The Myth of Nonguaranteed NFL Contracts

Player A signed a contract with two guaranteed seasons worth $33 million and three nonguaranteed seasons worth an additional $37 million that Team X can decline in exchange for paying the player $6 million. Player A’s contract is reported to be a five-year contract worth $70 million.

Player B signed a contract with five guaranteed seasons worth $36.5 million and two nonguaranteed seasons worth an additional $27 million that Team Y can decline in exchange for paying the player $2 million. Player B’s contract is reported to be a five-year contract worth $38.5 million plus two additional team option years.

Which player’s contract is a guaranteed contract?

This seems like a silly question. Both contracts include guaranteed money and nonguaranteed money, as well as guaranteed seasons and nonguaranteed seasons.  Categorizing the contracts based on whether each is “guaranteed” would seem to require establishing a pretty arbitrary set of criteria.

Nevertheless, such categorization routinely takes place and is accepted as common knowledge. Player A is New York Jets cornerback Darelle Revis.  Player B is Cleveland Indians starting pitcher Corey Kluber.  And as conventional wisdom informs us, MLB players are fortunate enough to sign guaranteed contracts, while NFL players only sign nonguaranteed contracts.  Therefore, the correct answer must be that Player B’s contract is a guaranteed contract.

As this example shows, it is misleading to characterize NFL contracts as nonguaranteed as a general rule when any given NFL contract may share all of the characteristics of an MLB contract widely considered to be guaranteed. The differing terminology used to report NFL contracts creates a distorted perception as to the qualitative nature of the contracts, when in actuality the only differences between “nonguaranteed” NFL contracts and “guaranteed” MLB contracts are quantitative in nature.

As I explained last week, every NFL contract reflects a tradeoff between the team and player as to contractual risk, potential for surplus value, and optionality. The team incurs more contractual risk if more guaranteed money is included, obtains more potential for surplus value if the total contract amounts are lower, and retains more optionality if the contract contains more nonguaranteed contract seasons.  Inversely, the player incurs more contractual risk if less guaranteed money is included, obtains more potential for surplus value if the total contract amounts are higher, and retains more optionality if the contract contains less nonguaranteed seasons.

Every successful NFL contract negotiation results in the team and player reaching a mutually agreeable resolution as to these contract considerations, resulting in some amount of guaranteed money and some amount of total stated contract value spread across some number of guaranteed seasons and some number of nonguaranteed seasons. The same is true in the case of MLB contracts.

The only difference between NFL contracts and MLB contracts – and presumably the source of the distorted perception – is the quantitative results of the negotiations. MLB contracts typically consist of mostly guaranteed seasons, with one or two nonguaranteed seasons included at the end, while NFL contracts very rarely consist of more than two guaranteed seasons, but often include three or more nonguaranteed seasons at the end.[1]

The only conclusion that can be drawn from this comparison is that whether a contract should be considered “guaranteed” depends on the proportion of the contract seasons that are guaranteed. On the one hand, the majority of contract seasons in each MLB contract are typically guaranteed, so MLB contracts must be guaranteed contracts as a general rule.  On the other hand, the majority of contract seasons in each NFL contract are typically nonguaranteed, so NFL contracts must be nonguaranteed as a general rule.

However, this distinction does not hold up to further scrutiny. NFL players could clearly convince teams to sign them to contracts wherein 100% of the contract seasons are fully guaranteed, which would mean – according to the logic above – that NFL contracts would then also be considered guaranteed contracts as a general rule.  For example, Vinny Curry recently signed a contract potentially worth $46.25 million, $18 million of which is guaranteed.  The first two contract seasons are guaranteed (and contain the entirety of the $18 million), and the final three contract seasons are nonguaranteed.  The Eagles would surely have agreed to give Curry a five-year contract in which all five contract seasons were guaranteed, provided that the total potential value of such contract was $18 million, not $46.25 million.  If all of the contract seasons were fully guaranteed, albeit at a lower amount in each season, would this make Curry’s contract a “guaranteed contract”?

In fact, the Eagles would almost certainly have agreed to sign Curry to a five-year contract in which all five contract seasons were guaranteed for a total amount even greater than $18 million. Perhaps the maximum amount of guaranteed money the Eagles would agree to include would be $25 million or even $30 million.  The exact maximum amount is unclear (Expected Contract Value could be a good place to start), but it would certainly be less than $46.25 million.  The point is that the team would be willing to incur some amount of additional contractual risk (more guaranteed money) and forfeit some amount of optionality (fewer nonguaranteed contract seasons) in exchange for receiving some amount of additional potential surplus value (less total contract value).  This means that Vinny Curry willingly gave up some amount of theoretically obtainable guaranteed money and accepted theoretically unnecessary additional nonguaranteed contract seasons in order to obtain some greater amount of total potential contract value.

