One of the hardest things for the average fan to comprehend is how NFL contracts work and how they apply to a team’s salary cap. There are many complicated elements, rules, and exceptions that can be hard to sort out. In this series, my goal is to help you better understand how this whole system works, plus what it means to the Green Bay Packers’ current salary cap and contract concerns.
Before reading, make sure to check out the previous article(s) in the series:
- Part 1: An Introduction to the Basics
- Part 2: A.J. Hawk and Contract Restructuring
- Part 3: Jermichael Finley and the Two-Year Deal
- Part 4: Clay Matthews and Incentives
- Part 5: B.J. Raji and the Escalator
Our sixth and final article focuses on Aaron Rodgers and the “big contract.” Ted Thompson has been preparing for this moment for a long time now, and we’re going to attempt to scratch through the surface of this major negotiation.
Across this series, we’ve talked about a lot of things concerning NFL player contracts and the salary cap. Now is when the rubber meets the road, though, and we try to put this knowledge to use. I’m also going to introduce a few new things that will keep it interesting, such as general cap economics and the concept of “option bonuses.” Fair warning: there is going to be a lot to digest here.
First and foremost, we have to understand why Aaron Rodgers needs a new deal – and soon. Here is how his current contract looks:
This is the extension he signed in 2008, which was the first year he started after Brett Favre left. It was a very smart move by Ted Thompson, not only because it locked up their new franchise quarterback, but also because it meant very little for the Packers in the way of financial demands. After 2009, Thompson could have cut Rodgers with no dead money to worry about.
At this point, going into the contract’s sixth year, the Green Bay Packers need to give Aaron Rodgers a new deal. He is clearly the franchise’s number one quarterback for as long as he can play; plus, he won them a Super Bowl title in 2010 and earned the title of NFL MVP in 2011.
According to OverTheCap.com, Rodger’s current contract numbers rate him outside of the top ten NFL quarterbacks . . . just below Mark Sanchez and Sam Bradford. He has more than enough reason to expect higher reimbursement for his value to the team.
The gigantic question, though, is how much will he get, and how will it all break down?
What comes into play at this point is “cap economics.” That is, how are teams valuing players by position and by talent? Much of it depends on the cap amount. Teams can’t afford to pay their best players whatever they want, since it leaves little left in cap money to spend. And it’s no secret that even the best players need a solid team surrounding them to be successful.
I highly suggest reading “The Free Agency Salary Crash and Market Correction of 2013” at OverTheCap.com. In this article, Jason (@Jason_OTC) points out how the recent “flat cap” has forced a “market correction.” Take a look at the following salary cap figures in the NFL by year to see what he means:
One of the things Jason points out is how the salary cap for 2013 is exactly the same as it was in 2009. After the “uncapped” year in 2010 due to the CBA, the cap actually dipped down before slowly eking back to $123 million this year. There are a number of issues behind this, but suffice it to say that players aren’t seeing the raises they’re used to seeing when the cap is growing substantially each year.
What does this mean for Aaron Rodgers? Well, if he signs the highest contract deal to date, it’s not going to be by very much.
One big wrench in this whole process is the new deal recently inked between the Baltimore Ravens and Joe Flacco. In the cap economy, teams help to set the salary bar by how they (re)sign free agents during the offseason. Trends will be set, and they will have a trickle-down effect on future contracts. Flacco’s new contract, even before being negotiated, was certain to set a baseline for the contracts of other quarterbacks looking for new contracts, like Aaron Rodgers and Matt Ryan.
So before we continue, let’s take a look at the contract recently signed by Baltimore Ravens quarterback Joe Flacco. On the surface, it is a 6-year, $120.6 million contract. It includes a $29 million signing bonus, $22 million in option bonuses, and averages out to $20.1 million per year. There is a total of $52 million in “guaranteed” money.
That sure sounds like a lot, and it is, especially when a quarterback like Aaron Rodgers is getting ready to enter into a new deal. But there’s more to this than meets the eye. Let’s break it down a bit more:
- Flacco’s base salary for every year adds up to $69.6 million total, with only $11 million of that coming in the first three years.
- Flacco gets two “option bonuses”: $15 million in 2014 and $7 million in 2015. In regards to the cap, these are treated like signing bonuses, so they are prorated for up to five years each.
- The Ravens are essentially locked into keeping Flacco for at least three or four years, since his “dead money” doesn’t drop off significantly until year five.
