A Primer on Some Rookie Contract Negotiating Sticking Points

With rookies starting to sign with their teams I wanted to go over some of the few negotiations that will occur over the coming weeks and explain what some of the discussions will be about, how they impact the player, and why some deals may take longer than others. Remember nothing is going to lead to a holdout anymore but you want to gain the most protection you can for a player when doing these deals.

The Non-Negotiable Basics

Keep in mind that signing bonus money is essentially slotted and contract length is capped at 4 years.  Every 1st round and 2nd round pick will have their base salary determined by the 25% rule, which limits a players cap number from rising by more than 25% of his 1st years cap number.

Every 1st round selection will have a 5th year non-guaranteed option and every selection after the 2nd round will have a contract that includes a 4th year salary escalator, called the Proven Performance Escalator, that is earned by playing in 35% of the teams cumulative snaps over the first 3 years of the contract or 35% of the teams snaps in any 2 of 3 seasons.  This will escalate the players salary to that of the ROFR RFA tag. Punters and Kickers are the only exception and are not eligible for the PPE.

Every pick beyond the 3rd round will only earn compensation that is equal to the minimum salary for each year. That means base salaries of $405,000, $495,000, $585,000, and $675,000 over the course of the contract.

Offsets

This is something that will only come into play in the first 15 picks in the draft. The top picks in the draft will have their contracts fully guaranteed. What that means is if they are cut the team needs to pay them a check for future guaranteed salary and the player can then go find another job. If a contract contains offset language the team will get a credit, or payback, based on the amount of money the player earns with another team. If the contract contains no offsets the team does not get a credit for money earned elsewhere. As an example if a player has $5 million guaranteed, gets cut and finds a new job for $3 million the team that cut him is only on the hook for $2 million rather than 5 if there is offset language. If there is no offset language the player earns $8 million as there is no payback credit to his original team.

In 2011 the only players to receive such a deal were Cam Newton, the number 1 overall pick, and Robert Quinn of the Rams, selected 14th. In 2012 agents were able to fight to get the first 7 picks to get deals with no offset language. In addition Luke Kuechley of the Panthers, selected at 9, and Michael Brockers selected 14th by the Rams also got no offsets in their deals.

This sets an interesting negotiation battleground for picks 9-14 this season. The Rams have the 8th pick in the draft and clearly do not care about the offset language so Tavon Austin is a given to get no offsets in his deal. But agents are going to want to bridge that gap that existed last year between 9 and 14. The Jets will be the close team to watch with the 9th pick in the draft. The Jets will argue that the Panthers, who caved on Newton and Kuechly are simply outliers like the Rams. The Panthers, who selected at 14 this year, will likely make or destroy that argument when they sign their contract with Star Lotulelei. If they do a deal with offsets it is going to set the 9th pick as a clear no offset position. If it contains no-offsets the Jets will have firm ground to stand on.

4th Year Guarantees

The first 16 picks in the draft will essentially have fully guaranteed contracts. However, from 17-22 there will only be partially guaranteed salary in the 4th year of the contract and picks 23 to 32 will only have guarantees for the first three years of the contract. There could be a push to try to increase the guarantees of some players. Last year the 22nd pick in the draft received a partial guarantee of his final year P5 whereas the year before the Colts did not do that with Anthony Costonzo. The teams argument against it will be that the Browns paid a premium at 22 to Brandon Weeden because he was a QB. This will likely hold up as Weeden’s 4th year guarantee was higher than that of the player selected above him

Timing of 4th Year Payments

Starting with pick 17 contracts will move from fully guaranteed to mostly guaranteed. Most teams have been able to get players to agree to a split salary with half coming in the form of fully guaranteed P5 salary and half coming in the form of a roster bonus due on the 2nd or 3rd day of the League Year. Due to the early timing of the payment it essentially guarantees the players full salary as he will either be released early in free agency or teams will simply pay the bonus.  Last year I think it was the 21st pick, Chandler Jones, where teams began to escape the roster bonus and simply guaranteed half or so of the players final year P5.  Can pick 21 push the envelope?

