On Odell Beckham and Contract Decisions

The other day Odell Beckham said that he wants to be the highest paid player in the NFL. I’d say there is about as a good of chance of that happening as me being named the next general manager of the Jets, but lets explore further. Mike Florio of PFT did outline a case in which the Giants should consider signing Beckham to a massive contract, which of course I disagreed with, but I think it brings up a good point about things to consider when negotiating an extension for a player.

While we all get caught up in numbers on contracts and thinking about who wins and loses, the main purpose of a negotiation is to come to an agreement that both sides are happy with. When it comes to NFL contract decisions there is a great deal of risk for both sides and in many ways the contract is the transfer of risk from one party to another.  When you take into account the value of that risk you can better come to a fair price.

A player like Beckham, who has two years remaining on his current contract, right now bears the majority of the risk. Beckham, who is worth over $17 million a season, is currently playing the next two years for about $5.15 million per year. Since Beckham is already a proven player there is no risk involved for the Giants at this point since a $5 million receiver generally only produces around 600 yards and a few scores a year. He’ll do that in his sleep. But for Beckham he has to bear the risk of both injury and lessening productivity. While the latter seems unlikely in the next two years the former is a real concern.

Once Beckham signs a contract with the Giants the contract will both increase in size and also grow in guaranteed salary. Once a large portion of the contract is guaranteed the team is the side now bearing the risk of both injury and sliding productivity. As players age both are a real concern.  The benefit for the Giants is if Beckham stays injury free and plays well beyond the guaranteed portion of the contract the team will likely have a bargain at the position. So how do you value this?

Florio brings up a relatively basic decision tree in his analysis. In his matrix he anticipates that the Giants will franchise tag Beckham in 2019, 2020, and 2021. He then anticipates a potential franchise tag in 2022 if allowed by the league. Add the numbers up and the Giants will be paying Beckham over $127 million over the next 6 years, so it makes more sense to do a deal that averages more than Derek Carr’s because that will be cheaper in the long run. The problem with just taking that basic scenario as a given, and why teams don’t use that as even remotely probable, is because it fails to take into account all the various things that can happen between now and 2022 to change the value of the player.

In 2022 Beckham will be 30 years old. He currently averages around 1,300 yards and 11 TDs a year. Since 2000 how many seasons have there been for players 30+ years of age to put up that many yards and double digit touchdowns? 6. Marvin Harrison (he did it twice), Randy Moss, Terrell Owens, Brandon Marshall, Rod Smith, Mushin Muhammad and Joe Horn. There are plenty of productive players but we are talking about the consideration in the above analysis that a 30 year old receiver would be worth nearly $45 million in 2022 to give the Giants any real benefit in taking a deal today that would make Beckham the highest paid player in the NFL. That 30 year old better be 24 year old ODBJ special to be remotely worth that kind of coin.

Players are good one day and bad the next. Remember Santonio Holmes in New York?  He got kicked out of a huddle by his own teammates. Mike Wallace and Percy Harvin were worthless big ticket items. Was it the money? Was it age?  Granted they are not the same class of player as Beckham but Moss himself went through a period in his late 20s where people questioned whether he was finished before landing in New England.  These are the risks that the team is going to need to be compensated for to sign an early contract extension.

The first thing ‘Id look at in assigning a probability to a fourth tag scenario is how often do we see three tags occur?  I think the last and maybe only player to have it used three times was Walter Jones of the Seahawks about a decade ago. Even two tags is a bit of a stretch. Most often the two tags have been used for kickers. Kirk Cousins and surprisingly Trumaine Johnson are on it this year. I believe prior to this the last positional player to get two tags was Anthony Spencer of the Cowboys in 2011.  For everyone else it’s a one time proposition. Why? Because so much risk stays on the player when they are forced into playing on the tag and the cash on the tag is far lower than on a new contract, even if the tag carries a high APY. Its team leverage.

There is no reward or give and take in paying Beckham three franchise tags plus another $28 million in a contract signed in 2017.  Given the way most players age the Giants would make out better 99% of the time simply tagging each year and walking away when the value isn’t there anymore. From a cash perspective it’s almost always cheaper for the team to go year to year unless they hit that third tag.

The right way to really value the contract is by performing a scenario analysis to help mold your decision tree. Let’s look at the receiver market and the potential outcomes for Beckham. The four scenarios for Beckham are an extension, 1 tag and a new contract, 2 tags and a new deal, 3 tags and a new deal, and finally 4 tags as proposed by PFT. Just to make the numbers easier Ill assume a 10% raise from the Brown deal if he takes a new contract today. To put the numbers in context here is what the top player earn over 4 year periods.

