Throwback Thursday - a Bill-in-Bangkok 2013 fanpost re-printed: “The ‘Rookie Salary Cap’ effect on QBs & QB Salaries“

Six years ago, in the offseason that followed RG3’s rookie season of 2012, I wrote a fanpost. Recently, I was thinking about quoting from the article, but was struggling with how to concisely explain the context of this 6-year-old 2013 post.

It occurred to me that perhaps it might be entertaining to re-post it as part of the Throwback Thursday concept that has become fairly popular in recent times.

So, that 2013 article is what follows.

I have to say that I am impressed by two things:

• the ideas I wrote that turned out to be somewhat prescient
• how many things I wrote that turned out to be just wrong

To make it easy to discuss at the end, I have used bold font to highlight a number of the predictions I made in the 2013 article.

I hope you’ll enjoy reading the article now, with the benefit of 20/20 hindsight.

The “Rookie Salary Cap” effect on QBs & QB Salaries

The “rookie salary cap” was put in place to protect teams from bad rookie contracts. This is from a 2011 article in the bleacher report:

One of the big issues heading into the CBA talks was a rookie salary cap to get rid of the ridiculously large contracts that paid unproven players more money than valuable veterans as teams were cash strapped with the amount of money they would spend.

Both sides agreed—NFL and NFLPA, on implementing a rookie-salary cap which is now being known as the JaMarcus Russell rule.

In 2007 LSU quarterback JaMarcus Russell was the first overall selection by the Oakland Raiders. As in seasons past most first-round draft picks holdout to try and negotiate the most money possible and more importantly the most money guaranteed.

Russell and his agent held out until the first week of the 2007 season where the Raiders and Russell finally agreed on a six year (max years allowed) $61 million contract with $31 million in guaranteed money. In three seasons from 2007-2009 Russell had 4,083 yards passing, 18 touchdowns and 23 interceptions along with 22 fumbles and a passer rating of 65.2. After the 2009 season Russell was released and cleared waivers after still having three more years left on his contract.

But I think there will be another, perhaps unintended, consequence of the “rookie salary cap. I believe it will change the way GMs build their rosters, and will eventually lead to veteran quarterbacks accepting lower contracts than has become the norm over the past few years.

Although I haven’t seen a lot of interest on the ‘net regarding the “rookie salary cap” or how it will impact on team-building going forward, I’ve been pondering it, especially as it relates to the position of quarterback.

What prompted me to think about the question was the salary cap penalty imposed on the Redskins in 2012 & 2013. With a cap reduction of $18m per year it was hard to imagine how the Redskins had managed to cobble together a competitive team. Then, in this off-season, we saw the new contracts for Flacco & Romo. First was Flacco, who signed 6 years at $120.6m with $52m guaranteed; then Romo at 6 years for $108m with $55m guaranteed.

As a Redskins fan, I already knew the rough details of the RG3 deal: $21.1m over 4 years, including a $13.8m signing bonus. My first thought was to do the raw math: Flacco - $20m per year; Romo - $18m per year; Griffin – $5.3m per year. The Redskins were saving $13m to $15m per year compared to the Ravens & Cowboys. That kind of savings at the QB position just about took care of the salary cap penalty! Mystery solved.

But, of course, when it comes to salary cap, it’s never really that simple. Here are the “cap hits” for the three quarterbacks for 2013:

Griffin $4.8m

Flacco $6.8m

Romo $11.8m

Suddenly it didn’t seem so clear. The cap-hit difference between Flacco, the league’s highest-paid quarterback, and Griffin (perhaps the league’s lowest paid starting QB) is only about $2m in 2013. It turns out that having Griffin at QB instead of – say, Flacco – doesn’t cover the $18m penalty.

But as I said, it was just the start of the process. It got me thinking more about the difference between veterans and rookies in the age of the “rookie salary cap”, and especially about rookies & vets at the highest paid position – quarterback.

First, let me see if I can highlight what the “rookie salary cap” (which took effect in 2011) has done to the salaries of quarterbacks taken at the top of the draft. We already know the numbers for RG3, who was the second player selected in 2012. What about some other numbers?

