D'Brickashaw Ferguson: The Navigation of Yet Another Challenging Rule of the Uncapped Year

Last week the New York Jets signed left tackle D’Brickashaw Ferguson to a contract extension that has sparked some media debate as to the deal’s true value. The initial reports valued the deal as a six year extension with $60 million in new money of which nearly $30 million is guaranteed. Meanwhile, others have reported it as a one year deal worth $5.3 million of which $4.7 million is guaranteed. It’s rare that the valuing of a contract can have such disparate reported values, and like most things, the truth lies somewhere in the middle.

To understand Ferguson’s extension, one must first understand his previous contract. On his previous contract, which was his rookie deal, Ferguson was slated to earn $3.1 million in 2010. His 2011 compensation was set to be equal to the 2011 Franchise Tag salary for offensive linemen; with that number not being set until the 2011 offseason, $10 million dollars was negotiated as a placeholder. Moreover, his 2011 compensation was set to be guaranteed on the last day of the 2010 league year, which would have roughly been around February 28, 2011. On the conservative side, one could then say that Ferguson had $13.1 million in what we call old money; keeping in mind that depending upon what the Franchise Tag ended up being his old money could be closer to $14 million or so, of which all would have been guaranteed except for the $3.1 million.

Ferguson’s new contract is actually an eight year contract worth $73.1 million, but when you subtract out his two old years and the conservative $13.1 million assumption of old money, you get a six year extension worth $60 million and an average per year of $10 million, even though, again, the more likely old money number was going to be closer to $14 million which would drop the new money total to roughly $59 million. Not calculated in the $60 million of new money are two phony incentives worth $1.3 million that, from a team salary accounting perspective, are deemed as likely to be earned. Without going into the details, these “phony in reality, yet likely in accounting” incentives are simply in the deal to make the contract compliant with the 30% rule.

Regarding the structure of the contract, this is where it gets really interesting. The Niners contract extension with linebacker Patrick Willis illustrated a structure that could be used to reward a young player while remaining 30% rule compliant. In short, as I wrote in May (http://www.footballoutsiders.com/under-cap/2010/under-cap-30-percent-rule) the Willis deal was largely achieved via a $15.5 million signing bonus and $4.8 million supercede signing bonus. The Ferguson deal is a far cry from the Willis deal, but at the same time, when you’re the Jets and have Ferguson, Darrelle Revis, Nick Mangold, and even David Harris to potentially pay significant money to in 2010 via contract extensions, one could assume that there is a cash budget that the Jets have to take into consideration when potentially having to pay all of these guys lucrative money in 2010. During my time with the Redskins, as surprising as this may be, not only did I have to assist in the management of our salary cap but we had to do so within a cash budget, so this is definitely a significant consideration in contract negotiations.

It is this cash budget consideration that would seem to explain Ferguson’s deal. Ferguson received a $1.6 million signing bonus and July 12^th roster bonus of $3.1 million; his 2010 salary will be $630,000. These numbers add up to $5.3 million in 2010 compensation. On its face, meaning at the time the deal was signed, the only amount guaranteed was the signing bonus and year one roster bonus totaling $4.7 million.

So how do some say that this deal guarantees nearly $30 million? Ferguson’s deal has his 2011 $5.6 million salary and 2012 salary of nearly $10 million become guaranteed for just skill on February 15, 2011. His 2013 salary of $7.25 million becomes guaranteed for skill on February 15, 2012. When you add his 2010 guaranteed and non-guaranteed compensation of $5.3 million plus his future year skill-only guarantees, you come up with a little over $28 million in guaranteed money. Ferguson also has a 2011 $3.9 million option bonus, but this bonus is not considered guaranteed as it’s not backed up by future year salary guarantees to ensure that he gets the $3.9 million either way. Therefore, by mid-February 2012, Ferguson will have earned or been guaranteed $32 million.

