Voidable Years: A Primer
by
Eugene T. Lee, Esq.
In contract negotiations for higher round draft picks, “voidable years” represents an invaluable tool for maximizing upfront guaranteed signing bonus money for your client (through maximum signing bonus proration) without locking your client into a long-term deal.
Under the NFL Collective Bargaining Agreement, signing bonuses can be prorated over the life of a player’s contract up to a maximum of six years. For purposes of a team’s salary cap and rookie pool, the longer the player’s contract, the larger the signing bonus that a team can offer the player and carry under its annual cap.
For example, let’s say that a team offers your client a signing bonus for $4 million over a four-year contract. The prorated amount of the signing bonus that would count against the team’s salary cap annually is $1 million. Under the same scenario, let’s say that you counter with a proposal for a $6 million signing bonus over the same four-year contract. If the team were to accept your offer, the signing bonus proration would amount to $1.5 million per year against the team’s salary cap. The significant difference between the annual hit to the team’s salary cap under their offer ($1 million) and your counteroffer ($1.5 million) would likely leave your negotiation at an impasse. However, keeping all variable factors constant, let’s say that you counter with a proposal for a $6 million signing bonus over a six-year contract. In spite of the larger upfront bonus amount, the annual hit to the team’s salary cap would remain the same ($1 million) because the contract was extended for two additional years. Because the annual prorated hit against the team’s salary cap would remain the same, the team would be much more amenable to accept this offer (all things being equal). Problem solved, right? For more upfront signing bonus money, simply increase the length of the contract, then all parties are happy, right? WRONG. The flip side and major disadvantage to structuring contracts in this manner is that in doing so, you lock your client into a long-term deal and basically sacrifice his collectively bargained right to become an unrestricted free agent after four years, test the market and sign a larger, more lucrative deal (depending upon his on-field performance under the initial contract).
Voidable years is a mechanism for stretching signing bonus proration over a longer period of time, while simultaneously offering your client the benefit of standard eligibility for unrestricted free agency. Under a typical voidable years provision, the final years of a contract will void if the player reaches certain performance levels in any one of the first few years under the contract. Under a voidable years provision, the player will receive the benefit of a longer contract for purposes of signing bonus proration (which means more upfront signing bonus money) while retaining the benefits of unrestricted free agency after the minimum number of years if certain performance levels are achieved.
Under our example of a six year contract that voids after the fourth year, if the player achieves the agreed-upon performance level in any one of the first four years, the final two years of the contract will void and the player would become eligible for free agency after the fourth year. The important thing to note is that the signing bonus the player originally received upon signing the contract (based upon the six year proration) is still the player’s to keep regardless of the voiding of the contract’s final years. Some examples of standard performance levels include playtime percentage (if the player participates in 60% or more of the offensive or defensive plays – excluding special teams – in any one of the first four seasons under the contract, the final two seasons will void), yards rushing (if a RB gains 700 yards or more in any one of the first four seasons under the contract, the final two seasons will void) or sacks (if a DE makes 8 or more sacks in any one of the first four seasons under the contract, the final two seasons will void).
From a team’s perspective, voidable years is usually not the most popular contractual provision because once the final years of a contract void, the prorated amounts of the signing bonus over those voided years will accelerate into the last year of the contract. Thus, under our example of a six year contract that voids after the fourth year, the hit to the team’s salary cap in the fourth year would be $3 million instead of the original prorated amount of $1 million.
That being said, voidable years does offer an agent a powerful bargaining tool to secure the most upfront guaranteed money for a drafted player without sacrificing the player’s right to unrestricted free agency.
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.