At the time that the players were drafted & signed, no one could know which players would be superstars and which ones would flop, so there’s no reason to even talk about actual performance.

What’s immediately clear is that the “rookie salary cap” has dramatically cut the cost of drafting and signing a top-rated quarterback. The three quarterbacks in the 2009 & 2010 draft signed contracts with an average value per year of around $11.7m (guaranteed of around 7.0m). The three quarterbacks in 2011 & 2012 have fully guaranteed contracts, but the average per year is less than half that of the first group. I believe that this will lead to long term changes (and has – in fact – already started leading to changes) in the way a team is built via draft & free agency.

Although the contracts for Flacco and Romo have been constructed to manage the impact on salary cap, all of the dollars actually paid to those players are real, and will someday have to be counted against the cap. Right now, with fully guaranteed 4-year contracts, Cam Newton, Andrew Luck and Robert Griffin III cost the Panthers, Colts and Redskins – at the worst – right around $22m over 4 years.

To see what the Ravens & Cowboys are facing, let’s look at the cap hit for each of these five players in future years:

2014 Cam Newton 7.0m (dead money = 7.0m)

2015 Andrew Luck 7.03m (dead money = 7.03m)

2015 Robert Griffin III 6.7m (dead money = 6.7m)

2015 Tony Romo 25.27m (dead money = 19.9m)

2016 Joe Flacco 28.55m (dead money = 25.85)

The numbers paint a starkly contrasting picture of what these five teams have ahead of them in the next few years. Three teams can look forward to being led by exceptional young quarterbacks at a cap cost of around $7m per year. The other two teams can look forward to being led by aging QBs (Romo will be 35 in 2015, Flacco will be 31 in 2016) with a cap hit of over $25m per year.

It seems clear that, as we get to the 2015 to 2018 seasons, teams will start to face cap decisions that are tougher than the ones being faced at the moment, and today’s young stud quarterbacks may find it tougher to sign the kind of big-money career-contracts that Flacco and Romo have just signed.

Prior to the “rookie salary cap” a team who had a Flacco or a Romo at quarterback had to compare the talent and experience of that quarterback against draft pick like Stafford or Bradford who would cost in the range of 12m to 13m per year.

But now, in the era of the “rookie salary cap,” that same team will be looking at a cost of around 7m per year for the same quarterback taken in the draft.

Salary-cap-enomics may start to come into play in the next few years.

For example, Eli Manning – an elite quarterback – is currently set to become a free agent following the 2015 season. In 2016 he will be 35 years old. His base salary in the final year of his contract is $17m, and his cap hit in the final 3 years of his contract hovers around $20m. Should the Giants sign him to a $25m+ per year contract to keep him in the organization when they could draft and play a young quarterback for only around $7m per year?

You might argue that Manning is a bit too old to be good example. How about Matt Ryan of the Atlanta Falcons, who is arguably a quarterback just coming into his own? He is currently carrying a salary cap hit of around 12 or 13m per year, and is set to be a free agent after next season. Right now he’s a great value for the Falcons, and at age 29 in 2014, it should be his turn for a Flacco-esque 6-year contract valued at over $120m.

But Thomas Dimitroff, the GM of the Falcons, is going to have to get out his calculator and put on his thinking cap. It’s likely that Ryan will cost the franchise around $18m per year more than a drafted rookie. That’s 18 million reasons to think hard about who you want taking snaps for your offense.

Eighteen million dollars a year can buy a lot of talent in the free agency market. For some teams that might buy an entire offensive line or a defensive secondary. General Managers, if they haven’t started to do it already, are going to have to see what the “rookie salary cap” is doing to the value proposition of high first-round quarterbacks.

It’s no longer a fluke; we’ve seen plenty of rookies starters recently, along with some real second year success stories. Cam Newton, Andrew Luck, RG3, Russell Wilson and Colin Kaepernick are making the case that playing a quarterback just out of college can bring a team immediate success. Even if the team has to “adapt” the offensive scheme to the player, that may be an effective strategy if it frees up salary-cap room to acquire better players at other positions.

