I saw today on Twitter a comment about Rob Gronkowski possibly being unhappy with his contract and just yesterday Reshad Jones of the Dolphins said he may sit out the year if the team doesn’t rework his contract. I thought that this might make a good time to bring up some of the things that Bryce and I have recently discussed on the podcast and that Bryce goes a bit more into detail about in his look at the misguided use on APY to value a contract and how to better look at a contract.
When contract issues like this come out many hardcore fans and media members are quick to support the player in the possible hold out. Usually a justification is that teams don’t honor contracts so why should the player. The problem with that argument is that the teams are negotiating the right to not honor the contract and player’s agree to that stipulation. In reality by holding out the player is the one not honoring the agreement while the team is doing what it is allowed to do. This is not the fault of the team, it’s not the fault of the union, its really the fault of the player’s agent who is negotiating the contract.
When a player agrees to a new contract they are agreeing to forego their future rights to free agency and ability to negotiate market value raises. While holding out is their only recourse to try to get a new contract from their existing team the fact is that even that rarely leads to a true market deal, at least for veteran players. The fault lies in the initial contract in which agents are overly aggressive in trying to get a contract complete or reach some mythical annual value or total contract value that will be reported by the biggest reporters at ESPN or the NFL Network as a milestone contract.
The agent and player are thrilled when that report comes out but other than in extreme cases like with Larry Fitzgerald, Adrian Peterson, Darrelle Revis, and a few others the contract is forgotten about shortly thereafter. Milestones rarely remain as a milestone for more than a year and often they become undervalued as time goes on. If the player continues to excel they quickly grow unhappy with a contract that was designed to get the eyes on the TV (or these days Twitter) for all of 60 seconds. How does that work for the benefit of the player? It doesn’t
For the most part the NFL contract system runs in cycles, where usually every three years there is a shift of some sort in the contract dynamics at play. Most of the time the positions grow in value or at the least move sideways. In some rare cases, like with linebackers and running backs, they decline. A person good with numbers usually can at least guesstimate the season in which they will occur based on rookie contract expiration dates and the teams those players play for. Regardless anything signed for more than three seasons either has to carry massive guarantees or some type of payout that will exceed hitting free agency again in three years when the cycle will almost certainly cause a move up in salaries.
For example a wide receiver signing a contract today will likely no longer be on a market rate contract starting in 2017, which is the earliest date at which the famed 2014 class can begin to sign extensions. Not only will the big names sign a contract, but some of those big names are employed by the Bills, Jaguars, and Giants who are all free spenders on the contract side. Once they sign deals the next tier all pulls up. We have already seen that with the recent Allen Hurns contract with the Jaguars who seem to have conceded the point for their number 2.
Agents should do this at every position and determine the balance between the long and short term contract. We all know that a contract is only valid for as long as it is guaranteed and in most cases guarantees only exist for two years, unless it’s a superstar in which case they get three years of guarantees. Teams usually frontload the cash in contracts because of bonuses and general structures which often makes the cash backend of the contract very low relative to the annual value of the deal. Is that a contract worth signing?
Some players (running back for instance) usually decline fast and it’s doubtful that their talent will match up with the market. For them getting whatever you can is probably the right call regardless of length. Agents should also know their players and understand if the player will continue to excel or get soft with the big money (ala Dwayne Bowe) before making a decision. But if you have that rare breed of player- Rob Gronkowski, Antonio Brown, etc…who is signing young and plays so far above everyone else is that contract worth signing? In many cases it is not.
It’s a fallacy to say that agents have no ability to negotiate more guarantees for their players or no ability to incentivize contracts such that a player will earn automatic guaranteed escalators to keep his contract on par with the market. It’s accepted that they can’t do it and that does today’s player a disservice.
Back in the old CBA, agents for the top 7 or 8 (and sometimes all the way through 15) players negotiated complex contracts that were probably closer to the type of kickers you see in contracts for executives or big money media deals. Sight unseen a player like Sam Bradford had the ability to have $50 million of a $78 million contract fully guaranteed by simply playing about 1/3 of the time for his team. Others like Darrelle Revis negotiated contracts that contained complex escalators based on a points system that would pay him millions of dollars on the backend of his contract, all guaranteed, if earned. Players also wisely negotiated no franchise tag designations in some of these deals.
