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Playing GM: Why contract extensions make it hard to compare NFL player contracts in a meaningful way

How do you compare the contracts between a free agents signing a new contract with a new team and a player who extends an existing contract? The answer: it doesn’t really work.

NFL: San Francisco 49ers at Miami Dolphins Steve Mitchell-USA TODAY Sports

James Dorsett just wrote a great article about giving Kirk Cousins the richest-ever contract in the NFL. When he was working on the article, he touched base with me to discuss a few aspects of NFL contracts, and how to present them in the article.

The most difficult question related to contract extensions. James wanted to compare Kirk Cousins to other top quarterbacks in the NFL, but Kirk is in an almost unique situation. If he signs a long-term deal this off-season, following his franchise tag season, he will be on an all-new contract.

This is very unusual. Most franchise quarterbacks get extensions from their franchises a year or more before the contract ends.

The difficulty is in comparing apples-to-apples. James wanted to be able to compare Kirk’s likely contract structure with the complete contract structure of other quarterbacks who’d been extended. In other words, if another team’s quarterback had signed a 5-year extension one year before his previous contract ended, It would have been ideal to compare the entire new 6-year deal to any deal that Kirk signs.

But, how can you compare an all-new deal, like the one we hope Kirk will sign soon, with an extension given to a quarterback on another team?

The simple answer is: you can’t.

The complexities of NFL contract rules make it almost impossible to make meaningful comparisons between an all-new deal for one player, and a contract extension on an existing deal for another. Of course, that rarely stops America’s sports journalists from making those comparisons on an almost daily basis.

I thought it might be useful to take some time and look at another quarterback drafted in the same year as Kirk and RG3 — Ryan Tannehill. His contract situation is actually more ‘typical’ than Kirk’s, and provides a peek at why the ‘value’ assigned to contracts (both total value and APY) and reported in the media can be misleading.

Let me start by giving a quick overview of Tannehill’s contract history:

  • Tannehill was selected by the Miami Dolphins in the first round of the 2012 draft. Like all rookies, he was signed to a 4-year contract (2012 - 2015).
  • Like situations with Andrew Luck and RG3, because Tannehill was a first-round selection, the Dolphins had the opportunity to exercise a 5th year option on Tannehill. Similar to the Redskins, the Dolphins exercised that option prior to the 2015 season. If Tannehill had played under the option, he would have been paid $16m — the same price tag that the Redskins faced with RG3.
  • Just a few weeks after exercising the 5th year option, the Dolphins announced that they had signed a four-year extension with Tannehill (covering the seasons from 2017 - 2020), that involved re-negotiating his $16m 2016 salary (from the 5th year option) to a lower number.

Here are three charts that I prepared to show you this 3-step progression, and how it impacted Tannehill’s salary cap calculations:

Let’s break down Tannehill’s contract, option, and extension in a step-by-step fashion:

1. Tannehill was drafted in 2012 (same as RG3 & Kirk). He signed a 4-year contract valued at $12.668m. Details of that are shown in the yellow chart on the spreadsheet. It covered 2012 – 2015.

2. The Dolphins exercised the 5th year option in the offseason before the ’15 season. That was the same option that the Redskins used on RG3, and had the same $16m price tag. I have shown that on the green portion of the spreadsheet. The effect was a simple $16m charge to 2016. Total value jumped to $28.668m.

3. Just a few weeks later, the Dolphins signed a 4-year extension with Tannehill, adding the ’17, ’18, ’19 & ’20 seasons, detailed in the blue section of the spreadsheet.

a. The new total deal — from the date of signing the extension to the end — was now for 6 years (’15-’20).

b. The Dolphins negotiated the option year (2016) DOWN from $16m to $9.34m.

c. The amortization schedule for the original signing bonus from 2012 did not change – 1.913m per year x 4 years. (What’s important here is that it was NOT extended to cover any of the new contract years).

d. Tannehill received a signing bonus of $11.5m that was prorated across FIVE seasons (2015 – 2019) at rate of $2.3m per year.

i. Note that the final year of the contract (2020) was 6 years out, so no pro-rated bonus.

ii. Note that 2015 pro-rated bonus is now $4,213,364 (1,913,364 from rookie deal + 2,300,000 from extension).

iii. The two signing bonuses are calculated separately.

4. You can see from the spreadsheet the TOTAL VALUE of each of the three situations:

a. Rookie deal = $12,668,502

b. After 5th year option = $28,668,502

c. After extension = $105,823,502

It was widely reported at the time that Tannehill received $77m in “new money”. The spreadsheet shows you that this was the money added to the Tannehill deal AFTER the 5th year option had been exercised.

Important to this discussion, one had to be conversant with Tannehill’s situation prior to the extension to be able to backtrack all of this. Because the 2016 salary was re-negotiated, there’s no way to look at the final chart (the blue one on my spreadsheet) retrospectively and figure out where exactly the new money is.

5. This is how OTC described the contract extension:

Total Value: $77,000,000 (avg. $19,250,000/year; $21,500,000 fully guaranteed)

This tells us that his formula for APY was:

Total New Money (77m) / New Years (4)

If you’ve stayed with me this far, you might be asking yourself why you bothered.

“So what?” you might ask, “why does any of this matter?”

The importance is in how this impacts the reporting of NFL contracts in the media, and the way we compare them.

If you look at any source to find out the “value” of Tannehill’s contract, it is reported this way:

4 years, $77million, $19.25m APY

But, in my view at least, none of these three numbers tells you what you really want to know. The reason is that — although Tannehill never got paid $16million for his 2016 option year — because the money was technically owed to him before this extension was signed, (i) the 2016 year, and (ii) the $16m he didn’t get paid are omitted when this extension is reported.

What REALLY happened, is that Tannehill signed a 5-year extension to his original 4-year contract. The total value of those 5 new years was just over $93m. The APY of that deal should have been ($93.155m / 5) $18.63m.

So, the value of Tannehill’s extension was really:

5 years, $93milllion, $18.63m APY

which is significantly different to what is routinely reported.

This raises the question: Why don’t journalists adjust their reporting to reflect the “real” numbers?

In short, it’s not practical. With pro-rated bonuses, options, re-negotiations, differing rookie contracts based on draft position, and many other variables thrown in, there’s no good way to bring every current player contract that has been extended onto a “level playing field”.

Because of this, the normal practice in sports journalism is the only practical one: each contract extension is reported on its raw numbers, despite the fact that it may lead to some misleading comparisons when fans look at the contracts of two or more NFL players.

It’s just another reminder that NFL contracts are complex documents that can’t be compared easily. Numbers like total value, APY and total guarantee, while generally useful, are also imperfect metrics, and often lead to oversimplified comparisons of players.

It’s something to keep in mind as we enter the red-hot portion of the free agency season with the Kirk Cousins contract on the front burner.