The front office starts to face a decision – do I want to put the success of the team on a quarterback who takes up 1/6th of the salary cap, or do I want to take a chance on a younger guy surrounded by more talent (that the team can afford because of the extra $18m per year it has available to spend)? More and more, I think the answer will lie with youth. I believe we’ll see two corollary outcomes in next few seasons.

First, more and more GMs will see young quarterbacks drafted out of college as a realistic option for building a successful team. The “rookie salary cap” will change the economic model that has ruled the NFL for more than a decade.

The second, related, outcome will be that it will be increasingly difficult for veteran quarterbacks to sign Romo-like and Flacco-like deals. A quarterback taken at the top of the draft today costs less than half of what his counterpart did just three years ago. It will increasingly become a buyer’s market, and with more and more GMs opting to start younger quarterbacks as a legitimate salary-cap management strategy, there will simply be fewer teams that will be willing to pay for the huge quarterback contracts that are considered normal today. The teams that do pay those big contracts will be at a competitive disadvantage when it comes to paying for talent in other positions – especially via free agency.

I see the league splitting into two types of salary-cap teams in the 2015 – 2018 years. One type will have the high-priced, veteran quarterback leading a team by carrying it on his back. Think of the Dallas Cowboys with Tony Romo and you’ll probably have the right idea.

The other type of team will be led by a young, enthusiastic quarterback surrounded by offensive and defensive talent that will help carry him while he develops his skills. Think of the 49ers or the Seahawks and you’ll probably have the right idea.

As always, the pendulum will seek equilibrium. As we approach 2020, I believe that the salaries for veteran quarterbacks are likely to get adjusted back by the market to a point where the veteran QBs will earn money that rewards them for their experience and talent, without creating the kind of price inequity that will drive GMs to favor the younger, cheaper option.

Of course, by that time, the rules will have changed again…

Let’s look at my predictions:

1. Veteran quarterbacks will be forced to accept lower value contracts

Clearly, I got this wrong. In fact, the escalation in quarterback salaries has increased. The flaw in my reasoning came in not understanding the broader impact of the rookie salary cap beyond just the quarterback position. Since the rookie salary cap instituted in 2011 suppressed all rookie salaries, it led to an increasingly larger pool of money that had to be paid to veterans — and quarterbacks, playing the most important position on an NFL roster — have scooped in the lion’s share of that dough.

2. teams will start to face cap decisions that are tougher than the ones being faced at the moment, and today’s young stud quarterbacks may find it tougher to sign the kind of big-money career-contracts that Flacco and Romo have just signed.

Another incorrect prediction. Here, I failed to understand what would happen to the salary cap beginning in 2014. League revenues, driven primarily by increasingly valuable TV and other broadcast contracts, have skyrocketed by about 6 - 8% per year for the past five or six years, leading to dramatic increases in the salary cap.

Consider the context that existed when I wrote the article in 2013. Here was the recent salary cap history on a per team, per season basis:

• 2009 $123m
• 2011 $120m
• 2012 $120.6m
• 2013 $123m

In effect, there had been zero growth (with some actual regression) in cap dollars in 5 seasons. As a casual fan, I had no real inkling that this dynamic was about to change, and free up an extra $10m or so of cap space annually going forward.

Without that dynamic, it would have been much harder for GMs to make the kind of huge dollar commitments we’ve seen them make to the Aaron Rodgers and Russell Wilsons of the league.

Some quick notes here:

It’s axiomatic that people tend to view the future as a straight line extension of the past. It’s been proven time and again that this is a flawed model.

Just as this flaw affected my reasoning in 2013 with regard to my prediction about veteran QB salaries, I think at least two related ideas may fall into that fallacy today.

First is the idea that the salary cap will continue to rise year-by-year at the same rate it has grown for the past half-decade. It may, but it may not.

