How Much Is The 5th Year Option Worth?

One of the more interesting mechanics of the new CBA is the option for what is in essence a 1-year extension for all players that were drafted in the first round.  The way it works is that all players drafted in the 1st round are split into 2 groups based on draft order (1-10, 11-32) and a value based on the 3rd through 25th highest salaries of the players respective position is used to determine the 5th year option value.  At this point, no Packers player has received a 5th year option; Derek Sherrod was the first Packers player to be drafted under the new CBA and obviously due to injury his option was not picked up.  Next in line would be Nick Perry and while he hasn’t been a complete disaster at outside linebacker, he certainly hasn’t performed at a level that would make sense for the Packers to pick up the option so he will play out his rookie contract and hope for a strong season this year.  For the Packers 1st round pick this year, Damarious Randall, his 5th year option would equate to about $7 million as a cornerback and $5 million as a safety (current projections have him at cornerback, so that’s the numbers I will be using), though with the increase in broadcasting revenue the salary cap is likely to rise significantly in the next 4 years so these numbers will likely be higher.

From a NFLPA perspective, it’s a somewhat cheap way to recoup some of the value lost during CBA negotiations when rookies were essentially thrown under the bus (and understandably so when you see the ludicrous rookie contracts Sam Bradford and Ndamkong Suh signed).  But when the new CBA was signed, it was thought that the NFL had pretty much won on every count and that included the 5th year option.  But was this actually true?

The closest comparison to Damarious Randall that makes sense is Devin McCourty of the New England Patriots, who was drafted in the last year of the old CBA (2010) with the 27th pick of the 1st round and was sort of a cornerback/safety hybird coming into the league.  Randall hasn’t signed his rookie deal yet (I assume they are negotiating offset language at the moment), so I’m going off the contract that Stephone Anthony signed with the Saints(who was drafted right after Randall and whose contract will be be about $200,000 less than Randall’s) what is surprising is that in actuality Randall stands to make more money on his rookie deal than McCourty, even with Randall being drafted in the new CBA and McCourty in the old CBA.

[table id=42 /]

* Projected as of 2015 and if the Packers pick up Randall’s 5th year option

Naturally Randall on stands to make more only if he plays well enough to justify the Packers picking up the option, but if they do he stands to make $5-7 million more over his 1st contract that McCourty did, which is more than what would be expected from just players salaries rising for 5 years. Another comparison I looked at was Clay Matthews and Nick Perry since they were both drafted by the same team in roughly the same position (26th overall for Matthews, 28th for Perry) and if Perry had had his option picked up he would have made more money than Matthews over their rookie contracts as well.  One caveat is that McCourty’s rookie contract was a little anomalous in that it contained less money than it should have; the only reason I can think of is that the Patriots signed him as if he was going to be a safety (which is a less expensive position).  Nevertheless, even if McCourty’s rookie deal slotted more closely to where he was drafted, Randall still would come out on top.

What this really means is that the new CBA does not make rookie contracts cheaper for everyone; I think the real point of the rookie cap in the new CBA was to curb the ridiculous contracts handed out to top 10 picks (hence the split on value based on draft position); whether or not the CBA or NFL was fully aware that it would be paying more to 1st round rookies outside of the top 10 I’m not sure of but it does mean that 1st round picks not in the top 10 are in essence likely worse value than what they were before.

A NFL “famous” paper from Thaler and Massey states that the actual best value in the NFL draft was somewhere in the 2nd round due to high 1st round picks destroying the salary caps of teams drafting them (which would in essence self-perpetuate, see Detroit Lions) and it was assumed that the new CBA would rectify this.  However now it seems like there is a split in value, with great value at the top 10 due to the rookie cap and then a grouping of mid to lower picks in the 1st round that actually got worse in value then followed by good value again in the 2nd round (as the new CBA only really effects rookies drafted in the 1st round).

To be honest, the only real way for the Packers to break even is if Randall plays up to the level of the 15th overall pick in the old CBA (and I’m rooting that he does).  Perhaps the flexibility of securing a player for another year without having to resort to the acrimony that is the franchise tag is worth it or in the situation where a player severely outplays his draft position (Aaron Rodgers or Clay Matthews for example) it allows teams to retain their players for an extra year at a lower base value but I would think that these situations are actually quite small.  Add to that the general consensus that this year was weak in overall 1st round talent and maybe Ted Thompson should have traded back even when the deals weren’t exactly the most favorable for the Packers.

