28

March

Packers Contracts, the Salary Cap, and More – Part 6: Aaron Rodgers and the Big Contract

packers_piggy_bankOne 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:

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:

rodgers_contract

 

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:

 salary_cap_year

 

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:

flacco_contract

 

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:

brees_contract

 

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.

——————

Chad Toporski, a Wisconsin native and current Pittsburgh resident, is a writer for AllGreenBayPackers.com. You can follow Chad on twitter at @ChadToporski

——————

24 Responses to “Packers Contracts, the Salary Cap, and More – Part 6: Aaron Rodgers and the Big Contract”

  1. Savage57 says:

    Wow! An incredible job breaking down all the dynamics of post-CBA contracts and trying to explain all the avenues NFL teams have to manipulate contract terms. Nicely done.

    I take my hat off to Russ Ball. He has a very tough job.

    Best Packer site on the net.

    Well-loved. Like or Dislike: Thumb up 8 Thumb down 0

    • Mudduckcheesehead says:

      And hats off to Chad for some of the best, most informative stuff I’ve read in a long time.

      Best Packer site on the net indeed.

      Well-loved. Like or Dislike: Thumb up 7 Thumb down 0

      • PatMc says:

        Agree 100%. Best site indeed. Great job Chad. This was a wealth of information that I bet 98% of the other teams fans have no clue…guess I didn’t either until reading your articles.

        I wonder how many times in August during cuts that Russ Ball has to run his formula’s to show impact on cap of different players being cut?

        Wonder if the final 53 slots might come down to dead money? Just wondering.

        Well-loved. Like or Dislike: Thumb up 6 Thumb down 0

    • Dobber says:

      My brain feels a little abused…

      Like or Dislike: Thumb up 2 Thumb down 1

      • Stroh says:

        Doesn’t say much for your brain… lol

        Sorry couldn’t help myself it was WIDE open.

        Hot debate. What do you think? Thumb up 5 Thumb down 4

  2. Jersey Al Jersey Al says:

    Thanks guys… spread the word! :)

    Chad has done a remarkable job here and I’m not afraid to say I’ve learned a lot of things I didn’t know from this series.

    I’m glad you appreciate his effort.

    Well-loved. Like or Dislike: Thumb up 8 Thumb down 0

  3. Ron LC says:

    Chad this series has to rank up at the top of any NFL fan site in quality and depth. The big lesson I’ve learned is that $20 mil per year doesn’t really mean $20 mil per year. It seems the future of our beloved Packers is now in the hands of Russ Ball and a cadre of CPA’s and CFP’s in order to answer the age old question:

    “The CEO asks his CFO what 2 plus 2 equals. The CFO responds, whatda ya want it to be.”

    The sooner AR and CM3 are signed sealed and delivered the rest came come into focus.

    Note: BJ you’ve got to do something to earn anymore than you’ll be getting next year. You need to become a game changer not a gap guy. Gap guys are cheap.

    Thanks for the hard work and insight to a very exostential topic. Hope something good comes to you from this series. Copyright it ASAP!

    Like or Dislike: Thumb up 4 Thumb down 0

  4. Tarynfor12 Tarynfor12 says:

    In case our newly signed kicker is reading….Meravigliso! Chad and AL.

    Like or Dislike: Thumb up 1 Thumb down 0

  5. Dan "FireMMNow" Blakley FireMMNow says:

    Great stuff. I really hope they can get this deal done soon. They need to front load this thing as much as possible from a cap standpoint. The packers will not have this much cap space again for a decade, and it is imperative that this deal does not kill the cap 3 years from now.

    Like or Dislike: Thumb up 3 Thumb down 0

  6. Chad Toporski Chad Toporski says:

    Thanks everyone for the kind words! I’m glad that you were all able to take some things away from this. I learned a lot myself in doing all the prep work and research over the past couple weeks. The business side of football is certainly a deep and complicated world.

    Like or Dislike: Thumb up 3 Thumb down 0

  7. Stroh says:

    All well and good and easy to figure out if you’ve been paying attention to contrscts for the past decade.

    Then you blow it w Rodgers. He’s getting an extension to his current contract not a new contract at 4 yr 100M. He has 2 yrs and approx 20M. Add them up snd Rodgers is at 6 yr and a liitle over 120M if the speculation is correct! IMO he should make sure he’s getting 21 per instead of 20. So he’s NOT getting substantially more than Brees and Flacco.

