Podcast: Franchise Tags, Hernandez, and Worst Teams in the NFL

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This week we take a look at the franchise tag decisions, how forfeiture provisions may work with Aaron Hernandez, plus some thoughts on what teams may be in for the worst seasons in the NFL in 2013

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Patriots Release Aaron Hernandez- Some Cap Related Thoughts

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Surprisingly the New England Patriots waived TE Aaron Hernandez following his arrest Wednesday morning. His release creates a number of potential salary cap scenarios for the team.

Hernandez had earned $2.46 million in salary guarantees by being on the roster this past March. When a player is released that has guaranteed salary in his contact the full amount accelerates onto the salary cap immediately (actually at a present value level) regardless of the June 1 rule. The question here is whether or not the Patriots released Hernandez for a football reason or for conduct. Given that the team waited until he was arrested it makes me think the latter since no new details have come out from the first day this story broke until just now.

Being arrested may be enough to invoke the following reason for release:

“You have engaged in personal conduct which, in the reasonable judgment of the Club, adversely affects or reflects on the Club. “

That release should render the guarantees worthless and put the Patriots off the hook for Hernandez even if no teams claims him. Should, but doesnt mean it will especially if the player is innocent. Most likely this would end up in a non-injury grievance situation in which a panel will decide if the Patriots do or do not owe Hernandez the salary.

The trickier situation comes from signing bonus recovery of which $10.05 million is at stake. The CBA seems explicit in incarceration preventing a player from participating in team activities being the reason for forfeiture, and in this case Hernandez is still not guilty of any crime.

This would seem to be a legal matter and matter of interpretation. Once a breach occurs the NFL team still can terminate a contract and recover signing bonus money:

“The assignment and/or termination of a player’s contract after events triggering the forfeiture shall not result in any waiver of the assigning or terminating Club’s right to seek to recover the full amount of any forfeiture”

The question is does this constitute a breach?  A breach is defined in the CBA as

“Any player who… is unavailable to the team due to conduct by him that results in his incarceration;”

Clearly he is now incarcerated and technically in unavailable to the team so maybe that has given the Patriots all the ammunition they need to go after a signing bonus provided he does go to jail at a later date and miss time during any of the next 4 seasons. The forfeiture timeframe does not actually begin until 6 days into Training Camp, but perhaps as long as the actual breach during a League Year covering his contact the timeframe is independent of the breach action itself.the forfeiture provisions would also give the Patriots reason to hold Hernandez’ salaries even if guaranteed as a method of collecting repayment of forfeited bonuses.

Remember that these forfeiture provisions are all new in the current CBA, placed in there due to the Plaxico Burress and Michael Vick rulings that did not give ownership the right to recover bonus money, so this is a scenario that will likely be open to a lot of interpretation. Im sure someone much smarter than me will have an answer in the coming days.

As for how this affects the Patriots cap?  Because Hernandez is waived rather than released he will technically remain on the Patriots books for a 24 hour period. At that point he will either be claimed by another team or become a free agent. Once that occurs his salary cap number will drop from the Top 51 and he will move into the dead money category. Not knowing how the signing bonus recovery can occur the two basic scenarios right now look like this:

Scenario A: Guarantees Void/Claimed

2013 Cap- $2,632,000

2014 Cap- $7,500,000

Scenario B: No Guarantees Void

2013 Cap- $5,010,000

2014 Cap- $7,500,000

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Potential Salary Loss for Aaron Hernandez

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I mentioned the other day how the Patriots are well protected from Aaron Hernandez’ legal woes from a financial standpoint but with troubles mounting and speculation running wild I wanted to explain in a bit more detail what can possibly happen to Hernandez in  the event he is not available to the Patriots.

Guaranteed Salary

Hernandez’ earned base salary guarantees for 2013 and a partial guarantee in 2014 by being on the roster this March. Normally such guarantees would void is a player is suspended from the team either by the league or for personal conduct by the team, however Ian Rapoport of NFL.com reported that Hernandez’ contract is surprisingly missing language that would trigger that voiding of guarantees.

Does that mean anything?  Not really. Salary guarantees protect a player from skill, injury, or salary cap termination. They don’t protect a player for release due to personal conduct. Per the CBA a player can be released for the following:

“You have engaged in personal conduct which, in the reasonable judgment of the Club, adversely affects or reflects on the Club.”

So if Hernandez has put himself in a situation where he becomes more than a person of interest and an actual suspect in murder investigation or admits some participation in a crime there should be an avenue to release Hernandez and avoid the payment of his 2013 and 2014 salaries. That being said I think it is unlikely that they would release him.

There is little to be gained by releasing Hernandez. He is only set to earn $3.223 million in cash over the next two years, most of which is tied to actually playing football. Even though the contract is guaranteed he still needs to be on an active roster in order to earn his Paragraph 5 salary and I believe his roster bonus, which in his rookie contract was tied to being on the active roster and seems to have rolled over to his new contract.

Players suspended do not earn their salary. If Hernandez is placed on the Reserve/Suspended list by the league the guarantees mean nothing. The league has the ability to suspend a player and declare him ineligible for conduct so the Patriots would get the same protection from paying guarantees by simply petitioning the NFL to suspend Hernandez rather than releasing him under the conduct clause.