Now that we have all that spelled out, here is how the contract looks in an organized chart format:
Now, one thing I did add is a “take home” column. This is the actual amount of money that Joe Flacco is getting paid each year. It includes the salary plus any bonuses paid that year. The “take home” amount is helpful, because not only can you see what the player is actually getting, but you can see what the team is saving (or losing) in cap space.
Also, I color-coded the guaranteed money so that you can “connect the dots” a little better.
The above chart also demonstrates why general contract numbers are so misleading. Flacco’s contract overall is worth $120.6 million, but there’s no way he’s going to see all that money. If the Ravens don’t renegotiate the contract at all, they’ll be taking some serious cap hits in the 2016-2018 years. Considering the current salary cap sits at $123 million, they’d be paying over 20% of that just for their quarterback in those years.
Additionally, that nice “yearly average” of $20.1 million doesn’t mean squat when it comes to base salary, cap hit, or even the player’s take home pay. In fact, the sixth year of the contract is rather meaningless. The only reason it’s in there is so that the team can further backload the contract (by allowing the option bonuses to be amortized over more years), and so that everyone can boast about a $120.6 million deal instead of just a $100.6 million deal.
Don’t get me wrong, there’s still a lot of money tied up in this thing, and it has some serious implications for Aaron Rodgers and the Packers. Yet it’s also extremely backloaded and could come back to bite the Ravens down the road. (If you ask me, Flacco’s agent took the Ravens to town on this one.)
I don’t see Ted Thompson or his front office as the type of people who would ink such a deal. Their big saving grace is that Rodgers is a better quarterback than Flacco, and there’s no doubt he’s going to be the starter until he decides to hang up the cleats. In other words, he’ll most likely be worth his contract weight even after a few years.
Of course, despite claiming that he’ll play for another eight years, Rodgers is still going to have to go through at least two more contract negotiations to get there. Signing bonus amortizations only go up to five years, and that’s a tool Ted Thompson will want to keep using to make the contract “cap friendly.”
(If you didn’t check it out in the first article, I encourage you now to read an excellent and really detailed post on how the New England Patriots have reworked Tom Brady’s contracts over recent years to gain cap space: “What Tom Brady’s Contract Means For Tony Romo.”)
For comparison’s sake, and to get a little better idea of the “elite quarterback” market, here is the contract Drew Brees signed in 2012:
You’ll notice that the contracts for Flacco and Brees average around $20 million per year. For Flacco, it’s $120.6 million over six years, while for Brees it’s $100 million over five years. The biggest thing to note, though, is that a higher percentage of Brees’ contract is guaranteed (40% vs. 24%).
ESPN’s Adam Schefter recently speculated that Aaron Rodger’s contract numbers will be in the realm of four years and $100 million. That would put his average at about $25 million per year, which is a significant upgrade over both of the above contracts.
I’m not sure how much I agree with this. I think Rodger’s deal will more likely be in the five-year range, since they’ll want to leave room for another contract after three to four years. The Packers won’t want the threat of Rodgers hitting free agency to affect the next round of contract negotiations. Plus, an average of $25 million per year could put a significant strain on the salary cap if it remains flat in the next few years.
The one thing to remember in all of this, though, is that the money needs to be accounted for. If the contract is played through untouched, then the money will all hit the cap at some point. As you saw in Flacco’s case, “cap friendly” now only means “cap unfriendly” later.
Contracts can either be evenly spread out (see: Peyton Manning), frontloaded, or backloaded. Thompson might want to have more money hit the cap this year if there is enough room, thus saving some space in future years. Otherwise, he might want to follow in the footsteps in the New England Patriots if he thinks he could get Rodgers to renegotiate a backloaded contract, push the money into future years, and save some cap room that way.
Even in the case of the latter, though, something will have to give. Amortized money from signing and option bonuses doesn’t go away.
So what do you think? After considering all of these details, what do YOU think Aaron Rodger’s next contract will look like? My challenge to you is to use a spreadsheet (e.g., Excel) and see how you could possibly manipulate the money based on the circumstances. It’s harder than you think, and hopefully it will give you some appreciation for the process that goes on constantly in the front offices of NFL teams.
Well, there it is. I hope you enjoyed this series as much as I did! I’ll continue to evaluate the Packers’ financials, so please keep your eyes open for future articles about player contracts and cap economics as they apply to the Green Bay Packers.——————Follow @ChadToporski