The same must be true of all NFL contracts. Any NFL player that is able to command any guaranteed money has the ability to sign a fully guaranteed contract that does not include any nonguaranteed contract seasons, but all NFL players with such bargaining power have historically foregone some amount of guaranteed money and accepted some number of nonguaranteed contract seasons in order to secure higher total contract values.  Conversely, MLB players have historically not made a similar tradeoff, although there is no reason to think they would not be able to if they desired.

To summarize, there is no qualitative difference between MLB contracts and NFL contracts that would warrant referring to the former as guaranteed but the latter as nonguaranteed. Instead, the observable differences between NFL contracts and MLB contracts are due to the fact that for some reason – whether economic forces or salary cap rule influence or agent self-interest or merely unchallenged custom – NFL players tend to assume more contractual risk and forfeit optionality in exchange for more potential surplus value. NFL contracts may in fact be mostly nonguaranteed, but only because the players have decided that they want the contracts to be mostly nonguaranteed.

[1] For reasons that elude me, the nonguaranteed seasons in an MLB contract are consistently referred to as “team options” (that may be subject to a “buyout”), while the nonguaranteed seasons in a an NFL contract are instead referred to as “nonguaranteed seasons” (that may include “partially guaranteed salary”). This difference in terminology contributes to the mischaracterization of NFL contracts.

  • DaleR

    Football and baseball contracts cannot be compared simply looking at the terms. They are contextual documents that play out in vastly different environments. Stating the obvious, the wear and tear on a football player’s body, the probability of a career ending injury, and the average length a player’s prime are exaggerated and compressed in football. Standard practice in football is to back load contracts so that the larger base salaries fall to the end of the contract and are most frequently not guaranteed. Players in enforcer positions punish their bodies for the guaranteed part of the contract then face a new reality? The team says “You’re not the player you were two years ago, you’ve lost a step. You can either take a pay cut or we’ll cut you for a younger player”. You may say the player knew that when the contract was signed. The team has a guy who does nothing but work contracts, and expert at getting good terms for the team. The agent only gets paid when the player signs a contract. The young men who play the game believe, by necessity, that they are invincible. When a player gets a new contract and lots of team love the last thing they are thinking is that their team might cut their pay or fire them two years hence. Then it dawns on the player that their $28 million contract is about to be worth $17 million instead, and that taxes and agent commissions took a huge chunk. Maybe I shouldn’t have bought my Mom that new house. The contract says one thing but the reality of football says another.

  • Werner

    I agree with the general contact comparison stated, but there are obvious differences in terms of cycles. MLB Teams will usually await return from Tommy John surgery, whereas NFL players with similar expected recovery cycles will be taken off IR at the end of the League Year and cut, if there is any shadow of doubt on their full and timely recovery and unless we talk about true superstar potential. Same applies for carefully built up talents climbing up from Single thru Triple A before making any start in the majors despite hefty signing bonuses not far way from NFL end of 1st round / 2nd rounders, which will be let go, if they don’t truly contribute within first two seasons. But that is mainly attributed to the demand vs supply situation in terms of talent and the sharp drop off of talent level after mid 3rd round of the draft.

  • codered5

    Silly. Tomatoe, Tomawtoe.It may be custom to allow for “nonguarenteed” seasons in nfl contracts but the main reason for their existence is that ideally if they perform below contractual value they can still sign somewhere else for a contract reflective of their current vale. If they simply spread the guaranteed money amongst the entirety of the contract they will be accepting below market value. They can instead accept nonguarenteed seasons and if they play well enough force the team to pay out all of or extend/renegotiate the contract. Ultimately although market value is subjective they would not be getting the value of their services or the flexibility to find better suitors. MLB players get their fair market value and the security of long-term guaranteed contracts. It’s a matter of semantics either get your optimum value or get optimum security vs MLB players getting both. Additionally the club-option years are usually tacked onto a contract that is considered a normal length already just in case the player is still providing adequate value at an age at which there is typically a decline in performance. NFL nonguarenteed years often times begin in a player’s physical prime to protect against injury mostly or injury related decline in performance so the two types are not comparable. I say that to say this. Those nonguarenteed contracts may not be collectively bargained but effectively when players go to the contract bargaining table individually they can only receive the value that the salary cap allots for that position and quality of player if they assume most of the risk.