 

 

 

——————

Thomas Hobbes is a staff writer for Jersey Al’s AllGreenBayPackers.com.

——————

  • Taryn Miller

    The player in question dictates the value after his first three years based on growth etc,(not the assigned $ amount at rookie signing)or the conviction of a GM for that player or the desperation depth of the position created.

    I know some think I love picking on this player but really does apply legitimately…Nick Perry’s option would have been picked up had the Packers not signed Peppers or if Peppers played to a lesser level thus creating a more desperate need at OLB,even though a transfusion is a need but appears to becoming via way of improved ILB play whether hoped for or truly expected and the returning of Matthews to where he needs to be and surely wants to be.

    Bottom line is Perry utterly failed,reasons matter not though have been rigorously argued,to dismiss taking a chance of retaining him via FA next season if warranted for the limited/witnessed play he likely can offer, then to award him a possible fat check even if not guaranteed except I believe in case of injury.

    Though this could be a benefit of bigger reap for Perry as play this season could cost the Packers more than the option value via a new contract or dictate another offering much more than his one year performance demands as a FA.

    • Big T

      Nick “the fairy” Perry won’t play the whole season. He will develop an ingrown toenail during preseason. Then by game 6 of the regular season he will be sidelined by jock itch. Perry making the roster shows how desperate TT has become…

      • Thomas Hobbes

        Humor aside, Perry could have get all that and he’s still make the roster because he’s a first round pick and that requires the team to exhaust every option before they deem him a failed investment. Would you rather prefer what’s going on with the Bills where they look to be trading or cut EJ Manuel after only 3 seasons?

      • packett

        As long as a player is a packer, I would hope they aren’t insulted. What is the GBP if not for all 53 players, so what kind of fan insults its own team?

    • Thomas Hobbes

      One interesting fact that you’ve brought up is that Perry and Peppers could hit free agency at the same time; Perry obviously is on a contract year and Peppers should probably be looking out as well as he’s an older player and his 2016 dead money hit would only be $2.5 million (but the Packers would save $8 million) so he’s roster spot isn’t secure in 2016 if he doesn’t play well. It will be interesting to see what happens should Perry finally figure it out or if both bomb.

      One other option rather than picking up his option or signing him to a big contract if he really plays well is to do what the Texans did with Whitney Mercilus, which is to sign a “ok-ish” contract for less yearly than the 5th year option before the season starts. Honestly, to me it’s a pretty thin line as to when that would really be a good idea but it’s another option.

  • Archie

    Nick Perry plays LB like a mid-round pick i.e., somebody that you may start but somebody who you are always looking to replace. TT was wrong to draft him in R1 but right not to pick up his year 5 option. It is interesting to look ahead one year and see Perry, Neal and Peppers removed from OLB. Maybe Perry would make a better ILB. He does hit with force.

    • Thomas Hobbes

      lol. Nick Perry is the new AJ Hawk for fans.

  • Ed Schoenfeld

    What the NFLPA won in the current CBA was the base contract for 1st rounders being 4 years instead of 5, and the limit of one year for using the franchise/transition tags on the same player.

    The 5th year option was something the *owners* agreed ttoo make up for the loss of a whole contract year for first rounders — the option year is an advantage to the team as long as it is cheaper than the franchise or transition tag for that position. It effectively adds a year to the time a franchise controls a star player. Effectively, the 5th year option lets the team make a first round pick’s contract the same overall contract as in the old CBA. Its real function is to thus give the player more incentive to negotiate a longer-term deal that keeps him ‘at home’ with the team that picked him.

    Since they typically pick late in the first round, I’d expect the Packers would exercise the option very rarely. The option money is deliberately higher than the anticipated market value for any player that is not an out and out stud (performance living up to that of a top-ten pick at a premium talent position such as QB, Pass Rush, LT or shut-down corner), If you include players from before 2010, I can think of very few players that might have been worth picking up the 5th year option — Matthews, Aaron Rodgers, maybe Hornung if you want to carry the ‘counterfactual’ back that far. Maybe Since 61 can name a couple more, but I doubt even he could come up with another 3. And most players who merit exercising the option will also be worth signing to a long term extension before the option matters.

