Termination Pay, Guaranteed Salary, and OBJ

As the Odell signing watch continues there continues to be much speculation about his contract not only with a new team but also with the Browns and how it impacts their salary cap. Understandably it is very confusing because there have been multiple stories about what Beckham and the Browns did with his prior contract and the phrase “termination pay” has been thrown around without really any consideration. So while I can not speak to the particulars of the Beckham deal I can offer some opinions on what I think occurred while also attempting to explain the rules regarding termination pay and how it differs from guaranteed salary.

Termination pay is the protection that every veteran player receives if he is on the roster during the regular season for a team. This is not negotiated but a right in the CBA for the players. There are two types of termination pay that exist. For a player that makes the roster in week 1 it is a protection on their entire Paragraph 5 salary (or what I often refer to as base salary) for the year. For those who were playing on contracts that predated the 2020 CBA the termination pay also includes an additional game check for a 17th game. For a player not on the roster week 1 but signed at a later date, the protection is 35% of their prorated P5 for the balance of the year.

Once a player is cut they have the right but not obligation to put in a claim for their termination pay. The reason there is not an obligation is because you can only (with some exceptions) claim termination pay one time in your career. So a player may want to hold off on using it. A player also has the right to waive his right to termination pay prior to his release from a team. This has been the statement most often used by people when talking about the Beckham contract but I am not really sure if that is the case given the restructure that they did.

Per multiple reports Beckham agreed to change the remaining $7.25 million of Paragraph 5 salary into $4.25 million of P5 salary and a $3 million roster bonus (apparently, they completely waived the added game check from the calculations) that would be due if he were on a team this week. The distinction is important because termination pay is only based on the base salary in a contract. Roster bonuses, incentives, per game bonuses, etc… are not protected by termination pay. There would have been no reason for the Browns and Beckham to structure his contract that way if he had waived his rights to termination pay.

In addition Beckham originally would have had about $5.54 million of his salary guaranteed prior to the restructure. This type of guarantee is not to be confused with termination pay. This is the negotiated salary guarantee in a contract. While it seems like semantics there are differences with contractual guarantees and termination pay and in some ways they are intertwined once we get into the regular season. My assumption would be that the Browns guaranteed the entire $4.25 million of new P5 in the contract.

Guarantees typically come with offsets which means that if a player is released from his contract and signs with another team, whatever he earns from that other team is used to offset the salary guarantee from the original team. Offset’s, however, do no apply to termination pay. So essentially an in season cut of a player with guaranteed salary allows a player to double dip on his salary for the year. That is a big difference once we are in the regular season between a guarantee and termination pay.

Here are the various scenarios that could be in play.

Scenario One: Beckham’s salary is guaranteed by the Browns and he goes unsigned.  

In this case Beckham does not have to use his termination pay benefit because his salary is contractually guaranteed by the Browns. The Browns pay Beckham $4.25 million and that is also OBJs ultimate earnings for the rest of the year.

Scenario Two: Beckham’s salary is not guaranteed by the Browns and he goes unsigned.  

In this scenario Beckham will be able to make a benefit claim for $4.25 million. The result is the same as Scenario one except OBJ has now lost his ability to file a termination pay claim for the rest of his career so that is why the guarantee is potentially important to him.

Scenario Three: Beckham’s salary is guaranteed by the Browns and he signs for $1 million elsewhere

In this scenario the Browns $4.25 million guaranteed salary would first be offset by the $1 million he earns from another team to bring it to $3.25 million in guaranteed salary pay. Beckham would then have the ability to file a claim for $1 million in termination pay from the Browns. Here the Browns pay Beckham $4.25 million and Beckham can earn up to $5.25 million in total. I believe at this number Beckham would be able to file for termination pay and still retain his right to file again (6 weeks or less of pay and you get a second shot).

Scenario Four: Beckham’s salary is not guaranteed by the Browns and he signs for $1 million elsewhere

Here Beckham does not receive any of his salary as a guarantee and would need to file for his $4.25 million from the Browns. The end result is the same as the third scenario but he loses his termination pay protection in the future no matter what salary he earns.

Scenario Five: Beckham waived termination pay and his salary is guaranteed by the Browns and he signs for $1 million elsewhere

In this scenario the offsets come into play with the Browns obligation being reduced by $1 million to $3.25 million. But with no termination pay the most he can earn is $4.25 million- $3.25 million from the Browns and $1 million from another team, preventing the double dip on salary.

The point here is to illustrate why it would be important for him to have kept his termination pay rights and additional salary guarantee rather than waiving either one to be granted his release.

As far as what he needs to earn to be whole?  Assuming that he does have the double dip option which would seem likely he would need a new team to be willing to pay him $3.85 million for the balance of the year. If he were to find that contract he would wind up earning the $8.1 million he had coming his way from the Browns if he was to remain a member of the team for the year or have simply waited for them to just release him.

If that option does not exist then he may want to keep his salary under $1.4 million for the year. $1.4 million should be less than 6 weeks of termination pay which would let him earn his full salary t his year and keep his termination pay rights for next year.

In any event this is a very rare occurrence for a player to give up this much potential salary to get his release. Really haggling over a salary this year is almost pointless because the only benefit to the player comes from being a difference maker on a team and using that to jumpstart his free agency candidacy in 2022. His market would have been really cold coming off this Browns run and in the bigger picture getting the right fit is the most efficient way to make up his lost earnings from this year.