Those players had no more leverage than anyone today. They were college kids, many without a dime in their pockets, who had never played a down in the NFL. The teams desperately wanted the players and were willing to do anything to sign them. Agents manipulated the system especially the fact that coaches were also handling double duty as the GM. It got so bad that the NFL had to step in and negotiate in the CBA a slotted salary system that stripped the agents ability to force those big guarantees on a team for a rookie.
So why can’t the same be done for a player today? The basics are the same. The team desperately wants to keep the player at all costs. When players get to free agency they sometimes use that leverage (we saw that this year with Olivier Vernon and last year with Ndamukong Suh), but in general the players are getting screwed not because of the league but because of the decision to lock themselves into a contract that they have no right to get out of three or four years down the line. Even something as simple as a rookie negotiating a no franchise designation so he is free once his deal expires is never considered.
One of the best deals in the NFL that really hits on the points as to how to properly handle a contract is Nate Solders of the Patriots. Solder signed a two year extension worth around $20 million. While nobody will get excited by $20 million, he was able to hit his $10 million a year metric and also received $12.5 million in new guarantees, about 63% of the contract value.
The important thing though is the length. Its just two years meaning he is eligible for a new deal in 2018. He will benefit from the Cordy Glenn and Terron Armstead contracts that hit $12 and $13 million a year respectively. Meanwhile Tyron Smith, a far superior player is stuck on his contract through 2023. He has no hope of ever earning his full market value and will at no point ever truly be the highest paid tackle in the NFL. Why do more players not do deals like this? Im not really sure.
Going back to Gronkowski, he signed a contract after just two seasons in the NFL and agreed to give up 6 years of his career to do that. In return he received about $12 million in new guarantees and another $5 million in vesting guarantees. Why so many years? Probably to hit a meaningless metric of $9 million a season, which at the time was a pretty big number for a tight end, or the $50 million number for a total contract value.
The four year average for Gronkowski was $8.75 million at a total value of $35 million. Neither sounds as impressive as $54 million or $9M per year. Im not sure how much less he would have had to take if he took a lesser contract but I bet a two year extension worth $17 million would have been possiblem especially since that was his pre-option value. Not as impressive sounding as $54 million but Gronkowski would have been a free agent now had he taken that contract.
Under that scenario Gronkowski would have earned $17 million in new money by 2016 and then likely earned a new deal that averaged maybe $12 million a year thereafter. Using Jimmy Graham’s contract as a baseline with $13 million in year 1, $8 million in year 2, and $9 million in year 3 we can probably estimate a deal worth $16M, $11M, and $10M and $9M over the 4 year period.
Here is how that would have worked out:
There was virtually no downside for Gronkowski had he opted for the shorter term deal. He would have earned more under a shorter term scenario and ended up with far more guaranteed overall. There would never be a point in time where he looked at his ledger and wondered why he will play this year for just $3 million and next year for $5 million.
He also would have eliminated the need for the holdout. While I don’t begrudge a player for holding out (though I think its fairer for a rookie who has no choice on his contract while a veteran agreed to the structure with full knowledge of the consequences) in almost all cases the player holding out is viewed as the loser by the average fan. They draw the ire of the fanbase because they are already earning so much money compared to the average person watching and the fans feel they are undermining the team’s success for no good reason.
Teams can also manipulate the situation if they want. If Gronkowski did hold out I am sure the Patriots would remind everyone about how big of a contract this was at the time it was signed. They would also be very quick to point out that they have paid Gronkowski $27M in new money through 2015. For that $27 million he missed 14 games in 2012 and 2013 and had they not signed him when they did he would have limped into free agency in 2014 after a 7 game season.
If people were not so anxious to sign a contract and really fought with the teams I firmly believe that more power would shift to the players in some of these negotiations. Yes there is the threat of injury if you wait but teams always want to keep their best players and the longer things go the more power a player can have. And if no deal gets done? You go to free agency as a tier 1 player in a free market where pretty much no tier 1 players are available. Free agency where number 2 pass rushers and players with nothing more than potential get big guarantees and bigger deals that the top stars who sign early.
Someone can make it happen and once a few people make it happen the power can shift completely just like it did with rookies in the last CBA. But business as usual needs to change to maximize earning potential and help players be paid a market rate for the life of their career.
Jason is the founder of OTC and has been studying NFL contracts and the salary cap for over 15 years. Jason has co-authored two books about the NFL, Crunching Numbers and the Drafting Stage, which are widely circulated in the industry and hosts the OTC Podcast. Jason’s work has been featured in various publications including the Sporting News, Sports Illustrated, NFL Network and more. OTC is widely considered the leading authority on contract matters in the NFL.