The Replacement Cost of Panthers WR Steve Smith

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The Carolina Panthers made the signing of WR Jerricho Cotchery official today and I got a copy of what I believe to be accurate contract terms and was a bit surprised at the numbers. As we all know the Panthers released lifelong Panther Steve Smith earlier this offseason and allowed Brandon LaFell to sign with the New England Patriots. The Panthers receiving corps was more or less non-existent, with the team devoting just about $3 million in salary cap charges before the Cotchery signing.  While I don’t think anyone will argue that Cotchery was brought in to be a number one option for the team (the consensus on Twitter was maybe he is a LaFell replacement)I wanted to look at this from a financial standpoint and compare him with Smith and see if there was really any financial justification to releasing him.

I had speculated when the Panthers were rumored to be trading/cutting smith that this situation was about money. Smith was going to be 35 and at that age the future salaries that he was to be paid were not sustainable. I thought a fair compromise was to pay him in the ballpark of $9 million over two years and $12 over three, which is similar to the $13.5 million he ended up with between the Ravens’ and Panthers’ salary commitments. Maybe the Panthers just felt there was no price that they could really agree on but you always need to factor in a replacement cost and this is what just seems so strange with the whole decision making process.

Cotchery is a nice player who had a very solid run with the New York Jets from 2006 through 2009. Cotchery struggled with injuries in 2010 and was (quietly) upset with becoming the forgotten man of sorts with the Jets. In 2011 when he was going to be pushed to fourth on the depth chart he basically asked for a trade or release which the Jets granted him.  He signed with the Steelers on a contract that was essentially for the veterans’ minimum with a chance to compete for the team. Cotchery did not do much but the team kept him on a two year deal worth a maximum value of $3 million. In 2013 he ended up as the number 3 target and had a renaissance of sorts putting up 602 yards and a stunning 10 touchdowns.  It was his first time since 2009 that he put up more than 450 yards. He’ll be 32 years old in 2014.

Smith produced 745 yards in 2013, a steep decline from his 1,000 plus yard seasons in 2011 and 2012. He’ll be 35 in 2014 and I think it is a legitimate question that he could be finished as a top player. But would you rather take your chances on a 35 year old Smith that has caught 216 passes for 3,313 yards over the last three years or the 32 year old Cotchery that has caught 79 passes for 1,044 yards over the same time frame?  I think that answer should be clear. While the response from the defenders of the Panthers’ front office is that there is a financial component that needs to be considered here I certainly agree, but after looking at Cotchery’s contract numbers there really is not one.

When a team decides on a fate of a player there always should be a replacement cost analysis involved. While you are gaining cash and cap relief from moving on from a player you do need to replace the player and there can be a big cost component to that. Smith already had $3 million of his contract guaranteed with no offsets, a parting gift to the organization by their former General Manager that pretty much destroyed their salary cap structure.  To keep Smith a Panther in 2014 it would cost the team $4 million more, assuming he did not renegotiate his contract. I can see that cost being maybe too high except Cotchery will cost the team $3.5 million.

Let’s first look at the 2014 scenarios, with Smith designated a June 1 cut

Scenario

2014 Cash

2014 Cap

Keep Smith

$7,000,000

$7,000,000

Cut Smith

$6,500,000

$6,700,000

Difference

$500,000

$300,000

So in 2014 the Panthers will generate a grand total of $500,000 in cash savings and $300,000 in cap space to bring in Cotchery over keeping Smith. Let’s extend it out to 2015 with the assumption that Smith is cut and Cotchery is kept (his cap is similar if he stays or goes):

Scenario

2015 Cash

2015 Cap

Keep Smith

$0

$6,000,000

Cut Smith

$1,500,000

$5,950,000

Difference

-$1,500,000

$50,000

Again it’s essentially no savings. The only savings in this case is realized if Cotchery plays out two years and you are certain that you would cut Smith in 2014 and need to replace him with a player who would cost more than Cotchery.

What if you offered Smith the same deal he signs with the Ravens such that you could keep him for two seasons like they expect to keep Cotchery?

