Thoughts on Derek Carr’s New Contract

Derek Carr became the highest paid player in NFL history earlier today when he signed a 5 year, $125 million contract extension. The $25 million a year annual value is a new benchmark and of course it came with every superlative there was, but there are a number of ways to benchmark contracts and generally APY is among the most limited so lets jump a little into some of the concepts that should be looked at with “market setting” contracts.

When it comes to evaluating contracts it is very easy to get caught up in two numbers- the APY and the reported guarantee. Neither is that valuable other than helping to set overall parameters for the negotiation of the meat of the contract. I actually think the guarantee is one of the most overblown aspects of a contract. There are other ways to accomplish virtually guaranteeing the salary and Id probably rather opt for a stronger contract structure than a stronger guarantee any day of the week.

In general when I see the APY the main thing I think of is how happy or unhappy the player will be if he happens to perform up to or beyond expectations and watches other surpass his contract. For this particular position it is a little more valuable because players have a great chance of earning the full contract value. The fact is if you are a franchise QB you are going to earn the entire contract (think the class of 2004). If you are passable (think Andy Dalton and Ryan Tannehill) you are probably earning 80% of it before the team gets fed up. If you aren’t living up to the contract (think Brock Osweiler) you are going to get cut by year 3. So there is some added meaning to the APY here than other positions, but still Im far more interested in the cash flows of a contract.

Via Dan Graziano of ESPN we now have a pretty good idea of the contract structure for Carr and Carr really made out well if the numbers and my math are correct. (Please note that the salaries in year 3 and 4 are likely slightly inflated and year 5 deflated since I am just doing a rough estimate for those years)

New Contract YearBenchmarkCarrDifferential
Year 0$30,160,000$24,022,481-20.3%
Year 1$42,500,000$46,522,4819.5%
Year 2$58,850,000$66,622,48113.2%
Year 3$79,970,000$86,722,4818.4%
Year 4$101,970,000$106,822,4814.8%
Year 5$122,970,000$125,000,0001.7%

Basically Carr did sacrifice some money this year, but will set new limits in every year of his contract. I was a bit surprised by this but when you consider the Raiders lack of commitment to signing bonus money it is a bit more understandable.

While readers of the site and listeners of the occasional podcast know I am a big Carr fan, the fact is he has yet to really do any of the things most big QB earners do when they score a big contract. He isn’t a first round pick, let alone a top 10 draft pick. He hasn’t thrown for 4,000 yards. He hasn’t thrown for 35 touchdowns. He hasn’t won a division. He hasn’t won a playoff game and in fact an Injury didn’t allow him to play in a playoff game. The potential is there and I strongly believe that he can be great but if you just want to dig in and be very critical the statistical, draft, and success comparison is Andy Dalton not Andrew Luck.

So why would the Raiders move here and are they protected?  I think the answer to the first question lies in their putrid playoff performance last year without Carr. Without Carr the Raiders went from looking like a team that should make the division round with an outside shot at the AFC championship game to looking like the New York Jets. For all the credit that goes to the Raiders front office, the credit is all about picking Carr. Without Carr the Raiders are basically the Jaguars- an expensive group of free agents that aren’t any good. So I don’t think they wanted any chance of an unhappy QB given how incredibly important Carr is to this team.

But the Raiders did protect themselves in the event Carr collapses and falters. The standard signing/option bonus for a QB in the $20M+ category is over $30 million. That type of signing bonus offers very strong protection for a player regardless of guarantee status. For example in the second new year of his contract Russell Wilson would have cost over $18 million on the cap to release. He would have to be so bad for the Seahawks to justify cutting him that his salary was basically protected that year well before his February vesting date. Even the following year the contract gives him $12 million in protection, which doesn’t make you safe but at least gives the team something to think about.

In return for the bigger salaries Carr receives a signing bonus of $12.5 million. That number is ridiculously low tracking with question marks like Brock Osweiler and Ryan Tannehill. Come 2019 the Raiders could move him from the team and take on just $7.5 million in dead money, essentially the same figures that the top earners would cost a team in cap dollars in the final year of their contract.