The 2011, 2012, and 2013 salary guarantees for skill highlight the guarantee reallocation rule of the uncapped year. The reason why the Jets could not guarantee these salaries for skill and injury is because Ferguson’s 2009 salary of $2.9 million was not fully guaranteed; only $680,000 of this 2009 salary was guaranteed. The reallocation rule in essence says that unless the salary in the final capped year is fully guaranteed, then any future year salary guarantees for skill AND injury will be reallocated into the final cap year. Applying this rule to the Jets and this contract, had they guaranteed the $22.9 million of future year salaries for skill and injury, then that $22.9 million would have been retroactively reallocated to the Jets’ salary cap of 2009. The Jets finished the 2009 league year with $376,000 in cap space and therefore could not have afforded the $22.9 million reallocation and would have faced this deal being disapproved by the NFL Management Council. Therefore, the Jets were able to get around the reallocation rule by guaranteeing the amounts for either skill or injury but not both.

The vast majority of the time, a player’s contract is terminated for skill; the only instance in which an injury guarantee is applied is in the case of a catastrophic injury to the player, to which insurance policies are available outside of a player contract to protect the player’s interest. So while the Ferguson deal isn’t as straight forward as the Patrick Willis deal, the Niners also don’t face the contract obstacles that the Jets currently face with their talented young players. At the end of the day and practically speaking, the Jets aren’t going to terminate Ferguson prior to 2011, so he’ll get his money and that’s all any player and agent ever want.

The Brow-Raising Contract of Darrelle Revis

Cornerback Darrelle Revis and the New York Jets are currently working on a contract extension for the fourth year player; a contract that Revis has indicated should rival, if not exceed, that of Raiders cornerback Nnamdi Asomugha. In 2009, Asomugha signed a three year extension that would pay him nearly $45.5 million or $15.2 million per year. The Asomugha deal stands out head and shoulders above the rest of the elite cornerback market, where players like the Eagles’ Asante Samuel and Falcons’ Dunta Robinson trail at $9.5 million per year on their respective deals.

Before we discuss a possible new contract for Revis, it should be noted that, if the Asomugha extension raised a few brows, then Revis’ rookie contract did the same. As the number 14 overall pick in the 2007 draft, Revis received a contract whose guarantee money could escalate from nearly $10.5 million up to $22.5 million and even as much as $26.5 million. To put $26.5 million guaranteed in perspective, Redskins safety LaRon Landry as the number six overall pick that year received $17.5 million guaranteed and number three overall pick tackle Joe Thomas of the Browns received $23 million guaranteed.

Revis’ rookie deal was structured in a way that practically made it a four year deal with the Jets having the ability to buy years five and six at a price tag of $15.7 million guaranteed. Under this structure, due to meeting a playtime threshold negotiated in the deal, the day after the 2010 season’s Super Bowl, Revis can pay back $1.3 million that was advanced to him in order to void 2011 and 2012. The Jets reserved the right to buyback those years by paying a $100 buyback bonus (yes that's right, $100) and guaranteeing Revis’ 2011 and 2012 salaries to the tune of the aforementioned $15.7 million, with another $4 million of possible salary escalation in 2012 based upon a point reward system that is based on Revis’ performance. Another interesting aspect of this structure is that, in the event of Revis voiding the final two years, the negotiated void-buyback structure precludes the Jets from franchising Revis in lieu of buying back 2011 and 2012.

This contract is by far one of the most unique rookie contracts in the past few years. Under this deal, Revis is scheduled to make $550,000 in 2010, and assuming a Jet buyback, Revis would make a fully guaranteed $4.85 million in 2011. In 2009, Revis was paid a $5.6 million roster bonus in addition to $560,000 in base salary and workout bonus; so Revis didn’t exactly make peanuts in 2009 and the 30% rule threshold calculation isn’t prohibitive of a new deal.

As we enter 2010, and the Jets and Revis look to do a deal, it’s not exactly absurd to envision Revis getting Asomugha type money. People get hung up on Asomugha’s $15 million average per year. While average per year is an important metric, so is the metric three year total, and it is in three year total, where Revis will more than likely equal Asomugha. Non-quarterbacks with three year totals in excess of $40 million include Asomugha ($45.5 million), Dallas’ DeMarcus Ware ($45 million), Baltimore’s Terrell Suggs ($43.4 million), Chicago’s Julius Peppers ($42.3 million), and Washington’s Albert Haynesworth ($41 million). All of these deals have been signed in the past year or so and represent the three year total market for elite defenders. Moreover, all of these defenders received guarantees equal to or greater than $40 million. So, while Revis may not equal Asomugha’s per year average, Revis should be handsomely compensated similarly to Asomugha and other elite defenders by making more than $45 million in the first three years of his new deal.