By pick 23 the 4th year guarantees completely vanish. Three teams last year paid offseason bonus money in the 4th year of the deal to either facilitate a quick release or give the player more financial security. Those teams were the Lions, Steelers, and 49ers with picks 23, 24, and 30. One would think that 23 and 24 will push hard to keep it while 25 and 26 will push to get it. The Rams have the 30th pick so that should be no trouble for the player but will offer no help to those ahead of him as anything St. Louis does is going to be treated as an outlier.

2nd Round Offseason Bonuses

For the 2nd rounders guarantees end in the 2nd year and in many cases those are just partial guarantees. That makes getting offseason payments in 2014 and beyond worth an effort at the negotiating table. Last year I believe 10 players received some type of offseason bonus worth at least $100,000 over the course of their deal.

3rd Round Salaries

While just about everyone’s salary is set in stone there seems to be some leeway in the salary earned by the 3rd round players. For example last year pick 11 in the 3rd round earned a larger contract than pick 10.

Low Draft Premium Position Salaries

As a QB earning the PPE can be a very difficult task if selected round 3 or below. It is the only position in the NFL where there is no rotation used at all. There is no package, outside of the occasional option package, where you see a QB exit. This is in stark contrast to a linebacker where teams rotate multiple players. The odds of a 3rd round pick starting in year 1 is small, though Russell Wilson clearly bucked the odds, and decreases with each subsequent round. If the player is seated for 2 years it makes earning the PPE impossible even if he becomes a starter in the third year so there is an argument to pay QBs more beyond the normal scope of QB premium pay.

Last year Wilson was selected with the 12th pick of the 3rd round of the draft. His total compensation was higher than the 4th pick in the round, due to increased base salaries in the final three years of his deal.  Nick Foles was selected with the 26th pick by Philadelphia and received a contract worth more than the 17th pick in the round via increased base salaries in the 2nd and 3rd years. Both examples of the QB premium.

I would anticipate that it will clearly be a concern of Mike Glennon when working his deal with the Buccaneers. Glennon was selected with the 11th pick in the round, making Wilson a clear model for negotiation. This did not extend into the 4th round last season when Kirk Cousins got a standard slotted deal, but with Matt Barkley expected to go much higher and being the 1st pick in that round I would tend to think that there will be some discussion at least of bumping his base salaries later in his contract, especially since the Eagles did it for Foles, a late 3rd rounder, last year.

Split Salaries

Split salaries are essentially protection from having to pay a player if he lands on injured reserve. If a player has a split and lands on IR rather than paying him at the standard rate he will be paid at a reduced rate. For example a rookie is paid $405,000 in base salary in 2013. If he has a split his salary reduces to $288,000.

Splits can come in different forms. A more player friendly split is one where if the player lands on IR in the preseason the split salary kicks in, but if it occurs in the regular season he is paid at the full rate. Some contracts may have a split that disappears if the player fulfills some obligation the year before.

Basically all picks in rounds 5-7 will have contracts that contain split salaries in 2013 and 2014. What type of split can be negotiated. In round 4 players should fight hard for only having a split salary in 2013 rather than both years. Doesn’t mean it will happen but its worth an extra day or two of fighting with the team.  Those selected in round 3 should try to only get the pre-season type split in 2013 with no splits beyond that.

Salary Determinants

As the draft moves out of the 2nd round and deep into the 3rd round salaries are not necessarily set in stone. Not only may you be subject to the split if you land on IR, but if landing on IR early in the year you do not earn a Credited season, which is only earned, for the most part, if you are on the Active roster for 3 weeks. In that case you don’t earn a pay raise despite the year in the NFL. While those around you will earn $495,000 in 2014 you will simply be looked at as a rookie with your base salary reduces to $420,000.

Some players in round 3 will be forced to tie their 2014 base salary to credited seasons.  By round 5 some players will have both the 2014 and 2015 bases tied into that. These are small details that can help a player earn $100,00 or so more a year by trying to remove the reliance on staying completely healthy over the first two years of the contract.