That gives Oakland far more flexibility and in this one aspect it mimics the Colin Kaepernick contract. The 49ers were able to leverage Kaepernick into a more favorable terms and had the ability to walk away after just a few seasons. None of the other big contract players could have been touched in the same way.

Its certainly not a cheap gamble as $46M is a massive payment, basically double the tag, but they have built in flexibility that the other teams do not who made the QB commitments.

My feeling on contracts, and Ive discussed it a lot here and even briefly in the book, is that if you are signing a contract with teams like the Raiders and Buccaneers who try to avoid signing bonuses you have to demand better early cash flows and higher APY’s than most players you compare with would receive. You are giving up anywhere from 1-2 years of pretty solid contract protection so to make that risk worthwhile the reward has to be high. I see that here.

One other comment on the contract deals with the “paper” or effective APY of the deal. When we say a contract is $125 million for five years we are talking about the 5 new years on the contract. The actual value of this contract is about $127 million over 6 years.   While those numbers are important for teams and it makes things sound much more justifiable to ownership and for the cap, the fact is its not really fair to look at the contracts that way. For Carr to match the effective APY of Luck ($23.19M) its just not realistic. Luck had a $14M+ salary when he signed his contract because of where he was drafted while Carr was under $2M. Would things somehow be magically different if the Raiders allow the contract to expire, tag him, and then sign him to a contract with the identical cash flows as this?  Not really.

I expect this contract to set a new floor for the market and it should be quickly jumped by Matt Stafford, Matt Ryan or perhaps Aaron Rodgers or Kirk Cousins (Cousins should not sign for less but Washington probably wont do a deal which is why Id be less certain).  It also gives Sam Bradford even more possibilities if he has a moderately successful season.

The QB market has been relatively stagnant for some time, in large part because of the extension signed by Aaron Rodgers a few years ago. Joe Flacco pulled up the bottom but Rodgers made this tight little window to fit everyone in. Personally I think it has hurt the NFL. With the great QB earning close to the same as the ok QB, the teams with the lesser QB do not have more money to spend to better the team. If the spread is more natural in salaries a team with a Flacco should have between $7 and $10 million more a year to spend on the rest of the team than a team with the Rodgers. With just a $2 million gap between the elite and the capable starter the elite QB has dominated the league like never before. The league has gone through a few market moves and maybe this is the next chance. Realistically the top Qb’s in the NFL should be between $28 and $30 million a year. That would be on par with what Peyton Manning represented in 2004, Drew Brees in 2012, and Rodgers in 2013.

The QB market needs a bit of a champion which is how I viewed Manning and Brees, both fighting for pretty solid deals after their prior contracts expired. Its been hurt by Tom Brady never pushing the envelope, Manning not wanting to force the issue in part because of Brady in 2011 and 2012, Rodgers doing super early extensions, and a general lack of young talent at the position. It was the 2004 draft class, which was a notch below that top tier of Manning and Brady, that was able to push the numbers which helped the eventual springboard to Brees at $20 million in 2012, but with Rodgers bailing out there really hasn’t been the combination of draft status, postseason success, solid numbers, and a winning resume for the young guys to do what Manning, Roethlisberger and Rivers did.

I think this may help change that and while Stafford hasn’t had the great postseason success he is in a perfect spot to really push the envelope which should open the door for Ryan and later Rodgers to get the market to where it should be. Once you get to a natural spread at the position with top players making $30 million and others around $18-$20 million it will be a much more efficient group with teams with lesser QBs having legitimately more resources to better the team around them than those who have to pay elite talent.  But they need these players to push hard for big money. If they are simply happy with getting a little bit higher than the next guy expect everyone to soon be between $23 and $26 million which leaves things the way they are. I don’t think that’s the best for the NFL or the top QBs in the league either.

The Raiders would also be rewarded if Carr turns into an MVP candidate by making the leap before salaries get higher. If you are the team sticking your neck out you should be rewarded in some manner. Looking back at the 2004 group I think they all were rewarded because by 2011/12 the three were all on bargain contracts with years to go. Nobody has been rewarded that way since since everyone makes the same money at the position. Oakland I would think has their fingers crossed that other players really distance themselves from this contract in the next two years.