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RSSGuaranteed contracts come to the NFL: an analysis

A structural shift in NFL compensation has taken place. Leigh Steinberg


Print ThisSend ThisAugust 09, 2011, 08:14 AM EST
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As the Oklahoma Land Rush merry-go-round of player signings continues at its speed dating pace, the new contracts for NFL rookies indicate a historic shift has taken place. They include guarantees.

Since I began representing athletes in 1975, NFL players have desperately been seeking the security and commitment of the guaranteed contracts that are routinely granted in Major League Baseball, the NBA and the NHL. The three and four-year guarantees that top rookies are receiving may signal the first crack in unified owner opposition to guarantees and could start to eliminate the disparities between professional sports.
ICONCam Newton's four-year contract is worth $22 million and is fully guaranteed.

Contracts in the NFL traditionally contain a signing bonus, which is earned on signing and only refundable if a player retires or refuses to honor the contract. The yearly salaries in a long-term contract are paid over the course of the seventeen-week season and can be terminated by the team at any time. Incentive clauses are even more tentative, dependent on actual performance. (Max protection for the team but not the player)

When a player was cut and waived, the financial obligation of a team ended—vested veterans received more. If a player suffered a career-ending injury in a season, he received the remainder of that year's salary and half the next year's salary with a cap that started at $250,000. Even though the salaries might not have been guaranteed in the pre-cap era, teams might keep a mediocre player for another year rather than lose him to another team. (Not this way anymore)

That all changed with the advent of the salary cap in 1993. Veterans could only count on their signing bonus and first year salary as teams scrutinized every contract every year and approached players to restructure or be cut. Insecurity mounted and put a massive premium on the signing bonus. (This is why guys like Forte who have outplayed rookie contracts want extensions with guarantees before their deal is up)

I know how sophisticated most of our readers are, so please understand that most fans hear these terms without any understanding of what they mean. Contracts can be guaranteed for skill. That means that even if a team is not satisfied with the level of play of a player and wants to cut him, it is obligated to financially compensate the player for each remaining year of a skill guaranteed contract as if he was playing. In caponomics terms, that means that once a guaranteed set of years are in place, the salary "counts against the cap" each year. (This is the benefit these "new guaranteed contracts" offer and tend to eliminate the need for signing bonuses)

The term used for these charges against the cap for players no longer on the team is "dead money". The team has to pay the actual dollars but doesn't have the cap room to replace the player. Contracts can also be guaranteed for injury, meaning that if a player suffers a career-ending injury, he has to be paid every remaining guaranteed salary just as if he was playing. Again this can create "dead money.” (Great explanation of what "dead money" means)

While these clauses may include "football related injuries" as a limitation, in other sports, a full guarantee covers a player for injuries occurring in any way, on or off the field. I once guaranteed a basketball contract for "mental disability,” meaning that if my client was sitting on a park bench suffering from dementia and couldn't identify a basketball, he still got paid. (LMFAO!!!! that's what I call hard line negotiation)

There have been episodic occurrences of veteran or rookie guaranteed salaries. In the "split bonus/option" construction we first used with the Burress/Steelers contract, the signed contract had salary guarantees that disappeared when the option bonus was paid the following March. We did a no-bonus guaranteed contract for Darrell Russell of the Raiders with guaranteed salaries that allowed us to explode the revenue available in the rookie cap allocation. (Some insight into creative negotiations)

Veterans have occasionally had guaranteed salary years, usually as a trade off for bonus. But what has distinguished the NFL from other sports is the obsession with maximizing bonuses because of the lack of guaranteed salaries. For rookies, it led to a pyramid type situation with as much as a $50 million guaranteed bonus/option at the top of the round to $30,000-$40,000 at other positions. It created a two-tier structure from the beginning of a player's career. (This is what the owners wanted to do away with. No more risky J'Marcus Russell type deals)

The draft is only a partial indicator of future performance. Many first-round picks are out of football while lower draft picks are major stars. Teams were forced to keep the high priced rookies long after it was clear that they were not performing because of the amortized cap allocation of signing bonuses. These players became untradeable and protected because the remaining bonus dollars would hit the cap directly on the termination of the contract. So to guarantee the first years of rookie salaries only recognizes the reality of the former system. (Great explantion of why an underperformer like Cedric Benson stuck around while we had to trade a more productive guy like TJ)

The cap and unguaranteed salaries has meant widespread roster instability as veterans were instantly punished for an offseason by restructure or cutting. Fears that guarantees will lead to player's "coasting through on their guaranteed years" with no motivation don't accurately assess the competitive nature of players. They want to start, they want to play, they fear being injured and left out and will risk their health to stay on the field. (Then there are the Albert Haynesworth types out there. Always some exceptions to the rule)

Most athletes are so competitive they will attempt to beat you in tiddlywinks. My first year I actually had the audacity to beat my first client, Steve Bartkowski, in a ping pong match and he didn't talk to me the rest of the day. I learned quickly there is no gain in competing with clients in other sports. If you perform badly, they will ridicule you. If you happen to win, they will resent you.

If one of the side-benefits of the new CBA is more guaranteed salaries for rookies and vets and less obsession with non-refundable signing bonuses, it may turn out to be a positive structural shift in NFL compensation.

Follow Leigh on Twitter: @SteinbergSports