Quinn influenced Houston’s deal and how Houston’s deal will now influence contracts for Von Miller, Aldon Smith, Jason Pierre Paul and Greg Hardy.

What this six-year, $101 million contract means is that Houston will be getting an average $16.83 million per season and below is what that ends up being. Joe Banner tweeted today, “Why so many tag deals today. Teams realize how much cap is about to go up. Time is on players side, today’s deals will look cheap soon.” Considering that and my own research on the subject, including Roger Goodell’s projection of $25 billion in revenues by 2027, I think that the cap could start increasing by more than $10 million per year in the coming years, but I’ve left in projections of plus $5 and $7.5 million just in case we do revert back to the increases we were used to before the new CBA.

Justin Houston's Contract 

Before I get to my opinion on it, I realized something while putting this together that I think is very applicable to these conversations. I had a light bulb go off that we should look at our future projections for the cap based off of historical data, not exactly rocket science, but a light bulb nonetheless. I feel that this would be a very solid way for general managers and decision makers of all 32 teams to project future salary caps at least up until 2021 as that’s the last season that will be played under the current CBA. While there are various new revenue sources that could open up to the NFL before that time and drastically increase the salary cap, I think that the data below is a solid measurement to use when projecting future years.

Salary Cap Increases 1994-2015

As you see, there is a similar increase to what I described with the 2000 to 2001 increase and the 2014 to 2015 increase in terms of the percentage. This analysis has given us two numbers, first the per year increase of 108.0% for the whole cap era and second, the per year increase of 104.6% since the 2011 CBA.

Using these figures, the first table below shows us the projections moving forward using the 108.0% figure and the second one shows us using the 104.6% figure.

Projected Cap through 2021 Using 1994-2015 Figures

Projected Cap through 2021 Using 2011-2015 Figures

Personally, I like the first number better because it’s a bigger data set. I’m unsure why the cap barely moved from 2009 to 2013, but it had a huge affect on the small data set in the new CBA. Like I said, Goodell sees the league climbing to $25 billion by 2027 and while I’m not an expert on how the cap works in terms of the CBA, I do believe that, since the players get 47% of the revenues, that the salary cap is closely related to these revenues. Using those two numbers of 108.0% and 104.6%, let’s see where the revenues and caps line up. Also, I chose the $10 billion revenue number because that’s the estimate I saw most and although I’ve seen $9.5 billion as well, it’s all just an estimate and a couple billion on the revenue side in later years actually only makes about a 5% difference on the team salary cap that’s around $350-370 million in 2027 depending on if the estimate starts with $9.5 or $10 billion.

(Click to enlarge if needed)

Screen Shot 2015-07-17 at 3.00.54 AM

Tim Ferriss cited Warren Buffett’s two rules of investing on one of his podcasts I was listening to this week, rule number one, don’t lose money and rule number two is see number one. Man, the power of compounding interest is remarkable.

I then found the closest figure of increase that get us to around $25 billion in revenue and that was 107.31%.

Screen Shot 2015-07-17 at 3.02.13 AM

What really interests me is the correlation that I’ve found between the projected salary cap from using the historical average of the 108.0% increase lines up with the projected salary cap from the year before with Roger Goodell’s projected $25 billion in revenues by 2027 at the 107.31% increase per year.

Historical Figures Projection vs. Goodell Revenue Projection

With all this in mind, the figures that I want to use for the projections moving forward, and the ones that I will use on all future articles will be coming from the historical figures projection and I will be rounding them to their nearest million or half million.

Screen Shot 2015-07-17 at 3.04.26 AM

Now looking at those projections, this contract is exactly what I thought it was…insane.

As I’ve discussed many times on this site and what will be discussed at length in Caponomics is that I am a firm believer in the figures that I’ve gathered in regards to how Super Bowl champion teams spend their money. The top Super Bowl pass rushers are two Hall of Fame defensive ends with Reggie White taking up 8.90% of the cap in 1996 with the Packers and Simeon Rice of the 2002 Bucs consuming 8.44% of their cap, then the average top defensive end cap hit for a Super Bowl champ only consumes 4.74% of the cap. The highest outside linebacker charge was Willie McGinest in 2001 taking up only 6.47% of the Patriots salary cap and the top 3-4 defensive end was Joey Porter in 2005 at 5.72% of the Steelers cap, after him is 4-3 defensive end Derrick Brooks at 5.54% of the 2002 Bucs cap. The average linebacker cap hit for a champion is 4.10% of the cap. Simply put, while I find the pass rusher, meaning defensive end or outside linebacker depending on your scheme, to be a very important position to invest heavily and well in, it’s not one that should be at 10-12% of the cap for one player.

