Wednesday, March 4, 2009

Haynesworth Contract Details...Don't Believe Everything You Hear in the Media

OK, so I was able, through my sources around the league, to get my hands on the Haynesworth contract details. Here's what he got:

Guaranteed Money:

- Signing Bonus: $5M

- 2009 guaranteed P5 salary: $6M

- Option Bonus: $21M

- 2010 guaranteed P5 salary: $3.6M

- 2011 guaranteed P5 salary: $5.4M

TOTALING: $41M guaranteed

Non-Guaranteed Money:

- 2012 P5 salary: $6.7M

- 2012 Off-Season Workout Bonus: $500K


Total Over 2009-2012: $48.2M

So you ask, I thought his contract was 7 years (2009-2015) for $100M? Well, here's where the fluff comes in. It goes as follows:

Non-Guaranteed Money:

- 2013 Discretionary Signing Bonus: $20M (OR if teams chooses at their discretion to not pay the Signing Bonus, there then becomes a $35M incentive that can be earned given certain performance)

- 2013 August 31 Roster Bonus: $500K

- 2013 P5 salary: $8.5M

- 2014 August 31 Roster Bonus: $500K

- 2014 P5 salary: $10.3M

- 2015 August 31 Roster Bonus: $500K

- 2015 P5 salary: $11.5M

TOTALING: (assuming the team elects to pay the discretionary signing bonus) $51.8M

Therefore, giving you a GRAND TOTAL of $100M over 7 years ($48.2M + $51.8M).

In essence this is 2 contracts in 1. Basically, the first contract is for $48.2M over 4 years. If he's still playing at a high level come 2013, then the team can, in essence, execute another contract with Haynesworth that would be a 3 year deal worth $51.8M with $20M guaranteed. If he's not playing at a high level come 2013, then they simply cut him; however, they'd then have $9.4M of "dead money" on their books in 2013.

So if you look at this deal as 1 contract, then, yes, it's a $100M deal (and the agent loves that you think of it that way because it makes him look more appealing to the kids he's now recruiting), but the more practical and realistic perspective is that of considering this deal as 2 in 1.

An alarming aspect of this contract is that $21M of his money comes in the form of option bonus. Why is this alarming you ask? Well, as a result of a case involving the contract of Aslie Lelie, teams can no longer collect option bonus money from the player should he do anything to be in default of his contract. Not to say that folks don't change or have bad days, but to have so much guaranteed money unexposed to forfeiture for a player who once stomped a player in a game is a bit of a concern. (UPDATE: as it turns out, the Redskins shrewdly protected themselves from the forfeiture issue by placing language in the contract that allows them to convert Haynesworth's Option Bonus to Signing Bonus when they exercise the option. Signing Bonus money can be recovered from a defaulting player, so if Haynesworth has another bad day, the team is protected.)

Some of you have asked, given that the Skins routinely are up against the cap, how could they afford this contract? The answer is that Haynesworth's 2009 cap number is only $7M; that amount is comprised of a $6M P5 salary (by the way P5 stands for "paragraph 5" of the standard player contract) plus $1M in pro-ration of his $5M signing bonus. By cutting Shawn Springs, the Skins saved themselves $6M in 2009 cap space; so you could say that the Skins just about swapped out 1 for 1 Springs for Haynesworth. Without knowing what the future holds, the Skins are going to have to plan accordingly to afford this contract because Haynesworth's cap numbers beyond 2010 exceed $10M per year; those are significant cap charges. This means the Skins better start getting some cheap labor via the draft to offset this contract's impact on their cap (assuming there is one) in future years.

To see my perspective on "cheap labor" team building see below. Otherwise, hope you enjoyed the Haynesworth breakdown. You're now dismissed.....
(UPDATE: if you have any questions, leave a comment with your question, and I'll reply in the comment section. So check out the comments section for further analysis based upon the questions you guys submit....thanks!!!)


  1. Great breakdown, man! Thanks for a look behind the scenes.

  2. Great blog. How do the Skins only pro-rate the the first $5 million guaranteed when there is $41 million guaranteed over the contract. Shouldn't it be $41 mil over 6 years max pro-ration? I cannot figure that out.

  3. Boots: The portion of guaranteed money that gets pro-rated in player contracts are Signing Bonus and Option Bonus. Signing Bonus prorates upon execution of the contract (in this case $1M per year over the next 5 years, which is the maximum amount of proration currently allowed under the CBA). Then in 2010 when the team exercises their option of $21M, that amount will be prorated over 5 years (2010-2014) for $4.2M in each of those years. The other $15M in guarantees come in the form of P5 salary guarantees, which do not prorate (ie, his guaranteed 2009 P5 of $6M is fully accounted for in 2009).