How the 49ers' Navigation of the 30% Rule with Patrick Willis Impacts Chris Johnson

See my entry to "Under the Cap" on Football Outsiders:
http://www.footballoutsiders.com/under-cap/2010/under-cap-30-percent-rule


Follow me on Twitter: @SalaryCap101

Dez Bryant-Jeff Ireland Controversy

Admittedly, I'm tired of the overbearing coverage on this topic, but I felt compelled to add my two cents because I feel that what you hear in the media is an overwhelmingly one-sided perspective. That said, here's my two cents.

As a lot of you know by now, I worked in the front office - and even more specifically, the scouting department - of the Redskins while I was the Salary Cap Analyst there. While I did not sit in on our interviews at the Combine, I did have access to our scouts' reports on players and their on & off-field characteristics and obviously had conversations with our scouts about prospects.

Understand that when a club is about to make a significant multi-million dollar financial investment in a kid, the club is going to do its due diligence on this kid both on & off the field.

Similar to some government positions that involve national security, the agency is going to dig deep into the candidates past both as it relates to their on-the-job performance but also their personal lives to determine if there is anything there that could jeopardize or compromise the agency and this candidate. It's no different in the NFL.

As it relates specifically to Dez Bryant, at the Combine this year, I heard whispers of his Dad being a pimp and his Mom being a prostitute. I say that to say that all the teams in the league knew that this was a possibility about Bryant's background.

Now, how each team takes this information and considers it in their evaluation process is obviously going to differ from team to team, but it's absolutely a consideration for a kid who you could be giving $15+ million guaranteed to.

You need to understand how the mental make up of a kid has been impacted by his external influences, which includes the kid's parents, friends, and anyone else the kid has been around for a significant amount of time in their life. If you don't think mental make up is an important part of the evaluation process, then ask the Raiders and Chargers if they wish they would've gotten a better grasp on the mental make up of the physically talented JaMarcus Russell and Ryan Leaf.

As far as how the Dolphins used this information, and specifically Jeff Ireland's question. First and foremost, I don't think we truly know the full context of the question. If Ireland asked Bryant about his Mom and prostitution and followed it up with something like "how did that impact you as a man and what have you taken away from that upbringing," then I don't think the question is as harsh as made out to be. Understand that the media is going sensationalize a story and it's easy to sensationalize a team asking a player if his Mother was a prostitute without giving the reading public the benefit of hearing that question in its full context.

If the question was asked exactly as reported, then I completely disagree with the tact, or lack thereof, used by Ireland. However, I understand and agree with the spirit of asking a question to challenge a candidate, whether it's challenging their emotional control or challenging their ability to deal with adversity, but the important component to this is an ability to do it in a tactful and respectful manner.

Seven Players Who Could Get Terminated As A Result of Draft Weekend Transactions

The 2010 NFL Draft weekend is now behind us, and as result of transactions that occurred during that weekend, the following players could be looking for new homes.

1. Oakland Raiders QB JaMarcus Russell
With the acquisition of quarterback Jason Campbell, it seems a far gone conclusion at this point that the 2007 #1 overall draft pick will not be a member of the Raiders in 2010. Russell is currently accounting for $15.3 million against Oakland’s team salary. If released, then by virtue of team salary accounting rules and the bonus acceleration that is part of these rules, Russell’s 2010 dead money number will be $19.9 million, but in an uncapped year this enormous amount – which is slightly higher than Peyton Manning’s team salary number – is not a hindrance to the Raiders. From a cash perspective, the release of Russell will save the Raiders $6 million in salary, as $3.5 million of Russell’s $9.5 million salary remains guaranteed. With the start of Organized Team Activities (OTAs), the Raiders would be wise to release Russell before he suffers a season-ending injury, which would result in the Raiders being responsible for the full $9.5 million salary.

