The Art of NFL Contracts Part 2: The Examples
For many people, it can be hard to put concepts into action and understand theoretical discussions in a tangible way.
As a continuation of Part 1 of The Art of NFL Contracts, it is time to put those ideas and systems into examples to further illustrate what NFL contracts really look like. This process will help explain the context of these major ideas and of the contracts themselves.
Basic example
Contract: Four years, $33 million total, with a $16 million signing bonus.
This a made-up contract, created to highlight many of the basic concepts and introduces them in a way that doesn’t cause headaches.
Base Salary: As highlighted in part one, the base salary determines the game checks the player will get over the season. In this example, the player’s game checks would be the base salary ($8.25m) divided by the number of games in the year to equal around $485,000 each game check.
Prorated Signing Bonus: In this deal, the player is getting a $16 million signing bonus. The player will get the $16 million within the first year, but the team can spread out this money over the life of the contract (up to five years). Because this contract is four years, the prorated signing bonus for each year is $16 million divided by four years: $4 million per year.
Cap Hit: The cap hit will be the amount that will be charged to the cap from what the player will earn for the year. For all years during the contract, this will be the same equation: salary plus prorated bonus, equalling $12.25 million.
Dead Money and Cap Savings: Dead money is where we can see how prorated bonuses are accelerated if a player is cut early. If the player with this contract is cut in year one, then not only does the bonus from the first year count against the cap, the remaining prorated bonuses all count against the cap in that one year. If the player was cut year one, the total dead money would be $16 million and, because the cap hit for the player in year one is only $12.25 million, the actual cap savings would be in the negatives, -$3.75 million. However, if the player is cut in year four, then there is only $4 million in guarantees remaining on the contract while the cap hit is still $12.25 million. In this case, the cap savings would be $8.25 million.
A real-life, basic example
Contract: Three years, $48 million total, $30 million fully guaranteed.
The above contract is what the Kansas City Chiefs gave Sammy Watkins in free agency in the 2018 offseason. It is a good example of a pretty simple NFL contract.
Base Salary: There are a few things going on here. The Chiefs structured Watkins’ contract like a lot of teams who have limited cap space, where the team gives the player the minimum allowed base salary in the first year of the contract to lower the cap hit in the first year. Here, due to Watkins’s four accrued seasons in the NFL, the lowest they could give him is a $790k base salary. The Chiefs also fully guaranteed part of Watkins 2019 salary.
Prorated Signing Bonus: Watkins was given a $21 million signing bonus that, when prorated over three years, turned into a $7 million prorated signing bonus each year. Remember, this money is fully guaranteed at signing.
Roster Bonus: Watkins did not have roster bonuses as a part of his contract. Roster bonuses aren't always used in contracts in the NFL.
Workout Bonus: Watkins was given a few workout bonuses on his deal. A player has to participate in a certain amount of offseason workouts in order to see this money.
Cap Hit: We see that because the Chiefs paid the minimum base salary allowed in year one of Watkins’ deal, Watkins’ year-one cap hit is only $7.8m, which seems pretty impossible when you hear his contract up front. However, the large cap hits in year two and year three reflects that small first-year hit.
Dead Money and Cap Savings: Watkins’ contract is a good introduction into how NFL contracts work. The contract shows that the Chiefs wanted a lower first-year cap hit on the contract. The team could afford to push a big guaranteed cap hit to year two, and Watkins likely wanted assurance he would be a Chief in year two with a guaranteed salary.
After the 2019 season however, there were no more base salary guarantees and the prorated bonus left on the contract was only $7 million, so the Chiefs could have cut Watkins in year three of the deal. (This was a large factor in the Chiefs and Watkins ultimately agreeing on a restructured deal this offseason.) This push and pull of guarantees, dead money, and cap savings is carefully constructed by teams and players so the team can feel flexible and the player can feel secure.
A real-life, more complex example
Contract: Five years, $137m total, with $48.7m fully guaranteed and $74.1m guaranteed for injury.
*- These bonuses are per-game roster bonuses.
This is Jimmy Garoppolo’s contract.
Base Salary: The thing that's somewhat unique in Jimmy Garoppolo’s base salary is the fact that he has base salary guaranteed for injury. Garoppolo has a mix of full guarantees and guarantees for injury. His base salaries in 2018 and part of 2019 were fully guaranteed, while the rest of the 2019 base salary and part of the 2020 base salary are guaranteed for injury. The money earmarked for injury will only be guaranteed if the 49ers release Garoppolo with an injury designation, which means Garoppolo would not pass a physical at the time of release.
Prorated Signing Bonus: Garoppolo’s $7 million signing bonus is extremely low for a quarterback. For reference, Russell Wilson got a $65 million signing bonus on his new contract. This low signing bonus gives the 49ers flexibility later in the deal.
Roster Bonus: The $28 million roster bonus in the first year of the contract was due on day three of the 2018 league year, while the contract was signed on February 8th, 2018. The main reason that this large roster bonus was used was to give Garoppolo a lot of money up front without having to prorate that over the contract. The rest of the roster bonuses on Garoppolo's contract are per-game roster bonuses which pay Garoppolo if he's on the starting 46-man roster on gameday. So, each game Garoppolo is active, he earns an extra $50k.
Workout Bonus: Garoppolo earns 600k every year for participating fully in offseason workouts.
Cap Hit: Garoppolo's contract is a true "front-loaded" contract, which is rare in the NFL. His $37 million first-year cap hit is easily the highest cap hit during his deal, which is rare for large NFL contracts that go past three years.
Dead Money and Cap Savings: This is where the true team-friendly nature of Garoppolo's deal shows. Due to the insignificant signing bonus and the front-loaded cap hits Garoppolo, could have been cut after just year two of his deal. Quarterbacks usually have more in the way of guarantees to ensure they can have more security, but Garoppolo is betting on himself playing well enough that the 49ers would not have any reason to release him. Due to insignificant dead money after year two, Garoppolo’s contract is functionally a two-year/$57 million deal with three team-option years of around $24 million each.
Once a fan understands how the intricacies of a contract works, a whole new perspective can be used when judging contracts. Many criticized the Sammy Watkins signing at the time due to the large total money on the deal, however, the Chiefs could get out of the contract in year three and the contract was not as it seemed.
This is emphasized even more in Jimmy Garoppolo’s deal where, at the time, many fans and pundits slammed the deal for being an overpaying of Garoppolo. However, after looking into the contract and seeing how it was constructed, it’s a very different contract than it first seemed.
This is the beauty of NFL contracts. They are intricate deals crafted to not only please the player, but the general manager and the team. The push and pull between NFL front offices and players leads to many unique contracts that have to be understood beyond a surface-level to truly understand. With that knowledge, all fans can form informed opinions about contracts in the NFL.
Next week: The Art of NFL Contracts Part 3: Rules and Ideals on Contracts and Cap Space.
