Monday, April 20, 2009

The Anatomy of a 1st Round Contract: How One Gets $34 Million Guaranteed without a Signing Bonus

As we all know, the 2009 NFL Draft is this weekend, so fittingly, I figured I'd expose the reader to the anatomy of a 1st Round Contract. That said, we all know that Atlanta QB Matt Ryan seemed to prove that he was worthy last season of the $34.75M guarantee that he received as the #3 overall pick in 2008, but how exactly is that amount structured in his contract? You'd be surprised to find out that NONE of it is via Signing Bonus.

Ryan's 6 year contract breaks down as follows:

GUARANTEE ON IT'S FACE (meaning money guaranteed the day he signs the contract; prior to earning any incentive):

- 2008 Roster Bonus (typically earned shortly after contract executed): $2.505M

- 2008 P5 (salary) guarantee: $295,000

- 2009 P5 guarantee: $3.5M

- 2010 P5 guarantee: $4.2M

- 2011 P5 guarantee: $4.9M

- 2012 P5 guarantee: $5.6M

- 2013 P5 guarantee: $6.3M

TOTAL GUARANTEED ON FACE: $27.3M (meaning if, for example, Ryan suffered a catastrophic career ending injury in, say, Training Camp of 2008, then he'd still get $27.3M)


In 1st & 2nd round draft pick contracts, there is almost always money tied to NLTBE (Not-Like-To-Be-Earned) Incentives. These incentives are "backed up" or guaranteed by P5 guarantees. These P5 guarantees typically void upon the earning of the NLTBE incentive (ie, a total of $1M in P5 guarantees voiding when a $1M NLTBE incentive is earned). Unlike Signing Bonus, these NLTBE bonuses don't hit a team's cap until they're earned.

- 1-time NLTBE Incentive (is deemed NLTBE because Ryan had to play 35% of the offensive snaps + the team had improve in 1 of 3 team categories, ie, Total Offense, etc.): $3.8M

- 1-time NLTBE Roster Bonus (Ryan must meet 35% playtime requirement + club improve in team category + player must be on the roster as of, for example, 1st day of the league year after the season he earned the bonus): $2.9M

- 2009 P5 guarantee: $7.5M

- 2010 P5 guarantee: $12.75M

- 2011 P5 guarantee: $2.5M of $12.75M salary

- 2012 P5 guarantee: $2.5M of 13.5M salary


- 2008 Roster Bonus: $2.505M

- 2008 P5: $295,000

- 2009-2012 P5 guarantees totaling: $25.25M

- 1-Time NLTBE Incentive: $3.8M

- 1-Time NLTBE Roster Bonus: $2.9M

TOTALING: $34.75M Guaranteed


- 2011 P5: $10.25M of $12.75M in salary (salary escalates to $12.75M instead of $4.9M because of earning of 1-time NLTBE incentive)

- 2012 P5: $11M of $13.5M in salary (salary escalates to $13.5M instead of $5.6M because of 1-time)

- 2013 P5: $10M (salary escalates to $10M instead of $6.3M because of 1-time)

TOTALING: $31.25M of Non-Guaranteed Money

THEREFORE, the value of Ryan's Contract is:

- Total Guaranteed Money: $34.75M

- Total Non-Guaranteed Money: $31.25M

TOTALING: $66M over 6 years ($11M per year)

The contract also allows for Ryan to earn more money in addition to the $66M via "high-end" or "fluff" incentives. Those incentives breakdown as follows:

- 50% playtime + playoff win(s) (depending upon how far the team advances in the playoffs): up to $500K/year; maximum of $2M over the course of the contract

- Minimum 35% playtime in 2008 or 45% playtime in any year thereafter + club improvement + Top 5 QB Ranking or Pro Bowl selection: max $1M per year; max $4M over course of contract


THEREFORE, the maximum value of Ryan's contract is $72M over 6 years ($12M per year)

Matt Ryan is off to a great start to his career (but so was Vince Young) and to this point, Ryan looks like the real deal, but even before the Axe Hair Products endorsement deal, Ryan's bank account got off to a great start in it's own right the minute he signed this contract. Matthew Stafford and/or Mark Sanchez are potentially going to be similarly compensated to Ryan; hope they live up to the financial expectations.....

1 comment:

  1. Good stuff. I think that the evolution of high rookie contracts over the past decade has been fascinating, as they've had to pack more and more money into these deals at a rate that has far outstripped the increase in the rookie salary pool allotments.

    I'd be curious to hear your thoughts on the James Harrison contract. As reported, I thought that it sounded like a solid compromise between the mega-deals that have been handed out to top-end defenders in recent years, and the mitigation of Harrison's age. As I look at the base salaries in the deal, I'm tempted to wonder whether the reported total of $51.175 million includes some incentive money on top of a base amount.