Second, I have seen a lot of resistance to suggestions about changes to rookie wages scales, rookie contract lengths and salary ‘slotting’ based on draft position. People regard these things as fixtures in the NFL, and tend to discuss how they would adversely affect the league if they were changed. I’m not sure how many people realize that those things were established with the 2011 CBA, and have been in use in the NFL for only a handful of seasons. Indeed, the situation of the past 7 or 8 years is the outlier that is quite different from what had come before. Changes to any of these elements would be more in the vein of ‘normalizing’ a changed system than attempting to change a long-established way of doing business.

3. But now, in the era of the “rookie salary cap,” that same team will be looking at a cost of around 7m per year for the same quarterback taken in the draft. Salary-cap-enomics may start to come into play in the next few years. General Managers, if they haven’t started to do it already, are going to have to see what the “rookie salary cap” is doing to the value proposition of high first-round quarterbacks. Even if the team has to “adapt” the offensive scheme to the player, that may be an effective strategy if it frees up salary-cap room to acquire better players at other positions.

Finally, I seem to have gotten something right. This idea is so completely accepted now that I think it may be hard to appreciate how novel this concept was in 2013, after just two seasons and two drafts under the new CBA.

It’s interesting to me that the Ravens chose to draft Lamar Jackson last year to replace Joe Flacco, who was one of my two veteran quarterback examples of guys who would be ‘at risk’. The Ravens seem to have ‘adapted’ their offense to the new QB, and appear to be ready to rely on a top defensive squad to help support the young player. Of course, the other example in my article was Tony Romo, who was replaced by Dak Prescott in an offense that relies on a premier running back and strong defense.

4. I believe we’ll see two corollary outcomes in next few seasons. First, more and more GMs will see young quarterbacks drafted out of college as a realistic option for building a successful team, with more and more GMs opting to start younger quarterbacks as a legitimate salary-cap management strategy. The teams that do pay those big contracts will be at a competitive disadvantage when it comes to paying for talent in other positions – especially via free agency.

I’m not sure that “more” GMs have seen the young QB option as being realistic for their team, but I believe my fault here was in not understanding the limited supply of starting quality quarterbacks available in the annual draft. 2012 had given us Andrew Luck, RG3, Russell Wilson, and Ryan Tannehill as starters, with Kirk Cousin looking like another guy with potential.

I made the mistake of that straight-line-projection-into-the-future style of thinking. If there were 4-5 quality quarterbacks available every season, it would be like and Oprah show: “You get a quarterback... you get a quarterback!”

The last part though: “teams that do pay those big contracts will be at a competitive disadvantage when it comes to paying for talent in other positions” is now almost gospel among fans and journalists.

5. I see the league splitting into two types of salary-cap teams in the 2015 – 2018 years. One type will have the high-priced, veteran quarterback leading a team by carrying it on his back. The other type of team will be led by a young, enthusiastic quarterback surrounded by offensive and defensive talent that will help carry him while he develops his skills.

Finally! A prediction that is ahead of its time.

For the past three or four seasons, it has become commonplace to discuss this dichotomy. We see long articles, sometimes a series of articles, devoted to the analysis of this choice in team building. I think I was a bit ahead of my time in recognizing it, though, in light of the wildly inaccurate predictions I made about veteran QB salaries, I don’t think I can spend too much time congratulating myself or touting my fortune-telling skills.

6. As we approach 2020, I believe that the salaries for veteran quarterbacks are likely to get adjusted back by the market to a point where the veteran QBs will earn money that rewards them for their experience and talent, without creating the kind of price inequity that will drive GMs to favor the younger, cheaper option.

Ha! Nope. Didn’t happen. Fortune teller license revoked.

7. by that time, the rules will have changed again…

I was a year early on that prediction, I think. The rules are set to change in 2021 with the new CBA.

When they do, front offices will need to be on their toes, alert for opportunities and quick to adapt.

Smart GMs are already manipulating player contracts in anticipation of the coming CBA, and there have been a number of articles published by salary cap geeks to discuss some of the strategies in use. This is one area where I feel like the Redskins are in pretty good hands. Eric Shaffer has been with the organization for about 16 years; he is knowledgeable, good at his job, and seems to be conservative but forward-thinking. I expect the Redskins front office to be ready for whatever comes in the next CBA.