    • Thomas Hobbes

      I could be mistaken, but does the 5th year option exclude that player from getting the franchise tag the subsequent year? Like for example going back to Randall, let’s say he’s the next Darelle Revis and the Packers pick up the 5th year option for $8 million and then tag him for 120% of the previous year’s salary ($9.6 million); that would mean the Packers could retain Randall for $17.6 million for 2 years while Revis is currently being paid $16 million this year.

      I mentioned in my article I wasn’t sure if the high 5th option values were something that the NFL and NFLPA consciously decided but if you are right that it was on purpose, I don’t think it was very effective since the vast majority of teams have picked up the option even, meaning the value isn’t nearly high enough to put off most teams.

  • Thank you for this article. I find your argument interesting but not entirely persuasive. I find McCourty’s contract confusing.

    The new CBA stopped the backbreaking and cap-breaking rookie contracts to prospects who turn out to be busts, as you mention. Old CBA, Sam Bradford signed for 6 yrs., $78 million, with $37.245 million guaranteed. Under the new CBA, Luck signed for 4 years for $22 million. Both were QBs & #1 overall picks, but Luck got a lot less despite being the better prospect.

    Though I see places listing McCourty’s 2010 rookie contract as for 5 yrs., $10 million, the actual numbers don’t add up to that. Your own figures show that McCourty’s cap hit for years 1 -4 add up to $8.015 million, and with the 5th year, they total $13.13 million, not $10 million. The numbers you use for Randall total $7.73 for the first 4 years (yes, it will be a little more since Randall’s slot is one better than Anthony’s) and $15.237 for the first 5 years. You assert that Randall will make more than McCourty did, but almost all the difference is due to the 5th year option and the large increases in CB salaries. The owners perhaps did not foresee those increases, but the cap increases make that large 5th year option for many positions much easier. If Randall is worth a 5th option, $7 mill will seem cheap. Even if you’re right and Randall will make a little bit more than McCourty did through the first 4 years or even 5, given the large increase in the cap (19.4% since 2011 – 2010 was an uncapped year so…) it is clear that over the first 4 years Randall is not going to earn 19.4% more than McCourty. McCourty’s cap hits were $8.015 million in his first 4 years. To get an equally fair deal, Randall should earn 19.4% more, which would translate to $9.57 million over 4 years. Also, it is clear that McCourty took home at least $7.67 million in cash in his first 4 years, and it appears that he earned the $1.54 playing time incentive bonus, so he took home $9.21 million in 4 years. Adjusted for the increase in the cap, Randall would have to take home $10.996 million over his first 4 years. Randall won’t do that.

    My conclusion is that the new CBA is holding rookie wages in check, that is below the % rate of increase in the cap at the least, and perhaps in nominal terms as well. It hurts the top 10 players drafted a lot, & QBs & other high value positions too.

    Two of the things that do still get negotiated is at what slot do contracts stop being fully guaranteed. This year, CB Kevin Johnson’s (pick 16) contract is 100% guaranteed, but # 20’s, (Agholor) contract is only 91% guaranteed. Anthony at #31 got 80% guaranteed. The other is offset language, to which the author alludes. There, if GB cuts Randall, and he signs with another team, GB will get a credit back on its dead money or cap hit up to the amount the new team gave Randall in guaranteed money.

    http://www.patspulpit.com/2010/7/28/1592046/contract-details-on-devin-mccourty

    • Thomas Hobbes

      Nice catch there, you are correct that McCourty’s contract is more on the lines of $13.3 million, but I don’t know why its been reported as $10 million (http://www.spotrac.com/nfl/new-england-patriots/devin-mccourty/). Maybe some funny contract language?

      I agree with you in terms of the real value of Randall’s contract being tied to the 5th year option, but since I was talking about the option obviously if the Packers don’t pick up the option then this argument is invalid. I agree that Randall has no chance of matching McCourty’s contract in the first 4 years but he does stand to make more in year 5 with the option. I have no idea if this was the NFLPA’s actual plan but it almost seems like the rookies are playing at a discount for the first 4 years and then “make it back” in the 5th to get numbers back to something like the old CBA excluding top 10 picks; under this argument, it would only be fair that if players are taking the risk of lower pay in the first 4 years they should be compensated better in the 5th year. Now the NFLPA is apparently terrible at bargaining so they might have just thrown rookies under the bus but I would think that would have tried to get something back for dumping the stupid top5/10 pick contracts.