The Financial Implications of Releasing Rolando McClain

It was recently reported that Rolando McClain’s tenure with the Oakland Raiders may be coming to a quick end with the player being thrown off the practice field and McClain later using social media to state that his time in Oakland is finished. While no moves have officially been made I thought it would be worth looking over what a release might mean.

McClain’s contract would be subject to the waiver system meaning another NFL team could have the option of claiming him and his contract. If claimed the team would be on the hook for salaries of $4,005,000 in 2013 and $5,805,000 in 2014 as well as the balance of his $970,000 salary in 2012. The claiming team would also be responsible for the remaining guarantees in the contract of $1,535,000 in 2013 and $2,100,000 in 2014.McClain can also earn increased salary in 2013 and 2014 via escalator clauses.

If McClain went unclaimed the Raiders would be responsible for those future payments and they would immediately accelerate onto the 2012 salary cap, which may be too much for the Raiders to bear. According to Pro Football Talk the Raiders were about $4.6 million under the cap in early November. 3.6 million of additional charges plus the money spent to replace his roster spot would leave them with almost no room to operate for the rest of the year. This may mean that the best option for Oakland is to deactivate him for remainder of the season and to try to work out a trade once the season ends.

Percy Harvins Future With Minnesota…

Scout.com’s Jim Holler has an interesting perspective on some of the behind the scenes stuff that may be going on between WR Percy Harvin and the Minnesota Vikings.

Given the Vikings history of signing players to long-term extensions during the season prior to the final year of their contract, the next few weeks could be critical in the Vikings’ relationship with Harvin. If all goes well, Harvin gets the long-term extension the Vikings need to make their plan for the future work. If it doesn’t, the next couple years could be interesting to say the least.

Harvin is currently in the 4th year of a 5 year contract he signed as a rookie in 2009. He made it well known in the offseason that he wanted a contract extension or a trade out of Minnesota. Now with the offense sputtering the lack of contract talks may be causing some discord between he and the team.

It is a difficult situation for Harvin for a number of reasons. The Vikings are one of the teams that seems to always be strapped for cash and are very hesitant to lock in long term on certain positions. While Harvin puts up strong numbers he plays in the slot and most teams do not value that position nearly as much as a WR lining up outside the hash marks. Harvin has value as a return man, but few teams in the NFL will put a real dollar value on that number. Perhaps most frustrating though to Harvin is that the longer he waits the more likely it is for the receiver market to change in a negative direction.

While teams have paid big money for top of the line wide receivers such as Larry Fitzgerald and Calvin Johnson it is only a matter of time before teams realize that a receiver can only make an impact if the rest of the team around them plays well. For all of the big dollars the Arizona Cardinals have given Fitzgerald, his impact was minimized once Kurt Warner retired. Johnson has had a poor year with a struggling team. Andre Johnson never had the impact on the Houston Texans that Arian Foster and the offensive line has had. Steve Smith of the Carolina Panthers became a non-factor once Jake Delhomme started playing so poorly.

NFL teams change directions every few years, such as the move from salary investments in run dominated offenses  to investments in the passing game, and the writing is on the wall that teams should move away from the high priced receiver. This is only strengthened by the fact that more and more receivers are coming out of college, due to the stylistic change in the NCAA to pro style offenses, polished and ready to contribute at the pro level. What used to take 3 and 4 years in the past is happening in 1 or 2 and the pricetag is nothing for a rookie.

As time goes on contracts like those of Santonio Holmes of the New York Jets will disappear and those are the players who are Harvins comparables. It is going to minimize his value, especially if Victor Cruz of the NY Giants ends up with a contract that is not in the upper echelon. The Vikings have no reason to move on Harvins contract, either. Harvin will likely receive a salary next year of $3.2 million and then will have his rights controlled via the franchise tag the following season. With the tag numbers stagnant it puts the player in a terrible bargaining position. That may be where Percy Harvin finds himself over the next few years.