The truth about contracts

[jbooma]

A good article about actual contracts

http://sportsillustrated.cnn.com/inside_game/don_banks/news/2003/07/16/monopoly_money/

Funny money

High-dollar deals can't always be taken to the bank

Posted: Wednesday July 16, 2003 3:21 PM

At some point in the coming weeks, Priest Holmes and Kansas City Chiefs officials will stand side by side, smile for the cameras, and announce an eight-figure contract extension for the player who in the past two years has blossomed into the NFL's most productive (and underpaid) running back.

Maybe between now and then, the Colts and Peyton Manning will get busy and do something about reducing the quarterback's unwieldy $15.3 million cap number for 2003, via a new nine-figure mega-deal that comes complete with a glitzy $21 million signing bonus.

Both agreements will inspire screaming headlines chocked full of zeroes and talk of how these two high-profile players are now assured of wearing their current colors for the rest of their careers. And maybe, just maybe, the deals will make those wishes come to pass.

But as is often the case with today's huge NFL contracts, upon further review, the numbers in the headlines won't match up very well with the ones on the bottom line. While Manning and Holmes will undoubtedly realize significant windfalls, with salary totals that will put or keep them among the game's salaried elite, that doesn't mean their contracts will necessarily live up to their potential. Or their hype. Even if they themselves continue to do so on the football field.

Why are so many clubs handing out so many deals with so many phony numbers, like the ones that stars Brett Favre, Drew Bledsoe, Marshall Faulk and Stephen Davis were awarded in recent years? A three-part answer has become obvious:

To keep the agents happy in their never-ending quest to recruit more clients.

To keep a veteran's ego from getting bruised as he enters the homestretch of his career.

To maximize the team's ability to pro-rate a signing bonus over the life of a contract, and thus ease their own cap situations.

Puffed up or backloaded contracts are part of the game within the game and are hardly a new phenomena in the NFL's salary cap era. It's just that it's fairly rare these days for one of the game's marquee players to sign a new deal that doesn't have two separate and distinct values: the one that's tossed out for public consumption, and the one that reflects the realities of the Not For Long league.

"Every day when new deals get reported to the league, we go over them with a fine tooth comb," said a veteran cap specialist from an NFC team. "Because what comes in just isn't what it's purported to be. Most of the bigger deals now are inflated for some reason or another.

"A big part of why it happens is that it's a recruitment tool for the agents. It's also about players and their egos. When a veteran's career is winding down, and it's time to take that pay reduction, a lot of times they can't admit it or accept it. So we dress it up and add phony dollars in order to make him feel good and be able to walk into the locker room with his ego intact."

Rich Gannon's eight-year, $68 million contract of last year? It was really a two-year commitment of $11 million, that with sustained excellence on his part this season may, repeat, may turn into a three-year, $18 million deal. But starting in 2005, by which time the Raiders quarterback will be 39, the final five years and $50 million of the contract aren't worth the paper they're written on.

Two months after Gannon re-upped with Oakland, the Eagles signed their still-young franchise quarterback, Donovan McNabb, to an eye-popping 12-year, $115 million contract. Except that the final three years of the deal, which are worth almost $43 million, are easily voidable and have virtually no chance of staying on the books.

So the deal is quickly reduced to nine years at almost $72 million. Which is still stupendous money. But depending upon who you talk to around the league, McNabb's deal is realistically considered a seven-year contract worth $51 million or a five-year agreement for $39 million, before the yearly cap figures escalate to the point where a restructuring or a new contract will be necessary in order to keep the No. 1 Eagle in Philly.

Vikings quarterback Daunte Culpepper signed a similar deal this offseason. It was widely reported as a 10-year, $102 million bonanza, but in actuality it covers from 2003-2013, a span of 11 seasons. While the maximum value of the contract is $102 million, Culpepper has only a slightly better chance than I do to see all of that money, given that at least one-third of it is tied up in escalator and incentive clauses.

Right off the top, the final three years of the contract call for base salaries that total $27 million, with an escalator clause that could add another $10 million plus to that figure. That's more than $37 million Culpepper likely won't be allowed to realize.