      • Chris Johnson

        The way the 5th year option works really does seem to be a concession to the NFLPA for the loss of those gaudy top pick contracts of the old CBA.
        I wonder if future CBA negotiations will address the earning loss and seeming lack of interest in serviceable veteran players by NFL teams as a whole. You’d think players like Welker,Gresham, Connolly, Red Bryant, Kiwanuka, Umenyiora, Briggs and Spikes would be signed by now. That comp pick is valued so much more now than a proven commodity, albeit a declining or oft- injured commodity. It’s crazy no one wants them in camp, even with the comp pick no longer in play.

        • Thomas Hobbes

          From what I recall, the NFLPA didn’t push too hard to keep rookie contracts the way they were; for one even the NFLPA knew that those contracts didn’t make any sense and they also knew that giving rookies (who technically aren’t part of the NFLPA until they join the NFL i.e. after the draft) also means there would be less money to pass around for veteran players i.e. actual voting members of the NFLPA. One of the bigger complaints against the NFLPA was that they didn’t include any agents in their negotiations, so while the NFL probably consulted their contract guys (like Russ Ball for the Packers) to make sure they could take advantage of the new CBA, the NFLPA did not and thus the players found themselves losing money for the first couple years until the new TV deals cashed in.

          As for comp picks, the NFL is aware of this and moved the date where veteran free agents counted against the comp pick from I believe june 1st to last week. I would argue they might as well just move it to right after the draft but maybe the NFL wants the spotlight to be on the undrafted rookie free agents for a week or two.

          • Chris Johnson

            Thanks Mr Hobbes. Your insight, recall and general interest in the NFL and Packers is amazing and always a pleasure to read.

      • 1st: I never got around to actually discussing the 5th yr. option and its value!

        2nd: I went to many sites and got the same 5 yr. $10 mill figure you got. I finally went to patspulpit and figured they’d be right. Still took 2 hours. I hate being wrong factually. Opinion can be wrong, not my facts.

        3rd: Spent hours trying to see if McCourty actually earned the $1.54 mill play time incentive. Snapcount only goes back to 2012. Googled and checked a zillion articles in the hope one of them might mention a payment. On screen 17 of a google search, I gave up.

        I’ll make a new, short(er?), hardly-researched-at-all post on the value of the 5th yr. option.

  • 21 teams picked up the 5th yr option for players drafted in 2011:
    Picks 1-7 (Cam Newton, Von Miller, Marcell Dareus, A.J. Green, Patrick Patterson, Julio Jones, Aldon Smith), 9th (Tyrone Smith), 11th (JJ Watt); 14 – 19: (Robert Quinn, Mike Pouncey, Ryan Kerrigan, Nate Solder, Corey Liuget, Prince Amukamara); 21 -22: Phillip Taylor, Canstonzo, 24th: Cameron Jordon; 27: Jimmy Smith, 30th: Muhammad Wilkerson; 31st: Cameron Heyward;

    The following 11 picks had their options declined:
    Pick 8: QB Jake Locker; Pick 10: QB Blaine Gabbert; 12th: QB (Ponder); 13th: DT Nick Fairley (motivation); 20th: Adrian Clayborn, 23rd: Danny Watkins (ineligible – cut yr before – out of football), 25th: James Carpenter; 26: Jonathan Baldwin (caught 3 passes last yr); 28th: Mark Ingram; 29th: Gabe Carimi (ineligible – cut year before), 32nd: Derek Sherrod. Source: link:
    http://www.nfl.com/news/story/0ap2000000342224/article/fifthyear-option-tracker

    Of the 21 options picked up, many were no-brainers. It appears that close calls were pretty much picked up. See the link to the Andrew Brandt article below. A note: 11th pick JJ Watt’s option was picked up for $6.99 million; had he been drafted between 1 and 10, he would have gotten the average of the top 10 players at his position, but as the 11th pick (same for 11 – 32), he gets the average of the 3rd – 25th highest paid players at his position (roughly the transition tag amount), which IIRC is costing Watt $2 million bucks or so. Another note: Aldon Smith had his option picked up, but he also agreed to modify the terms of his 5th year to protect the 49ers against his legal problems by agreeing to $5 million of his money coming from game active bonuses. Player’s whose 5th year option are picked up are free to negotiate new contracts, either 1 year ones or long term.