It should be noted that Hernandez is a good football player and we have seen good players go to jail in the past or be accused of some serious crimes and teams stand by the players. Ray Lewis and Jamal Lewis of the Ravens both faced significant legal troubles and neither was removed from the team.  Suspending a player allows the team to maintain his future rights and avoid payment of the contract. Cutting him does not maintain future rights.

So for every game that Hernandez fails to play due placement on Reserve/Suspended he will lose 1/17 of his base salary and $7,375 of a roster bonus in 2013, and 1/17 of his base salary in 2014. That is regardless of guarantees. The Patriots will receive immediate salary cap relief if suspended. Now we get to the bigger reason why the Patriots will keep Hernandez on  the roster.

Signing Bonus Forfeiture

Under the new CBA, failure to perform the duties of your contract due to incarceration triggers a forfeitable breach allowing a team to recover signing bonus money that has been paid but unaccounted for on the salary cap. Hernandez received a $12.5 million dollar signing bonus in 2012, of which only $2.5 million has been accounted for. That leaves $10 million in potential forfeiture for the Patriots to reclaim if Hernandez does not report due to being jailed. If jailed this year he can also forfeit $50,000 of his signing bonus he received as a rookie in 2010.

As of today Hernandez is guilty of nothing. The media stories do not look good but media stories not looking good and actual guilt are two very different things. If New England released him today it would need to be for skill, injury, or cap reasons. Once they release him for those reasons he keeps his signing bonus money and the Patriots face an acceleration of $10 million against the salary cap spread out over 2013 and 2014. In no way does that benefit the Patriots.

If placed on the suspended list due to being jailed the Patriots will recover 1/17 of his yearly signing bonus allocation for each game he is unavailable to the team to play football. So each year the team will recover $2.5 million, a significantly higher number than the base salary in question for the 2013 and 2014 League Years. Even if he plays out the 2013 season and is then jailed in 2014 the Patriots would pay him $1.523 million in 2013 for the opportunity to win back $7.5 million in bonus money. So for their own financial purposes they need to stand by Hernandez to allow the process to play out.

The Patriots still have an actual payment of $3.25 million to be made to Hernandez on that signing bonus which is not due until 2014. If the Patriots chose to release him for conduct they would likely withhold that payment which would lead to the grievance process putting things in the hands of an arbitrator to decide what money is an is not owed to Hernandez and what money can be reclaimed. The process is straightforward if they allow the system to play out if they believe jail will occur.

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Looking at the Contracts of Rob Gronkowski and Aaron Hernandez

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With the Patriots star Tight End duo in the news I figured I would do a quick once over of the details I had on their contracts to point out some of the options for the players in the event of the worst case scenarios and clear up some misconceptions about the guarantees in their contracts and potential future cap treatments.

Rob Gronkowsi signed an extension in 2012 that contained  about $13.2 million in full guarantees and another $5 million guaranteed for injury only. His cap numbers the next two seasons are very manageable at $2.75 and $5.4 million, neither of which rank in the top 10 of the position. His salary is fully guaranteed in 2014. The protection for the Patriots comes in 2015. Gronkowski’s base salary is guaranteed for injury only in 2015 and does not vest to a full guarantee until the 5th day of the 2015 League Year.

To collect on an injury guarantee Gronkowski would need to be incapable of playing in the NFL that season due to his injury, so provided he can pass a physical the Patriots can release him anytime between the end of the 2014 Super Bowl and the 5th day of the 2015 League Year with no financial penalties. If Gronkowski remained on the Patriots his cap charge would be $8.65 million, highest in the NFL, making it a unlikely number if he is a diminished player from all the injuries. If released prior to  the start of the league year his dead money cap charge will only be $3.3 million making it cost effective for the Patriots to release him.

The Patriots have even further protection in the form of a $10 million dollar option bonus due in 2016 in the event they want to give Gronkowski a look in 2015 even at the high cap number.  The option is unique in that it is accounted for against the cap starting in 2015 despite actual payment not being due until 2016.  The reason for this is that the decision date on the option is the final day of the 2015 League Year which occurs long after the season and Super Bowl are played. If the Patriots were to release him prior to the bonus the dead money in 2016 would only be $1.65 million and they would receive a $2 million cap credit for money accounted for but not paid in 2015.

So the fact is the Patriots have little to worry about when it comes to injuries with Gronkowksi from a financial standpoint. His cap hits are low the next two seasons and they have a large number of options in 2015 to move on with little financial penalty over the next two seasons.

Aaron Hernandez’ situation is a bit different as we are now looking at a potential off the field issue rather than an injury issue. I don’t think anybody knows what is really going on right now and its only fair to speculate that whatever is happening could prove to be a distraction to Hernandez. Hernandez already has a partial guarantee on his salary in 2014 and, unlike Gronkowski, no future options or vesting guarantees. He received a $12.5 million dollar signing bonus so the cost to release or trade next year would include $7.5 million in dead money just from that bonus.   If the situation proves to be serious and Hernandez is unable to play in the NFL the Patriots would have the right to recover money already paid earning credits each year he is unavailable to the team. So the Patriots have plenty of protection in the event of the worst possible scenarios as we wait to learn more about what this ongoing investigation is really about.

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