Maximizing Guaranteed Money Under Your First NFL Contract
by
Eugene T. Lee, Esq.
With a new NFL Collective Bargaining Agreement looming in the immediate future and with an ever expanding list of new luxury stadiums and television contracts keeping Defined Gross Revenues (and salary cap dollars) at an all-time high, a steadily rising salary cap has led to greater league-wide compensation for all NFL players. Metaphorically speaking, there is now a much larger proverbial pie from which the player can take a piece and it is an agent’s fiduciary responsibility to make sure that his client walks away from the table completely full with no room for dessert. Depending upon where the player is chosen in the NFL Draft, there are some basic principles and theories of contract negotiation that an agent should follow in order to maximize guaranteed money over the life of the player’s contract.
For higher round picks, the primary focus during negotiations should be maximizing guaranteed money over the life of the contract. The most well-known vehicle for securing guaranteed money for the client is the signing bonus. The signing bonus is money paid upfront to the player upon the signing of his contract. In theory, the signing bonus is guaranteed money because it is the client’s money to keep regardless of his performance or inability to play (i.e., injury) during the term of his contract. Thorough preparation – in the form of statistical research, previous years’ draft extrapolations, current year’s draft analysis (by position, round and overall choice) and future performance projections – is the key to maximizing the client’s initial signing bonus.
Although the signing bonus encompasses a majority of the guaranteed money paid under the player’s contract, there are other lesser known methods for squeezing guaranteed money out of the player’s initial contract. The easiest way to achieve this objective is to front load large base salaries in the first two or three years of the contract. The theory behind this strategy is that a team would be extremely hesitant to release the player in the first few contractual years after having made such a large financial investment (i.e., signing bonus) in the player. Depending upon the size of the signing bonus, a team would be obligated to keep the player on its active roster for at least the first two or three years of his contract. Documented NFLPA studies have proven the validity of this theory. According to the NFLPA, since 1993, 95% of players who received signing bonuses of greater than $2 million have remained with their original teams for at least two seasons while 73% of those players have remained with their original teams for at least three seasons. Since any base salaries paid to the player during the first two or three years of the contract essentially would be “guaranteed” (the player would not be released and would almost certainly earn the base salaries), it makes perfect sense to negotiate large base salaries in those initial contractual years.
Another interrelated method for uncovering guaranteed money under the player’s initial contract would be to insert a large roster bonus after the third contractual year. Having reached the end of the finite window of opportunity allotted by a large initial signing bonus, a large roster bonus at the end of the third contractual year allows the player to reap the financial reward of having performed well under the first three “guaranteed” contractual years. Although a team is no longer constrained by the financial albatross of a large signing bonus at the end of the player’s third contractual year – if the player has not performed up to expectations, the team will not hesitate to release him – the insertion of a large roster bonus after year three, in essence, forces the team’s hand either to keep the player on its roster and pay the bonus (which equates to “guaranteed” money if the player has performed up to expectations) or release the player to test the open market (if the player has not). Additionally, payment of a large roster bonus to the player virtually ensures an additional year under the player’s existing contract (in essence, “guaranteeing” base salary in year four) while releasing the player to test the open market as a free agent allows the player to receive a new market-driven signing bonus (i.e., new guaranteed money) from his new team, and more importantly, payment of the new signing bonus basically “guarantees” base salaries during the first two years of the player’s contract with his new team. Either way, it’s a win-win situation for the player.
The final tier in our multi-leveled approach to maximizing guaranteed money would be to forego the initial lure and appeal of guaranteeing base salaries in the first few contractual years in exchange for guaranteed base salaries (or portions thereof) in the final contractual years. As documented in the preceding examples, a carefully and skillfully negotiated and structured player contract can essentially guarantee money under the first four years of the contract. Unfortunately, there is no substance over form argument during the contract’s final years. Almost always, the player will not receive the base salaries and incentive bonuses delineated in the final years of his initial contract because: (a) he will have performed well enough on the field to justify a contract extension during the first few years of the initial contract, or (b) he will have been released after the third or fourth contractual year (when the team’s financial commitment to the player has expired). By negotiating guaranteed base salary in the next to last contractual year, an agent can squeeze the final drops of guaranteed money out of the player’s initial contract. An effective way to fortify an agent’s stance and achieve this objective during initial contract negotiations would be to trade off the contractual term (and allow a team to maximize the term of the contract for maximum signing bonus proration) in exchange for guaranteed base salary in the next to last year of the initial contract. The benefit to the team would be twofold in this instance. First, the impact of the client’s signing bonus on the team’s salary cap would be minimized because it would now be prorated over the maximum period of time. Second, although the base salary in the next to last year of the contract would now be guaranteed, the base salary in that year would not count against the team’s salary cap until that actual year (in the fifth contractual year) and because the base salary is guaranteed, it would then be subject to the same rules of proration that apply to signing bonuses and would then be prorated over the last two contractual years. Hence, only ½ of the base salary in the next to last year of the contract would actually count against the team’s salary cap in that contractual year. This additional benefit of proration should help an agent to leverage his position during contract negotiations and allow him to exhaust every possible method and means for uncovering guaranteed money in his client’s initial contract.
By viewing the player’s contract as a whole and creatively building off each contractual mechanism to tie in future money to current team obligations and constraints, an agent can effectively maximize guaranteed money under his client’s initial contract and position his client for a productive and financially lucrative NFL career.
Eugene T. Lee, Esq.
Eugene T. Lee is an attorney admitted to the Bars of the State of New York, Southern District of New York, Eastern District of New York and Court of Appeals for the Federal Circuit who specializes in sports, contract and intellectual property law and who serves as CEO and President of ETL Associates, Inc.
For purposes of our example, assume a six-year contract.