The Paper Guarantees of a Contract Extension

The Eagles were in the news again today, this time signing tight end Brent Celek to a two year contract extension worth $8 million, $6 million of which is guarateed. Opinions on the contract signing are varied. Some think its a good idea to keep Celek while other think the Eagles should have let him walk next year when his original contract expired. The latter opinion is often argued in part because of the $6 million guarantee number that on it’s face seems pretty high for a player signing a cotract worth $4 million a year. But the reality is if the Eagles were going to keep Celek this season not only is it a no brainer to do the contract, but they got a bargain by extending him. The big sounding guarantee is more or less a trick that smart teams are able to use to protect themselves in the future by taking on almost no risk while signing a player for additional years.

Celek was already scheduled to earn $5 million this season from the Eagles. While it was not guaranteed the odds were in his favor of earning that money if not from Philadelphia.  Why do I say that? Well its pretty simple- they just signed him to an extension that did not give him a pay cut. So if they are willing to sign a player to a new contract that isnt a steep loss in salary it means they would have been willing to keep him for the year.

So for the Eagles that $5 million was really already guaranteed and it was basically a sunk cost. Something crazy would have had to happen between now and September for Celek to look so bad in the preseason that he would be cut. All the Eagles did was put the guarantee on a piece of paper as a way to sweeten the sound of the contract for Celek. It is nothing more than a paper guarantee.

The real guaratee for Celek is just $1 million. Thats the difference between what the Eagles were prepared to pay him and what they guaranteed to him on paper.  That is the proper way to really frame the contract. In return for two additional seasons the Eagles gave him consideration of just $1 million. In my book that is a no brainer.

If Celek plays terribly the Eagles will be out $1 million when they release him next season. I have not read or heard anything about the contracts structure, but usually the Eagles push $1-2 million of these guarantees to the second year of a contract. The reason for this is if the player is released the offsets kick in.. Celek would likely catch on with another team next year, regardless, and his salary would have to be around $1 million given his time in the NFL.   If this happens the Eagles don’t pay a dime more than they would have if they had not extended him.

That $1 million is less than they would have to offer him if he hits free agency next year and they wanted to extend him. Recent contracts  for veteran tight ends include 33 year old Owen Daniels with $3 million guaranteed, 30 year old Scott Chandler at $2 million guaranteed,  31 year old Anthony Fasano with $1.125 million guaranteed and 33 year old Ben Watson receiving $2.15 million guarateed. You can argue where Celek belongs in that group but all those figures are higher than $1 million.

So whenever we hear about guarantees coming to a player already under contract take a longer look at the existing years of the contract. Most of the time the player really is not getting anywhere close to the paper guarantee that is reported as soon as the contract is signed. Really its a major benefit for the team when the player agrees to the big sounding, paper guarantee. Not only do you receive a good contract for the team but you will usually get good PR for being a team that takes care of your own. Its a winning formula for a team.