Scenario

2014 Cash

2014 Cap

Rework Smith

$7,500,000

$7,166,666

Sign Cotchery

$6,500,000

$6,700,000

Difference

$1,000,000

$466,666

Scenario

2015 Cash

2015 Cap

Rework Smith

$3,000,000

$6,166,666

Sign Cotchery

$1,500,000

$5,950,000

Difference

$1,500,000

$216,666

I guess the bottom line is that over a two year period the Panthers expect to save $2.5 million in real dollars by releasing Smith and signing Cotchery as a replacement. The team only saves around $640,000 in cap over the same timeframe. If Cotchery would prove to be a one season rental and the alternative option was to keep Smith for just one year the teams saves just $500,000 in cash and cap.

In this case I just can’t see the cost savings justifying the decision that the Panthers made here.  The upside with Smith  is so much greater than Cotchery that it just doesn’t seem to make much sense to make the move. For the move to work out Cotchery is going to have to put together back to back decent seasons for the first time since 2008-2009 while Smith completely flames out in Baltimore.  The Panthers front office has to be pretty convinced of it to make the moves they did this offseason.

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Steve Smith’s Contract Situation with the Carolina Panthers

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One of the questions that seem to be popping up every now and then is what exactly are the Panthers plans for wide receiver Steve Smith. The team has been somewhat non-committal to him when asked about his future as a Panther. So let’s take a look at Smith’s situation.

The central theme at play here is how much money is an older player really worth.  Smith will be 35 in 2014, making him one of the oldest receivers in the NFL. The other plus 35 players who may get a contract in 2014 are Reggie Wayne, Santana Moss, and Plaxico Burress. Smith still has three years remaining on his contract and in each season the dead money is of growing importance since the need to cut or retire increases with each passing season.

Since 2000 there have been just 25 receivers who have recorded at least 20 receptions in a season at the age of 35 or older. At 36 the number decreases to 17. Only 7 receivers have done it at 37 or older and at that point the only viable receivers were Jerry Rice and Terrell Owens with most of the others at less than 50 receptions and 500 yards. So the Panthers need to be cognizant of Smith’s lifecycle as a player and by the end of the year he certainly looked to be trending downward.

Smith has three big money years remaining on his contract that he signed in 2012. The extension was more or less designed to be a two year deal that provided immediate salary cap relief that provided the Panthers with a five month renegotiating window in 2014. In 2012 Smith was in the final year of his contract and set to count for $10,713,111 against the salary cap. Set to earn $7.75 million, the Panthers increased his salary to $11 million and fully guaranteed him an additional $3.75 million in 2013 and $3 million in 2014. Carolina got his cap number down to a manageable $5,996,989 in 2012 and at worst was going to pay him $17.75 million for two years of work in 12 and 13. This is not much different than what the Ravens recently did with LB Terrell Suggs, except the Ravens did the smart thing and tackled Suggs’ age head on in his extension while the Panthers simply made it a headache to be worried about two years later.

Smith will earn $7 million in 2014, $7 million in 2015, and $9 million in 2016 under his current contract structure. Those numbers are unsustainable at his age. While NFL contracts are not guaranteed the Panthers poor cap management and heavy reliance on prorated bonuses has placed large amounts of dead money on the books for most of their players, Smith included. A portion of Smith’s $7 million salary in 2014 is one of those prorated bonuses. If the Panthers leave the contract as is that will lock them into a charge of at least $6 million in 2015 even if he retires or is released. Here are the actual salaries earned by some of the more recent “name players” from the ages of 35 onward with Smith’s current contract structure included for reference.

Player

Age

Salary

Steve Smith

37

$9,000,000

Steve Smith

35

$7,000,000

Steve Smith

36

$7,000,000

Terrell Owens

35

$6,500,000

Reggie Wayne

35

$6,000,000

Donald Driver

35

$6,000,000

Donald Driver

36

$5,000,000

Reggie Wayne

36

$4,000,000

Hines Ward

35

$4,000,000

Donald Driver

37

$3,500,000

Derrick Mason

36

$3,500,000

Derrick Mason

35

$3,000,000

Randy Moss

35

$2,500,000

Terrell Owens

36

$2,000,000

Muhsin Muhammad

36

$1,500,000

Muhsin Muhammad

35

$1,500,000

Derrick Mason

37

$1,310,000

In looking at these numbers I think both sides can make a case that the $7 million figure should or should not stand. From the Panthers perspective he would be the highest earning player at that age, but from his perspective it would not be by much (Wayne, Owens and Driver were all close) and the Panthers should reward him for a long and very good career, which justifies that number. What he can not justify are the $7 and $9 million charges coming in 2015 and 2016.