"He won't be on that team making that money," said a cap specialist for a rival NFC team. "Those last three years are dummy years for all intents and purposes. His base salaries are high enough at that point that you're not going to let him make those escalators. A lot of times it's the case of an agent out touting themselves and selling themselves with those numbers."

Culpepper's real bottom line? The contract will pay him $15.1 million in its first three seasons. After five years, he will have been paid between $23.5 million and $24 million without incentives. After eight years, before incentives, he'll have made $44.5 million in base salaries, signing bonuses and roster bonuses.

And that doesn't even take into account the fact that a March 2005 roster bonus of $2.5 million -- which falls before the third season of the contract -- could wind up determining if Culpepper sees any money past 2004.

"The way you have to look at his deal, 2005 is the decision-making year for Culpepper," said the cap specialist for an NFC team. "What they've done is pay him the going rate for a good starting quarterback for two years, about $5 million a year. And then they've given themselves an out in the third year if he doesn't perform up to expectations. If he does, it's a great deal for the club. If he doesn't, they get hurt, but not killed on the cap."

There are numerous other recent examples of inflated contract values. Denver signed free-agent quarterback Jake Plummer this offseason, giving him a seven-year, $40.6 million package. But it's really a two-year, $8 million commitment, before a $6 million March 2005 roster bonus gives them a decision to make. And everyone involved knows it.

Oakland receivers Jerry Rice and Tim Brown signed matching six-year, $29 million deals this spring despite both being in the year-to-year stages of their Hall of Fame careers. The contracts call for $24 million in base salaries over the last three seasons, when in fact all the players can realistically count on is the money they'll receive this season (Brown $2.75 million and Rice $2.2 million).

The Raiders are known for such deals, which is part of the reason why their cap situation, on paper at least, looked so dire this offseason. But in truth they handle most of their cap overruns rather easily, lopping off bogus seasons at terms they never intended to honor, after first receiving the benefit of pro-rating the signing bonuses on this year's cap.

And the NFL's pump-up-the-figures trend is not exclusive to the big-money contracts. Former Pittsburgh safety Lee Flowers signed a one-year deal with Denver this offseason for a reported $1 million. Technically that was the case. But the contract included no signing bonus, a $655,000 veteran minimum base salary, and $345,000 in incentives that were deemed not likely to be earned. No wonder both Flowers and his agent chose to accentuate the positive.

"Anybody in this business knows what you read in the paper is not what it really is when it comes to these contracts," an NFC cap specialist said. "By now, even most veteran players know what you've got to look at is the cash in the first three years of the deal. The hard cash in the first three years is how you really assign value to the deal.

"When you get to years four or five, even though you might have hard dollars, they're not necessarily real dollars, because you have so much turnover in coaching and front offices in this league. The coach or general manager who brought you in there might be gone by then, and then your status comes into question. That's why three-year dollars are what you look at these days."

Not every headline deal is made with Monopoly money. When the Bucs in June tore up the final three seasons of Brad Johnson's contract and extended him through 2006, it was for a straight-forward $25 million over four years. Johnson, 34, isn't assured of seeing anything past the $12.5 million he'll earn this year and next, but at $5.75 million in 2005 and $6.75 million in 2006, his final two base salaries ($12.5 million) don't jeopardize his roster status by putting him into the no-brainer salary-cap cut category.

"There are some agents who still go for the splash and the headline, but it's not the majority," an executive from an NFC team said. "I think the trend is starting to go away from driving those false years and false dollars into the back end of the deal. A lot of agents have figured it out, that they're only forcing the team to make a decision on their client with those type of numbers, and the decision will be either a pay cut or getting cut."

They say the numbers don't lie. But whoever coined that probably didn't have a salary cap to worry about. Or an agent spinning the news as he best sees fit. When it comes to big-money NFL contracts, the numbers are rarely to be counted on.

[Larry]

Whereas, the impression I got was that all of the offseason moves we made have at least the potential to finish out their contracts. (No dead money).