2. Seattle Seahawks WR Deion Branch
Branch has been a disappointment for his entire tenure in Seattle, and with the drafting of Notre Dame wide receiver Golden Tate in the second round, coupled with the continued development of 2009 third round pick Deon Butler, one could very well surmise that Branch’s days could be limited in the Pacific Northwest. Branch currently accounts for $8 million in team salary. By releasing Branch, the Seahawks could save themselves $5.5 million in Branch’s salary. Similar to Russell, that’s a lot of money at risk during OTAs for a player who may or may not factor into your plans for 2010.

3. Oakland Raiders DT Tommy Kelly
While the release of Kelly, who is one of the top ten highest paid defensive tackles in the game, is very unlikely, the drafting of second round defensive tackle Lamarr Houston may not bold well for Kelly’s future. The Raiders have acquired young pass rushers Kamerion Wimbley and Quentin Groves; these acquisitions may allow Richard Seymour to kick down to defensive tackle more frequently, which could squeeze out Kelly. Kelly currently accounts for $7.4 million in team salary. By terminating him, the Raiders would save $4.5 million in salary but incur a dead money charge against their team salary books of $11.5 million. However, as I mentioned in the case of Russell, if there’s ever a time to take on significant dead money, it’s the 2010 uncapped year.

4. Dallas Cowboys WR Roy Williams
Similar to Tommy Kelly, I do not foresee this termination occurring, primarily due to the fact that Williams’ $3.5 million salary is fully guaranteed and somehow think that Jerry Jones would like to get some sort of return on that investment, even if it’s minimal given the presence of first round wide receiver Dez Bryant. Like Kelly, Williams accounts for $7.4 million against the Cowboys’ team salary books. If they were to terminate Williams, not only would they still be on the hook for $3.5 million in salary, but they would take on a dead money charge of $17.5 million.

5. Cincinnati Bengals DE Robert Geathers
Geathers, a 15-game starter in 2009 for the Bengals, is surely going to be pushed by 2010 second round pick, defensive end Carlos Dunlap and 2009 third round pick Michael Johnson. Dunlap and Johnson could very well push Geathers out of the building. By terminating Geathers, who currently accounts for $5.5 million, the Bengals could save $3.5 million in Geathers’ salary. Geathers’ fate can easily depend upon the recovery of defensive end Antwan Odom, who prior to suffering a season ending injury in 2009, was having a break out season.

6. San Francisco 49ers S Michael Lewis
With fellow safety Dashon Goldson solidifying his status in the 49ers secondary with a strong 2009 season, Lewis will have to battle second round pick Taylor Mays for the starting safety position opposite of Goldson. The 49ers can save themselves $4.1 million by releasing Lewis. If Lewis cannot beat out Mays for the starting position, then $4.1 million is a lot of money to pay to a third safety, but first Lewis has to hope he even gets the opportunity to make it to training camp.

7. New Orleans Saints CB Randall Gay
The drafting of first round cornerback Patrick Robinson does not bold well for the future of the six year veteran Gay. The Saints have three young corners in Robinson, Tracy Porter, and Malcolm Jenkins who they have invested high picks in; not to mention the significant financial investment made into cornerback Jabari Greer. At best, Gay is the Saints’ fourth or fifth cornerback, and with $3 million due to him in a combination of a $500,000 roster bonus and $2.5 million salary, it would not be surprising to see the Saints let Gay go. With the roster bonus being earned on May 1st, a decision on Gay could be made by week’s end.

Grab Bag
Football Outsiders reader Dr. Obvious asks: “Is [Steelers linebacker Lamarr] Woodley, and any other Pro-Bowl quality player under a rookie contract screwed?” And Twitter follower @JonathanCarter0 asks: “What are ways that Tennessee could get around the 30% rule and get Chris Johnson that money?”

My fellow capologist Ian Whetstone does a great job breaking down the nuances, specifically the 30% rule, prohibiting a lucrative multi-year extension of Woodley in his recent article (http://pit.scout.com/2/966042.html). In addition to Woodley, Titans running back Chris Johnson is clearly disgruntled with his rookie contract, given his productivity, and the same can be assumed for Eagles wide receiver DeSean Jackson. If this were a normal league year with a salary cap, then signing these players to multi-year deals reflective of their productivity would not be a problem. As far as how one can get a deal done in spite of the 30% rule to reward these players, there are certain complex contracts structures that could potentially work, but the complexities of such deals probably diminishes the likelihood of a team and player executing such a deal. The simple and more likely temporary resolution is to sign these players to a short term contract of one or two years that holds them over until the labor environment changes (ie, the Kevin Kolb extension). For example, if a player and club agree that the player’s market value is $6 million per year, then a two year deal with minimum salaries totaling roughly $1 million and a signing bonus of $11 million could be executed as a temporary resolution.