Carolina has three big contracts that will be coming due in the next few years and the team needs to put aside salary cap space for those players. DE Greg Hardy is a free agent this season and should command well over $12 million a year. The following season QB Cam Newton will either be playing on a high cost option, that pays around $14 million, or on a long term contract that pays $16-$18 million a year. Finally LB Luke Kuechly will be extension eligible in 2015. This is going to not only put a drain on the Panthers already difficult cap situation but is also going to require ownership to pay millions of dollars to star players. It becomes more difficult to make large payments and allocate large cap dollars to former superstar players with these big deals on the horizon.

Smith has $3 million that is fully protected this year in the event he is released, but the Panthers have time to decide on his fate which works to their advantage. Smith has an option bonus due of $3 million but the team has until June 30 to make a decision on this option. Normally the option would need to be exercised in the first few days of the League Year to facilitate a quick release for the player. By the time they would decide in this case, though, the bigger money in free agency will have dried up.

If the team fails to pick up the option and release Smith by July 1 they will owe him a $3 million non-exercise fee. If they release him they will need to pay him $3 million in fully guaranteed base salary. So $3 million of this money is indeed protected for Smith. In addition I believe that Smith’s guarantee is of the no-offset variety meaning he can double dip if released. So at a minimum Smith will earn $4 million in the NFL this season and most likely a few dollars more.

The Panthers would gain little by releasing Smith. His cap charge for the year would be $6 million, assuming his is a post June 1, and he is currently only counting for $7 million.  The team would then be responsible for $3 million in cap charges in 2015 ($4 million in acceleration and a $1 million credit for not picking up the option). His roster spot would also need to be replaced by someone making at least the minimum of $420,000. What it boils down to is that releasing Smith in 2014 is going to cost the Panthers $9.84 million in cap space and $3.84 million in cash plus a somewhat negative PR situation over the next two seasons.

The best case for both sides is to find a way to make Smith’s contract more reasonable for his age and expected performance level. According to a source with knowledge of Smith’s contract his true cash salary in 2014 would be $5.5 million due to half of his option being deferred until 2015. That should be the first starting point. Eliminate the option and pay him $5.5 million in 2015, with $2 million coming as a roster bonus in June (thus getting him more immediate cash than he would get in the option) and reducing his P5 to fully guaranteed $3.5 million. $5.5 million is likely more than he would make if the situation dragged out and he was released on July 1.

The trickier part of the negotiation is what is a fair value beyond this season. While most players seem to believe that there are greener pastures in free agency most often there are not. Players with a long history in one city often get a great deal of leeway when it comes to performance and expectations. Smith’s struggles in Carolina would be looked at less critically than in another city. He would retain a big role simply because of his name value in Carolina and both fans and media (and some likely within the organization) will rationalize a year where he catches 46 passes for 554 yards like he did in 2010.

The same can’t be said in another city. If Smith struggles he’ll likely get benched. Fans and media will be all over him. Even if he does moderately well like the 2010 stat line he’ll probably be cut after the season. After all who wants a 36 year old receiver with mid line numbers when you can find a 28 year old with some upside to do the same?  Just look at the treatment Ed Reed received in Houston this year if you want a recent example of aging players trying to fit in with a new franchise where they have no history.

Even as we look at that list above the players who earned the most money all re-signed with the original teams. Wayne, Driver, and Ward finished out (or will finish out) with the Colts, Packers, and Steelers. The Bills and Bengals had no use for Owens after a one year audition. The 49ers showed no interest in doing anything with Moss. The Jets traded away Mason the minute they got him. Muhammad came back to Carolina to earn what he earned.

The Panthers front office likely assumes that if they release Smith, Smith will collect $3 million from Carolina, another $2 million from another team, and then that might be it for his career. His next step is taking a one day contract to retire a Panther. The following is a list of some players who finished up their careers with a different squad than the team they were associated most with post-35 who I felt were noteworthy players.