    Like or Dislike: Thumb up 2 Thumb down 4

    • Chad Toporski Chad Toporski says:

      Technically an extension, but there’s little possibility they’ll keep the numbers the same for 2013 and 2014. It will essentially be a brand new contract.

      Like or Dislike: Thumb up 3 Thumb down 1

      • Stroh says:

        Cap purposes is what matters. So its a 6 yr 120 M w 100M in new money and an additional 4 yrs. His pay this year and next will certainly rise just like it wiill certainly add 4yrs to the 2 he has on his current deal.

        In the end it’ll be accounted for as 6 yr 120M.

        Like or Dislike: Thumb up 2 Thumb down 0

      • Stroh says:

        Don’t know if you were trying to but its very misleading to say 4 yr 100M. It implies 25M per yr which simply isn’t the case.

        Like or Dislike: Thumb up 2 Thumb down 2

        • Dan "FireMMNow" Blakley FireMMNow says:

          sounds like it will be in the neighborhood of $25 million a year.

          Like or Dislike: Thumb up 0 Thumb down 0

          • Stroh says:

            It wouldn’t surprise me. Just means the speculation of 4 yr 100M extension wasn’t right. Would have to be more like 4 yr 130M extension. Along w/ the 2 years and approx 20M he has now. Either that or its not an extension, which would mean tearing up his current contract. I don’t know which way they’ll go.

            I was using the speculated numbers thats all.

            Like or Dislike: Thumb up 0 Thumb down 0

      • Stroh says:

        And this entire series is about capology so not including the fact its an extension really is a glaring error.

        Like or Dislike: Thumb up 2 Thumb down 3

    • Stroh says:

      BUT he’s not getting substantially more… damn ph.

      Like or Dislike: Thumb up 0 Thumb down 0

  8. Stroh says:

    Thompson doesn’t have the cap space to front load Rodgers much if at all. My guess based on Packer history of “pay as you go” is it will be spread equally over the length of the contract.

    Like or Dislike: Thumb up 2 Thumb down 0

    • Lars1 says:

      You’re right about this Stroh. That ended after the new CBA was signed and the Packers had to shed nearly $20 million in player salaries.

      Chillar might have been the last front-loaded deal of any significance. Then, the following year Hawk got his big bonus (to suck) BUT it was spread out over the full 5 years, even rising by year five. Crosby’s was much the same, including the suck. Even Saturday and Finley’s 2-year deals were back-loaded, with only year 1 guaranteed.

      Like or Dislike: Thumb up 0 Thumb down 0

    • Dan "FireMMNow" Blakley FireMMNow says:

      ummm…the packers have 20 million in space available right now. that is including rodgers current cap hit of 9.75 million. so they could give him a deal with a cap hit of approximately 24-25 million this year, which is a big difference between the contracts of flacco and brees that had low cap hits in the first year of the deal.

      and finley and saturdays deals were backloaded for a reason. not even sure saturdays was backloaded. i thought it was pretty even. you give back loaded deals to rent a veterans (saturday) and guys on earn it type deals. they wanted to see what finley would do a year removed from surgery. if he completely crapped the bed last year they could cut him with no major cap hit. if he had a good year you would be willing to pay him $8.5 million the next year. look at situations not just the numbers. saturdays and finleys deal were structured the way they were for a reason.

      Like or Dislike: Thumb up 1 Thumb down 0

      • Stroh says:

        Saturdays was pretty even. FInley was only slightly backloaded. 7.5 one year and 8.25 the next or something close.

        They can make Rodgers that high, but it how would that affect Matthews? He needs to get 2-5M more per year, depending on his current contract status. I thought he was about 5M, but he might be higher w/ escalators that he hit. If Rodgers goes to 25M per there wont be any frontloaded. The yearly would take him to the limit of the Packers cap space or very close.

        Like or Dislike: Thumb up 0 Thumb down 0

      • Stroh says:

        Finley’s was an earn it contract to some degree. They could have released him w/o a cap hit. It was a deal to more or less determine his long-term value. The higher numbers were due to it being just a 2 yr deal. They surely could have gotten him at a lower number w/ a longer deal. I think they’ll re-sign Finley for 4 or 5 yrs and get his average at about 7M per.

        Like or Dislike: Thumb up 0 Thumb down 0