Follow J.I. Halsell on Twitter: @SalaryCap101

What a Donovan McNabb Contract Could Look Like?

Posted to FootballOutsiders.com on 04.14.10
Now that the Redskins have traded for their franchise quarterback in Donovan McNabb, the next item of business as it relates to the McNabb-Redskins relationship is a contract extension. McNabb is in the final year of his contract that was traded from the Eagles. Under this deal he is due a guaranteed $6.2 million roster bonus and a $5 million salary, of which $3.5 million is guaranteed.

The challenge for the Redskins is to come up with a contract that secures McNabb beyond 2010, while at the same time protects the club’s interests from a financial investment and team salary management perspective. Remember that several years ago the Redskins traded for wide receiver Brandon Lloyd, who at the time was under contract for one year. Upon trading for Lloyd, the Redskins promptly signed him to six year extension with $10 million guaranteed. Lloyd lasted only two seasons in Washington.

The lesson learned from the Brandon Lloyd failure is that a club does not want to compound the loss of draft picks for a player who does not fit the organization by additionally making a significant financial investment in said player. Surely, the Redskins would have been disappointed by trading away draft picks for Lloyd, but the mistake would have been easier to stomach had they not made such a significant investment in Lloyd.

Similarly, the Redskins want to mitigate their potential financial and potential salary cap risk in executing an extension with McNabb. To this end, a great structure for a McNabb deal is the “pay as you go” structure. It is this same structure that the Packers used with quarterback Brett Favre in his final years there. The “pay as you go” structure limits the club’s exposure to dead money in the event that the club chooses to terminate the contract, as this structure either does not utilize or minimally utilizes signing bonus that would prorate into future years. Utilizing this structure with McNabb, the Redskins could account for McNabb’s guarantee entirely in the uncapped 2010 league year by virtue of a combination of guaranteed salary and roster bonus, and then in the subsequent years provide McNabb with significant upside in the form of substantial salaries or a combination of salaries and roster bonuses, none of which would be guaranteed. Of course all of these numbers would have to be 30% rule compliant, but by using this structure, if the Redskins find out that McNabb is not the quarterback they expected, then by terminating him they could face limited to no dead money issues.

In terms of the market value of a McNabb contract; from a guarantee perspective, if Kurt Warner and Jake Delhomme in 2009 can get $15 million and $19 million guaranteed respectively, then McNabb can surely expect a guarantee in that ball park, if not, the $20 million to $22 million range. From an average per year perspective, the going rate for elite veteran quarterbacks not named Brady or Manning (Peyton that is) seems to be in that $12 million to $12.5 million range. Quarterbacks in this range include Favre and McNabb’s current contract, so it would make sense that McNabb could receive an extension in that same range, which over five new years equals a total package of roughly $62.5 million.




Follow J.I. Halsell on Twitter: @SalaryCap101

Under the Cap: The Redskins Finally Leverage the Uncapped Year

It took nearly three weeks into the uncapped year, but the team a lot of people suspected to be most likely to leverage the uncapped year has finally done so. However, contrary to popular thought, the Redskins haven’t leveraged the uncapped year by signing Julius Peppers and Karlos Dansby all on the same day; instead, the Redskins have renegotiated the contracts of defensive tackle Albert Haynesworth and cornerback DeAngelo Hall.

As of March 11^th, the Redskins had a total team salary amount of $141.6 million, by virtue of the Haynesworth and Hall renegotiations of March 12th, this number is now roughly $170 million. To put this in perspective, the baseline salary cap in 2009 was $128 million. So what did the Redskins do?