  4. Wow, great stuff.

    It's a bummer that you're not still with the team as they could use a clear thinking person like you. I totally agree with your thoughts on building through the draft and am disappointed that the "real" Redskins are back. I know you'll probably be reluctant to be totally candid about your former employer, but I really have to ask:

    Is it that the Skins simply don't agree with the philosophy of building through the draft, or long range planning in general, or do they make a calculated decision to spend on and trade for big names to rile up the fans and sell jerseys? Or, even scarier, do they *think* they are following a philosophy of prudent long term planning yet lack the discipline and impulse control to execute this vision?

    Thanks again for a great blog.

  5. Great stuff. One thing I don't understand, though. How does the $21 million option bonus not run afoul of the 30% rule?

  6. Hey J.I., I found this post through the Washington Post website and I appreciate the way you broke down Haynesworth's contract so regular guys like me can make sense of it.

    Something I don't get, could explain why NFL contracts are like this - what is the point of contracts that in reality will probably be worth much less than agreed to?

    I can see how agents gain from this - I'm sure having a 100mil contract under your belt is great for business - but what's in it for the players and owners? How did NFL contracts come to be like this?

    Thanks. Peace bro.

  7. Todd Bender: I do believe the Skins try to be prudent in their approach to team building; however, there is a certain dynamic that involves riling up the fans, selling jerseys, and impulse that sometimes moves the club off of their prudent approach.

  8. Rich Tandler: Regarding the 30% rule, the 30% threshold (meaning the max a players salary can increase by going forward) is established with the player's 2009 (final capped year) salary. In this instance, Haynesworth's $6M P5 is used for the calculation, as his Signing Bonus does not factor in the calculation. Therefore, the max his salary may increase is $1.8M (30% of $6M).

    Taking this into consideration, Haynesworth's maximum 2010 salary is $7.8M ($6M + $1.8M). When calculating 2010 for compliance with the 30% rule, one must remember that unlike signing bonus, the proration of an exercised option bonus is indeed factored into the calculation. With that in mind, Haynesworth's 2010 P5 of $3.6M + the $4.2M 2010 proration of his $21M option bonus make his 2010 salary $7.8M ($3.6 P5 + $4.2M option proration). Thereby making it compliant.

    In 2011, the max salary is $9.6M ($7.8M 2010 salary + $1.8M 30% threshold). In 2011, Haynesworth's salary is comprised of $5.4M P5 and $4.2M option proration for a total salary of $9.6M; thereby making it compliant.

    The following years of the contract continue in this fashion.

  9. mfmaxpower: You kinda answered your own question. The reason contracts are like is because of the agents. The vast majority of contract negotiations are all about the agent and not about the player. The agent is looking to maximize the contract not to necessarily benefit his client, but instead to benefit his business and benefit his recruiting efforts. So, in this instance, the agent gets a $100M contract that he can boast about; the team gets the player they desire, and the player in this instance gets $41M guaranteed. So all parties walk away happy.

  10. Great article and thanks for the response. One other question: if the Redskins were to cut Haynesworth after the 2009 season, what would be the cap-hit? The $34 mil in guaranteed P5 salaries and option bonus and signing bonus not yet burned off? Or would it not include the guaranteed P5 salaries and option bonus? If not, that does not really sound guaranteed. If it is the former, that is huge cap-hit number to be walking around with.

  11. Great article. I have a question though:

    In the event of an uncapped 2010; could the $21 mil Option Bonus be paid all at once? Thus giving Haynesworth $25.6 in an uncapped 2010?

    Note, this maneuver would also lower Haynesworth's income in 2011 to $6.4 mil. If a new CBA - and thus a new cap - were to be worked out after 2010, then Haynesworth would have a cap friendly number for 2011.

    Basically, does that Option Bonus HAVE to be prorated, or can it be paid all at once?

  12. Boots: It would be the former. Although, prior to the exercise of the option, $1.2M of his '13 P5 is guaranteed only for injury; therefore, this reduces the dead money amount under this scenario by $1.2M, absent a catastrophic injury. In short, don't expect the Skins to cut ties with him so soon; otherwise they'd be faced with a significant amount of dead money on their books.

  13. ShockT327: The uncapped year impacts salary cap accounting and not cash payments. Therefore, under the scenario you've proposed in which Haynesworth were to account for $25.6M of the Skins '10 cap, this would represent a violation of the 30% rule (see my comment above regarding this rule). In short, when the option bonus is paid, from a salary cap accounting standpoint, it must be prorated in order to be compliant with the rules of the collective bargaining agreement.

    In case you're wondering, the purpose of the 30% rule and other rules that come into play when there's an uncapped year such as the requirement of 6 accrued seasons for unrestricted free agency (as opposed to 4 seasons currently) is to make it hard on both the players & the owners in order to force them to work out a new CBA. Contrary to popular belief, the uncapped year is not going to be the windfall that many players think it's going to be, because rules like the 30% rule preclude teams from spending lavishly on some players. Meanwhile, the rules make it harder for players to hit the open market by making them wait longer. So these mechanisms, again, encourage the parties to come to the negotiating table. Whether or not if they work towards this goal, we'll soon find out.