PlayerAgesTeams

Games Started

Receptions

Yards

Jerry Rice

39-42

Raiders/Seahawks

30

268

3,648

Keenan McCardell

34-37

Chargers/Redskins

34

159

2,003

Terrell Owens

36-37

Bills/Bengals

27

127

1,812

Randy Moss

35

49ers

2

28

434

Isaac Bruce

36/37

49ers

7

21

264

Joe Horn

35

Falcons

12

27

243

Terance Mathis

35

Steelers

0

23

218

Tim Brown

38

Buccaneers

4

20

200

Derrick Mason

37

Jets/Texans

2

19

170

Andre Reed

36

Redskins

0

10

103

Joey Galloway

38

Patriots

2

7

67

Cris Carter

37

Dolphins

1

8

66

Bobby Engram

36

Chiefs

0

5

61

Amani Toomer

35

Chiefs

0

0

0

Of all these players only Rice, McCardell and Owens were useful. Rice’s longevity was legendary as was his career and you can’t really compare him to any player. McCardell was traded to San Diego at the age of 34 but I wanted to include him here since he was a well known player in Jacksonville and Tampa Bay. He would last three seasons in San Diego before a tryout in Houston and mid-season run in with the Redskins. Owens, while not a top level player, was still productive and it was his locker room reputation and off the field endeavors that likely saw him more or less blacklisted from the NFL.

For most players it was one and done and a rather non-descript ending to some very productive careers in the NFL. This is probably the reality for Smith if he was to leave the comfort of Carolina. The job for the Panthers is to convince Smith that this is reality if he were to leave. If he was released this season he would likely get one chance with another team and that is the end. At the most he might eek out two seasons.

I’d probably propose something like a $3.5 million salary in 2015 at the age of 36 and $3.0 million salary in 2016 at the age of 37. That gives him a strong chance to earn $9 million by 2015, and that is likely going to be much more than he would earn as a free agent. He also wont have to chance finishing his career in a place he is not appreciated nor will he have to deal with the headache of moving for what may be just one season. His cap charges would fall from $10 million and $12 million under his current deal to $5.5 million and $5.0 million.  Dead money in 2015 would fall from $6 million to $4 million and in 2016 from $3 million to $2 million.

The one thing that I would not do if I was Carolina is use the void year provision that they are slowly falling in love with for cap relief. The purpose of doing anything with the Smith deal is to maintain your cap flexibility in the future. To prorate money out five years for a few dollars in cap room now is counter-productive.

But I do think it is good for both sides to continue the relationship. Smith can still play and it is not as if the Panthers are exploding with offensive talent that they can just ship him out and plug someone into the spot, even if they draft his replacement and attempt to use that as leverage. I doubt this is a situation settled anytime soon, but I think most fans of the game would like to see Smith finish his career in Carolina.

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A Look at Falcons WR Roddy White

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There was a report Thursday from Ian Rapoport of NFL.com that the Falcons are thinking about an extension for Wide Receiver Roddy White. White has been a tremendous bargain for the Falcons since signing a contract extension in 2009, averaging 98 receptions and 1,297 yards from 2009 through 2012 while earning $8.54 million per year. Because the Falcons extended him while he was in the final year of his rookie contract his salary cap charges have never exceeded $9.125 million and he has never really been a salary cap burden at a premier pay position.

However, White has struggled with injuries in 2013 and at 32 years of age there could be real worry about significant decline in performance. He will finish 2013 with his worst statistical production since his rookie season and possibly his career- White has just 20 receptions for 209 yards with 6 games to go.  With the Falcons and White suffering through a poor season I had assumed that the Falcons would either let White play out his contract, which I had listed at a relatively low cap number of $6.325 million, or release White and move on.

I was reminded via Twitter by contract expert Joel Corry that White has escalators in the final year of his contract. I was able to confirm through a source with knowledge of the contract that the escalators do exist and are tied to Pro Bowl appearances and workout participation.  The escalator can total $5 million and while the actual breakdown was not told to me I would think Pro Bowls from 2009-2011 would lead to him earning at least $3 million of the escalator. It probably means his real salary cap number will be anywhere from $9 million to $11.325 million in 2014.

Those numbers are probably unsustainable for the Falcons 2014 salary cap and would force them into releasing White.  With QB Matt Ryan struggling and the possibility of TE Tony Gonzalez retiring Atlanta may not want to completely break up the White/Gonzalez/Julio Jones group that had been so successful before injuries to White and Jones in 2013. Atlanta has so much invested in Ryan that giving him familiar targets is almost a necessity moving forward.