In his infamous $100 million contract of 2009, Haynesworth had a $21 million option bonus. As part of the deal, the Redskins reserved the right to convert that option bonus to signing bonus, and that’s exactly what they did according to league sources. However, they did this conversion with a slight twist. Not only did they convert the option bonus to a $21 million signing bonus, but they also added a voidable provision by which if Haynesworth pays back $16.8 million of the signing bonus, then the 2011 – 2014 contract years void away. From a team salary accounting standpoint, because the voidable is solely in the player’s control, the proration of the signing bonus does not go into 2011 – 2014, meaning all of the $21 million signing bonus counts in the uncapped year of 2010. As a result, Haynesworth’s team salary number in 2010 went from $8.8 million to a whopping $25.6 million. His subsequent team salary numbers are $6.4 million, $8.2 million, $10 million, $10.8 million, and $12.8 million respectively. With this new voidable provision, if Haynesworth decides he's unhappy with his role in the Redskins' new 3-4 defense and he can come to an agreement in principle with a new team that would guarantee him the $16.8 million he'd have to pay back to the Redskins, then in theory 2010 could Haynesworth's last year in Washington.

Similarly, Hall had a $15 million option bonus in his contract signed in the 2009 offseason. The Redskins converted this $15 million to signing bonus and also provided Hall with the voidable clause, whereby the entire $15 million, from a team salary accounting standpoint, stays in 2010. As a result of this maneuver, Hall’s team salary number went from $6.8 million to $18.3 million in 2010. His subsequent manageable team salary numbers are $5.3 million, $6.8 million, $8.3 million, and $9.5 million respectively.

In a December ESPN.com article (http://insider.espn.go.com/nfl/insider/news/story?id=4757680 ), I discussed the cap and contracts creativity of Redskins GM Bruce Allen. The Haynesworth and Hall renegotiations illustrate that creativity. The voidable language added to the Haynesworth and Hall contracts are the same device included in the Jeff Faine contract negotiated by Allen in Tampa Bay. Interestingly, I mention this clause in the ESPN.com article, as Allen is known to do, he creatively named the voidable clause the “I-4 Off-Ramp,” named after the highway that joins Tampa to the rest of central Florida.

Some may point to the release of veterans Fred Smoot, Rock Cartwright, Cornelius Griffin, Randy Thomas, and Antwaan Randle El amongst others as a sign of the Redskins taking advantage of the uncapped year. The reality is that those terminations actually saved the Redskins nearly $300,000 in team salary accounting, as had those veterans (inclusive of Ladell Betts, Todd Collins, and Chris Samuels) been on the team they would have counted $30.8 million in team salary. As a result of their terminations, their dead money totals $30.5 million, a savings of $300,000. If anything, the uncapped year allows the Redskins to replace these players without being handcuffed by a salary cap, but these terminations are not as nearly as profound of a leveraging of the uncapped year as the Haynesworth and Hall renegotiations.

The conversion of bonus money to signing bonus is a fairly common practice in the NFL. One presumed advantage to converting an option bonus to signing bonus is the concept of forfeiture. That is, option bonus is not subject to forfeiture; however, signing bonus is subject to forfeiture. Therefore, a team protects its interests in the event a player defaults on the contract (a la shooting themselves in the leg) by converting money to signing bonus. However, the interpretation of the amount of money open to recovery based upon the timing of the default is not clearly defined in the CBA. Meaning, one argument is that the forfeiture amount is prorated over the term of the contract. In the case of Haynesworth, if one were to prorate his $21 million signing bonus over 2010 – 2014, then that equates to $4.2 million in each year. That said, if Haynesworth were to default prior to 2011, then $16.8 million would be subject to forfeiture.

The other argument is that forfeiture is calculated in line with team salary accounting proration. In the case of Haynesworth’s renegotiation, given the voidable provision, team salary accounting places all $21 million in 2010. Using the same example of a Haynesworth default in 2011, because all of the signing bonus was in 2010, there is no money available to forfeiture in 2011. This is an area of ambiguity that would more than likely have to be resolved in arbitration.

As I’ve previously written, given the uncertainty of what 2011 holds, clubs who take advantage of the uncapped year by incurring high team salaries in 2010 run the risk of possibly being penalized in 2011 as part of a new salary cap and CBA. Clearly, this is a risk the Redskins are willing to take, or perhaps they know something the rest of us don’t.

Follow J.I. Halsell on Twitter: @SalaryCap101