While I won’t claim that a team can’t win a Super Bowl if they aren’t in like with the Super Bowl figures that I’ve come up with through the research I’ve been doing writing this book, I’m in the game of determining what’s the best way to create a team that has a high probability of winning a Super Bowl. So when I say a team can’t win with a certain contract, can they win a Super Bowl? I mean, never say never, but what I mean is, you’ve severely restricted yourself because some team like the Seahawks in 2013 or the Patriots in 2014 are going to create much more value through their salary cap because they don’t have an outside linebacker making almost double what the highest paid outside linebacker made and 4% higher than Reggie White, one of the greatest pass rushers of all time. If you think that in 2017, Houston is going to provide 139% of the value that White provided the Packers in 1996, then be my guest.

The real insanity of valuation that I see is with Simeon Rice as he had 15.5 sacks and 50 tackles with Pro Football Reference giving him a 21 for that seasons Approximate Value (AV) rating. There were only two players in the NFL that year with a higher AV and they were, his teammate, Derrick Brooks and Priest Holmes with 22s. So what the Chiefs are saying is that he’ll provide 146% of the value that Rice provided the Bucs that year. Also, I only say it this way because, since pass rusher is such an important position, then Super Bowl teams must have gotten solid production from their pass rushers. So if they’re not spending 10-12% of the salary cap on the pass rusher, then they must be doing something right. Twenty-one Super Bowl champions can’t be wrong.

I really believe that teams need to understand these concepts and the values in terms of percentages of the salary cap. All the important information for any business is in the numbers, financials are incredibly important for understanding how to beat your competitors and grow as a company. Why would it be any different with the NFL salary cap, the most important financials of arguably the most competitive industry in the country?

Of course, our great Expected Contract Value metrics show, especially with contracts like this one, the player won’t get the money at the end of the deal, but this money is so frontloaded, that it’s assured he’ll have these 12% plus cap hits in two of the next three seasons and, while Houston is one of the best players in the NFL, they Chiefs have given him a contract that will lower their probability of winning dramatically.

Then you remember, they’ve got huge deals for Alex Smith, Jeremy Maclin and a sizeable running back deal for Jamaal Charles.

Chiefs: Smith, Charles, Maclin Cap Hits

When you add in Houston, then their total cap percentage looks like this:

Chiefs Big 4 Contracts

Keep in mind, if Eric Berry is healthy and he’s back on the field, then they’re going to want to re-sign that leader of the defense, but where? Now, I don’t even know if they’re going to be the Top 4 contracts in each of these seasons, but when we’re comparing to Super Bowl teams, the Chiefs are in big, big trouble. To give you an idea of how out of line their cap is in 2016 and 2017, the Top 5 cap hits for the 21 champions averages 32.11% of the cap, less than those to years for these three. The 2002 Bucs had the highest spend on their Top 3 cap hits at 27.83% and even when Jamaal Charles falls off the budget in 2018, Houston, Smith and Maclin will still cost more than Warren Sapp, Brad Johnson and Simeon Rice. Two comparable quarterbacks cancel each other out, but are Houston and Maclin on the level of those two Hall of Fame defenders and the team impact that they had in forging one of the best defenses in NFL history? They were also the highest Top 5 cap hits when you add Derrick Brooks and Jeff Christy in at 38.36% and the Chiefs quartet cost 35.68% of the cap in 2016. Just an absurd valuation.

On the player side, I like Houston, I would love to represent someone like him someday, but agents have to make their clients aware of the cap-tastrophe that they could level on their team. I know players are chasing that $100 million contract and everyone wants to be the highest paid at their position and the highest paid in history, but you’re eventually going to be passed up by someone else anyway. One day, just looking at the projected salary cap, there will be dozens of $100 million contracts, the league is just growing at that kind of rate.

So you’re probably asking what would I have done if I were Justin Houston’s agent? I understand, considering I’ve got these theories on it, I have to back it up. I’d talk him off the ledge and remind him what Babe Ruth said in the Sandlot, “Remember kid, there’s heroes and there’s legends. Heroes get remembered but legends never die, follow your heart kid, and you’ll never go wrong.” Sure, that quote may or may not apply here, but anyway, you want to really play to someone’s ego? Help them envision the world as a Super Bowl champion and the best defensive player in the league, a chance to go down in history as one of the greatest defenders in NFL history. That’s not done simply with a $100 million contract, it’s with Defensive Player of the Year Awards and Super Bowls. Give your client the ability to be a legend and live like a king forever. Trust me, there are plenty of money making opportunities for Super Bowl champion pass rushers in a place like Kansas City. Come with me Justin, let’s buy you 50 Outback Steakhouse franchises like Vinny Testaverde and just watch this $90 million grow into a $200 million and figure out what you want to do after you win this Super Bowl.

And Chiefs, by the way, sure, give Houston more than Reggie White made in percentages, massage that ego, tell him that you believe he is going to lead your team to the promised land and that he will prove he’s a greater champion than one of the greatest who ever lived and a hero of every pass rusher in the NFL today. There are various ways to massage the ego, nine-figures isn’t the only one. Get creative.

My Justin Houston Contract

As always, if you want to join the e-mail list for Caponomics, e-mail me at Caponomics@gmail.com to get a chapter on the 2000 Ravens and be alerted to when the book will be made available.