    The 10 players whose options were declined were pretty straight forward. Locker and Gabbert, both picked btw 1 and 10, would have earned $19 million. Ponder was terrible, and his option would have been about $16 million. 2 more had already been cut. One WR caught 3 passes. OL Carpenter had a -20 in 2011 and a -7.6 PFF grades in 2012. The others weren’t worth even close to transition tag money, or had injuries, or both.

    Teams can use a Franchise tag on a player after making him play under his 5th year option. See the link:
    http://www.cbssports.com/nfl/eye-on-football/25140831/agents-take-a-guide-to-fifth-year-options-for-2012-first-round-picks

    I’m the only person I know that made a case for picking up Perry’s option. Since it is guaranteed only for injury, and then only if he can’t play AT ALL in 2016, it might be useful to watch him play in 2015 and retain the option to keep him for 2016 for a set price, or to cut him at the end of the 2015 season and have no dead money, or simply negotiate an extension. The injury risk is small, but since Perry has been injury prone, he scared me off. The Jets picked up the option of Quinton Coples, who to me is another so-so OLB. Coples had 6.5 sacks, but he wasn’t good against the run, and IIRC his coverage is so-so. Perry had 3 sack (but 4.5 including the playoffs), is good against the run and so-so in coverage. Another note: Perry might think he is better suited as a 4-3 DE, and might want to become a FA ASAP. He may have cheered when GB declined his option! Neal might think 295 lbs was too much, and 263 too little, but apparently not since he re-signed with GB.

    Well, so much for a short post, and so much for not doing research. And it’s at the end of an older article too. The articles linked to below (Sporting News and Andrew Brandt – a guy who knows about roster management, negotiating contracts, and the cap) – sum up my feelings about the 5th year option. It has considerable value, especially if there is some bad blood between the player and the team. That there is value to the option is clear because the players don’t want to play under the option, or a tag, and there are reasons for that.

    http://mmqb.si.com/2014/05/02/nfl-2011-draft-fifth-year-option/

    http://www.sportingnews.com/nfl/story/2014-04-29/nfl-fifth-year-option-rookies-2011-contracts-trade-draft-picks-team-advantage-fairley-smith-pouncey

    • Thomas Hobbes

      I wonder what the players really think about the 5th year option. On one hand, it’s in essence a mini franchise tag so players likely feel they would be getting more in free agency or being tagged with a real franchise tag. On the other hand, since rookie deals in the 1st round were at least 5 years anyways (Bradford got a 6 year contract), its not like they are really “gaining” a year unless their option is not picked up which is a pretty bad sign overall.

      As for Perry I would argue that he’s probably not too happy to have his option declined simply because it hurts his stock coming out to FA, especially with the Packers, who have a pretty good history of getting rid of players at the right time. I agree with you that even 50-50 players had their options picked up which basically means he’s below that level. While he might think he’s a better 4-3 DE, I don’t know if many teams will see the tape and the declined option and think that he’s simply being misused, especially after Peppers and Matthews made the transition in the same defense.

      • I have no way of knowing what Perry thinks of course. Just speculating on a possibility. To move to a 4-3 DE, he’d probably have to sign a prove it deal in the prime of his career, so you’re probably right that he is not happy to have his option declined.

  • william dickson

    Look,lets see what kid of shape he shows up in. lets not forget,we need to see him play.we will know in the first two weeks of practice what we have. injury bug and all,hes still a packer and a real good teammate.needs to lose weight.but has all the tools.

    • Well said. I too, have wondered whether Perry dropped some weight, perhaps 10 pounds or so. Neal dropped from 295 to 275 and last year to a reported 263, though it didn’t seem to help him that much. Above I wondered if Perry wanted to go to a 4-3 team as a DE when he becomes a FA, not that I have any idea what Mr. Perry is thinking.