Player Year 1 Year 2 Year 3 Year 4
Demaryius Thomas $22,000,000 $35,000,000 $47,500,000 $56,000,000
A.J. Green $26,574,000 $37,074,000 $47,824,000 $60,000,000
TY Hilton $18,458,000 $26,458,000 $37,458,000 $50,458,000
Dez Bryant $23,000,000 $32,000,000 $45,000,000 $57,500,000
Julio Jones $25,324,000 $36,824,000 $47,324,000 $59,824,000
Antonio Brown $29,075,000 $44,200,000 $55,500,000 $68,000,000
Beckham- 4X $18,280,000 $40,210,000 $71,790,000 $117,270,000
Beckham- 3x $18,280,000 $40,210,000 $71,790,000 $103,772,500
Beckham- 2x $18,280,000 $40,210,000 $72,192,500 $88,830,000
Beckham 1X $18,280,000 $50,263,000 $66,900,000 $79,330,000
Beckham 0x $31,983,000 $48,620,000 $61,050,000 $74,800,000

The most important things to consider here are the cash flows. By going the franchise tag route Beckham is taking a $13 million risk for a gain of about $2 million the following year, and a $5 million gain over 4 years. If he makes it to the second tag its now an $8 million risk for a $10 to $14 million gain.

So how do you quantify that risk and reward?  While its not easy to find a great subset of players for Beckham because he has been so good, we can estimate from some younger stars in the NFL the odds of being good enough to be tagged for a third time or offered a massive contract at the age of 29 after two tags.  (You could also use franchise players as a point of reference, but that is more time consuming to do).

The list of players I came up with using PFR that averaged at least 1,000 yards between the ages of 23 and 25 were Randy Moss, AJ Green, Larry Fitzgerald, Brandon Marshall, Dez Bryant, Calvin Johnson, Anquan Boldin, Antonio Brown, Julio Jones, Alshon Jeffery, TY Hilton, Mike Wallace, DeSean Jackson, Darrell Jackson, Braylon Edwards, Santonio Holmes, and Marques Colston.

Of those probably just 1 (Edwards) wasn’t worth a tag consideration at the age of 27 so the risk of non-productivity between now and 2019 is limited. How many were worth it coming off the age 27 season?  Green, Fitzgerald, Marshall, Johnson, Brown, Jones, Hilton, De. Jackson, and Colston. So there is basically about a 55% chance that hes worth a second tag and a 45% chance he will either need to take a one year “prove it deal” or a lower level market long term contract. You can tinker with those numbers with a bit with a sensitivity analysis as Beckham is far more Green, Fitzgerald and Megatron than Wallace or Edwards, but you get the idea.

Who would be worth a third tag/big extension after age 28? Thus far Green is the only clear one that would fall off. Jackson and Colston certainly would not be worth a third tag, but would get a high market contract. Other than Johnson, I’m not sure any would really be seriously considered for a third tag.

You can get pretty complex with this stuff and make a very solid matrix of outcomes, taking into account complete failure, but for the sake of just doing a basic look at Beckham I’ll look at those two year numbers as a 55% of happening and a 45% chance of being worth around $10M (2nd tier money). As we move into the three tag scenario Id only give him about a 5% chance of the third tag and a 1% chance of the 4th tag. When we move into extensions in those years I think you can arguably go with a ratio of about 35% chance of a high market contract and 65% chance of a mid tier contract. Again Ill just completely discount the odds of a very low end contract.

So if we look at all our potential outcomes what does the 4 year salary come out to be?

Scenario Probability 4 Year Value Outcome
2020 High Extension/Tag 24.8% $79,330,000 $19,634,175
2020 Low Extension 20.3% $48,280,000 $9,776,700
2021 High Extension 20.0% $88,830,000 $17,766,000
2021 Low Extension 30.0% $60,210,000 $18,063,000
2022 High Extension 0.56% $103,772,000 $581,123
2022 Low Extension 3.4% $81,790,000 $2,780,860
2022 Tag 1.0% $117,270,000 $1,172,700
Total 100.0% $69,774,558

So basically if Beckham fails to reach an agreement and begins the franchise tag route, odds are he will earn around $70 million over a four year period.  The lowest end salary would be just under $50 million, which is worst case for him. Again you would do various estimates for some of the probabilities since Beckham is so good as well as more estimates for future contract values based on market growth rates for receivers, but in general any offer above $70 million across 4 new years is a contract that should be given strong consideration by Beckham.  It locks in value and better front end cash flows while eliminating the risk associated with playing things out and landing a low tier contract.

How much over $70 million the Giants would need to go would depend greatly on Beckham’s risk tolerance and that’s what the Giants are really negotiating against when doing a deal. My feeling is once you reach close to $79 million it becomes a no brainer for him as they essentially pays him the same as the scenario of playing on the tag one time with far more money up front.

Even though that is a hefty price, the Giants benefit from that as well because they roll his $8M salary next year into the guarantee package giving them more ability to move on from the contract if Beckham goes off the rails like some of the other players. They also eliminate the risk of major market movement, though I don’t anticipate that as being very likely at the position at the top. Also no holdouts or other headaches related to his contract next year.

But this is one of those areas where you end up doing this for a living its important to understand all possible scenarios and determine whats the best way to incorporate that all into a strong offer sheet so that both sides can get a fair deal done. If you study the nuts and bolts of the dollars in these deals see if you can determine what the concession points may have been and in what way both sides thought they benefited. If Beckham wants to actually get a deal done he and the Giants will find some common ground that makes it work for both of them, but that common ground is not relying on the least likely scenario. Beckham asking for $25M a year is about as reasonable as the Giants offering him $7 million a year.  Those are least likely outcomes for a career any way you slice it. It makes for great talk, but isnt going to get anything done.