What might an extension for White cost?  In general the market has not been kind to older receivers and White will likely push at the high end to try to match the Panthers 4 year contract extension with Steve Smith signed in 2012 when Smith was 33 years old. Smith had struggled in 2009 and 2010 for a number of reasons but rebounded greatly in 2011 with the addition of QB Cam Newton, putting up his best statistical season since 2008. With a high salary cap charge in 2012 the Panthers awarded Smith with a $7.5 million a year extension that was designed to be as much about cap relief and a safety blanket for the QB than anything else.

Though White is coming from a negative statistical year his performances leading up to that poor year are superior to what Smith accomplished in 2009 and 2010 at 30 and 31 years of age.  Likewise he will have a large cap number and a QB in need of a familiar face in the offense. The low end of the spectrum would be around the $5.8 million that Reggie Wayne signed last year with the Indianapolis Colts.

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The important part for the Falcons is how to structure the contract so that they are not stuck with an older unproductive player. While it is important for the short term to keep White, long term White may not be a major part of the offense. There have been plenty of productive players in the past at the position through the years including Terrell Owens, Marvin Harrison, Jimmy Smith, Reggie Wayne, Keyshawn Johnson,  Joey Galloway, and Donald Driver among others. Atlanta may be a bit more cautious in their approach as more recent cases have not been as productive. Wayne suffered a knee injury this season, Smith is not going to be as dominant this season, Santana Moss has not been productive in Washington. Anquan Boldin looks finished and Randy Moss was done the day he turned 33.  Factor in injuries this season and the Falcons may want to take a very risk averse approach to a contract.

Considering the season he will be coming off of I would think a 3 year extension makes the most sense for both sides. If executed in week 17 the Falcons can prorate money for a full five years whereas waiting until next year would mean just 4 year of prorating money or signing a 4 year extension. A 4 year contract could potentially up the guaranteed money as the contract should see somewhere between 45 and 49% of the total new money come in the form of guarantees.

For the sake of argument let’s say White earns somewhere between Wayne and Smith and call it a contract worth $6.8 million a year with $10.2 million of it guaranteed, We’ll also assume that his salary next season is expected to be $8 million making this a 4 years of contract  worth $28.4 million.  What might be a possible structure?

Age

Year

Base

Existing Bonus

Extension Bonus

PGRB

Cap

Dead

32

2013

$0

$1,325,000

$1,000,000

$0

$2,325,000

$12,850,000

33

2014

$5,000,000

$1,325,000

$1,000,000

$0

$7,325,000

$10,525,000

34

2015

$4,000,000

$0

$1,000,000

$500,000

$5,500,000

$3,200,000

35

2016

$5,500,000

$0

$1,000,000

$1,000,000

$7,500,000

$2,000,000

36

2017

$6,400,000

$0

$1,000,000

$1,000,000

$8,400,000

$1,000,000

Don’t pay attention to the 2013 numbers as this is just a bonus dump year with money already earned so I didnt bother putting in his current P5. What we did here is just add $1 million in cap charges to his non-escalated 2014 salary cap number. That should be a reasonable amount. The 2014 salary would be fully guaranteed and we would also guarantee $200,000 of the 2015 salary. Those numbers can be played with for cap purposes, but I like the idea of only having around $3 million in dead money in 2015 if 2014 ends up being similar to 2013 in terms of injuries and performance.

When the extension kicks in I want to begin including per game active roster bonuses to protect from injuries keeping White from playing in the event he is still productive. The low cap charge in 2015 should work to benefit both sides. At that point Julio Jones will either be playing on a franchise tag or in the first year of a very lucrative contract extension. With such a low cap figure the Falcons may consider keeping White even if he has a mediocre (by his standards) 2014 campaign. The odds of White seeing year 2016 and 2017 are pretty slim and dead money fits accordingly with that.

In the end this will cost the Falcons $14.5 million in 2014 and 2015 to keep White on the team. If our $3 million escalator guess is correct that boils down to a 1 year $6.5 million dollar deal. That’s perfectly acceptable to help the teams salary cap and hopefully keep a Falcon in one uniform for his entire career.

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