This past weekend there was again much talk about Russell Wilson’s contract with the Seattle Seahawks, mostly centered around the guaranteed portion of the contract. This was something I speculated about months ago when the Seahawks mentioned “outside of the box” thinking on Wilson’s contract and it looks to be a divisive issue between the sides. Wilson’s agent is primarily a baseball agent, a sport where contracts are fully guaranteed so it is a logical point for them to take. So let’s see if we can sort this out.
The Total Guarantee
There are currently six quarterbacks in the NFL that average $20 million per year in salary. There are a number of different ways that we can look at their guarantees, but to start with let’s examine their total guarantee package. The total guarantee package is all forms of guaranteed salary contained in a contract. I then like to break this down further into new and old money guarantees. This is an adjustment for any salary in the year of signing that may not have been guaranteed on paper but from a logical standpoint is certainly guaranteed (a player signing a $100 million extension in June is in no danger of release by September). Finally I want to look at the percentage of guarantee of the contract valued in both new and total money terms.
|Player||Total Guar.||New Money Guar.||New Money Value||Total Contract Value||% New Contract Guar||% Total Contract Guar|
Based on the market one would assume that the Seahawks should be comfortable with guaranteeing about 50% of the contract and, based on the high end comparables, should be willing to move upward to about 65% of the total contract value being guaranteed.
It is probably reasonable to further adjust those totals to make everyone’s contract years the same length. In this case our shortest contract is Roethlisberger’s at 4 years and that may make the most sense as a Wilson comp, since the Seahawks most recent extensions have been four years in length rather than the five years that is more common around the NFL.
|Player||Four Year Value||% New Guar||% Total Guar|
This should tell us that the team should be willing to guarantee 60% of the total contract value on a four year extension and we do have one data point to suggest a 75% guarantee. While that may be an outlier it should be a point brought up.
Here is what Wilson’s guarantee package could look like at the floor and the max depending on APY and years signed:
|APY||4 Year Min||4 Year Max||5 Year Min||5 Year Max|
There is little difference in the total guarantee which reiterates one of the points I make on the site that players give up potential free agent years for little reward and why Wilson should opt for a four year contract extension no matter what in this negtiation.
The Full Guarantee
The second part of the contract negotiation is deciding the fully guaranteed portion of the contract. For the purposes of this argument we consider both fully guaranteed salary and money due by March as an option as fully guaranteed. He following table shows the percentage of the total guarantee that is fully guaranteed.
|Player||Full Guarantee||New Full Guarantee||% New||% Full|
This is likely a larger disconnect. Here we are looking at around 70% of most guarantees actually being committed by the following March. The largest percentages went to Rodgers and Flacco, who had the two lowest overall percentage of contract guaranteed. The fact that their full guarantees are so high may have been the compromise in structure.
Based on these numbers, Seattle is probably willing to go anywhere from $41 to $48 million fully guaranteed depending on APY and the assumption that it’s a four year contract extension. This is likely well under what Wilson is seeking.
The Escrow Condition
One of the things being discussed about the contract is a little known pre-funding rule that exists in the NFL. People are probably a bit more familiar with this rule now from the Tom Brady renegotiation a few months ago, but if you are not I’ll explain.
The rule likely has roots in a much older time when the NFL wasn’t a multi-billion dollar business and arguably any future guaranteed salary needed to be protected, as crazy as it sounds, in the event a franchise went bankrupt or did not have the liquidity to pay their bills which may have led to crazy annuities like we sometimes see in other sports. To protect the salary any future money guaranteed for skill termination (basically a completely subjective reason to cut a player) needs to be set aside in an account to ensure payment of the contract. So for a player seeking $60 million in future guarantees the owner will need to set that money aside to cover future payments.
The rule really has no place in today’s NFL but it has become a legit reason for teams to not offer skill guarantees upon signing. In the past players used to receive larger signing bonuses (as a percentage of cap) than they do now, but the league’s cap managers have transitioned somewhat away from that model and instead use salary guarantees and a smaller bonus to maintain more roster flexibility in a contract. Overall the players are hurt by the lesser signing bonus in return for massive injury guarantees.
But regardless of the opinions of the rule, the rule is there and it is not going away any time soon. No person is going to be willing to put that kind of money aside for a contract so we now have an established system of injury only guarantees (injury guarantees are only funded following an injury) that become skill protected at the start of each league year when the payment is actually due. This rule makes it harder to do a contract such as the on Wilson is seeking.
Thinking Outside the Box
So how can two sides reconcile the argument? I think we again need to think outside the box and look at this contract from a completely different perspective to take all factors into consideration.
The first thing the two sides need to agree on is a guarantee from a traditional NFL standpoint. From there we see the difference between the two sides, assuming Wilson is looking for an 80% full contractual guarantee. Splitting some of the numbers calculated above and using a 72% full guarantee rate I came up with the following being a reasonable pay out, that should be acceptable to Seattle based on the market.
While the full guarantee request is certainly massive, the important part to consider is the differential, which is really the additional pre-funded amount that needs to come from the Seahawks front office. The other portion of that number should simply be the cost of doing business in the NFL with a highly regarded quarterback.
For Wilson to receive the massive full guarantee the tradeoff first comes from that differential. That differential will basically be set aside for the entire term of the contract. Though some would be paid out over time to make this simple let’s just assume it’s stuck until the end of the contract. The Seahawks will either need to fund that by borrowing money or will simply forgo the opportunity to invest the money for the future. If we assume a 7% return (which is the higher of the two costs) the team loses in the ballpark of $7.8 to $9 million over the course of the contract due to the full guarantee differential.
If we subtract that we come up with Wilson’s new contract numbers:
|Total||Adjusted Total||Adjusted APY|
Wilson would now have about 88% of the contract fully guaranteed and in return the Seahawks get significantly more contract flexibility and remain whole for the cost of essentially fully guaranteeing the deal. You can use any numbers you want to adjust the contract (and include additional insurance premiums in the equation too for the added injury protection if you want), but this should be a reasonable way to arrive at a compromise that balances everything out.
Is it worth it?
That should be a legit question for Wilson. The QB position is unlike almost any other in the NFL. There are few players I can think of that were paid at a high level that did not make the fourth year of their contract, guarantees or no guarantees. From the last era of the monster contracts, Eli Manning, Philip Rivers, and Ben Roethlisberger all made it much further than that. Carson Palmer lasted quite a long time between Cincy and Oakland. Tom Brady and Drew Brees did it. Mike Vick went to jail and Peyton Manning was injured and quickly released before landing in Denver for nearly the same money. Really it’s the second tier players that don’t last, not guys considered elite.
Almost 100% of the time NFL player contracts are given out in today’s dollars with no adjustments for the future. So a $23 million contract in 2015 may not seem so crazy in 2018. Is it worth giving up the extra money for that full guarantee, knowing that you will be pretty well compensated in the event of injury? I think that is also a valid question if the sides accepted using an analysis like this when you do a tradeoff analysis.
I do think it would be difficult to justify having the highest APY while also having 80% of the contract guaranteed. At that point the team would see a more reasonable cash situation by simply tagging Wilson the next two years and then seeing where things go in 2018. That doesnt really benefit Wilson either since the protection at that point is year to year.
That said there should be very logical methods of compromise for Wilson. Seattle may have to adjust their contract philosophy a bit (typically 20-30% paid out as a signing bonus and no options) to make it work, but again that is normal for the NFL and a team with a superstar player at a premier position. Both sides benefit by getting a contract done this summer rather than playing the franchise tag game next February.