Colts owner Jim Irsay announced a July 4 target date to sign quarterback Andrew Luck to a contract extension during the NFL owners meetings back in March. Luck is scheduled to make $16.155 million for the upcoming season, which is the fifth-year option of his rookie deal.
Irsay gave a slightly amended timetable when talking to the media on April 30, the final day of this year's draft. While acknowledging that progress on a contract was being made, Irsay said he hopes to have a new deal with Luck prior to the start of training camp in late July.
It wouldn't necessarily be a cause for concern if a deal isn't stuck by then. Wide receiver T.Y. Hilton signed an extension last August before the Colts played a preseason game. Offensive tackle Anthony Castonzo's extension came in the days leading up to the 2015 regular-season opener.
Earlier in the offseason, Irsay publicly acknowledged that Luck would get a nine-figure deal with a shocking number. The nine-figure part would surely be a given to Will Wilson, Luck's agent. The shocking number part was probably music to his ears. Below I will detail how I would use a seven-year, $200 million salary proposal to try to ultimately land a four-year contract extension that would make Luck the NFL's first $25 million-per-year player.
The money metrics that matter
Luck has an opportunity to redefine the NFL salary structure where he sets new standards in most major contract metrics if he desires. The current NFL salary standards in key contract metrics are listed below and will have a bearing in his contract negotiations.
- Average yearly salary: $22,133,333 (Joe Flacco, Baltimore Ravens)
- Overall contract guarantees: $65 Million (Philip Rivers, San Diego Chargers)
- Fully guaranteed at signing: $59.955 Million (Ndamukong Suh, Miami Dolphins)
- Fully guaranteed at signing-QB: $44.5 Million (Aaron Rodgers, Green Bay Packers)
- Fully guaranteed within 12 months: $59.955 Million (Suh)
- Fully guaranteed within 12 months-QB: $59 Million (Matt Ryan, Atlanta Falcons)
- Three-year cash flow: $68.5 Million (Eli Manning, New York Giants)
- First three new years: $70.6 Million (Russell Wilson, Seattle Seahawks)
Professionals within the industry (agents and team negotiators) typically value deals by new money, which is the amount of compensation in a contact excluding what a player was scheduled to make before receiving a new deal. For example, Flacco had three years remaining on his contract for $58.6 million when he received his new deal in March. Although he signed a six-year contract for $125 million, it's considered a three-year, $66.4 million contract extension with a new-money average of $22,133,333 million per year among industry professionals. Flacco's remaining three contract years for $58.6 million are subtracted from the $125 million six year total to arrive at this number.
Average yearly salary is the most popular contract measure with the general public and is an accepted method to determine the highest-paid player at the various positions and league wide. The lack of security in NFL contracts diminishes the metric's usefulness.
Compensation in the first three years of a deal and the money in the first three new years of a contract are more important measures when assessing contracts. The new-years approach focuses on the amount of money in a contract exclusive of what a player was scheduled to make before receiving a new deal, just like with new money when determining average yearly salary. The cash flow analysis looks at the compensation in its totality. The focus is on the amount of money received in the first three years of a contract regardless of whether it's considered as new money. Both metrics have the same dollar amount when a player signs a new contract as a free agent or when his contract is set to expire.
Overall contract guarantees can be misleading. A complete picture of a contract's true security isn't given by this metric. The amount of money fully guaranteed at signing and will become fully guaranteed early in the contract are the best and most accurate measures of security.
The walk-away figure: $25 million per year
An agent is supposed to take marching orders from the client and attempt to execute his wishes since an agent works for the player. It may sometimes seem as if it's the other way around. In the typical player/agent relationship, a player will give his input about a contract on a big picture level initially during an in-person meeting or phone conversation. The agent will explain his or her game plan to achieve what he or she thinks is an appropriate contract, which will also include the minimally acceptable deal in his or her professional judgment. It's unusual for a player to micromanage a negotiation or give very specific instructions regarding the negotiation process.
After this strategy session, the player's involvement may be limited to just giving feedback on any offers made by the team. Some players prefer only to know when a deal is imminent or won't get involved in the process again until the final stages of a negotiation, if at all. Because of this dynamic, agents are usually given wide latitude to negotiate a contract that they feel is in the client's best interest. There is likely a deeper level of trust in Luck situation's because Wilson is his uncle. The trust factor could result in him being even more deferential than in the typical player/agent relationship.
Part of the agent's calculus should be an assessment of leverage in the negotiations. Leverage favors Luck despite him performing like a marginal starter in 2015 season. When Luck's season ended after Week 9 because of a kidney laceration and abdominal tear, he ranked 31st in completion percentage (55.3 percent) and 32nd in passer rating (74.9 percent). Luck had also thrown the second most interceptions (12) in the NFL.
Luck was the overwhelming choice by NFL team executives as the quarterback to build a franchise around prior to his unimpressive and injury plagued 2015 campaign. Some might choose Cam Newton or Russell Wilson now after their 2015 performances. The expectation is Luck will have a bounce-back year that could rival his 2014 season in which he led the NFL with 40 touchdown passes, was third in passing yards (4,761) and seventh in passer rating (96.5).
The walk-away point from negotiations should be $25 million per year with at least $75 million in guarantees where a minimum of $60 million should be fully guaranteed at signing on a four-year extension. A four-year extension should be preferable because there would be less of a chance of his contract becoming outdated by changing quarterback market conditions. Luck would be entering his contract year in 2020 at 30 years old, which would put him in line for another contract, when he should be approaching the peak years of his career.
Making the most of a stagnant QB market
The top of the quarterback market has remained stagnant since Aaron Rodgers became the NFL's highest paid player in April 2013 with a five-year, $110 million extension. It took nearly three years for Flacco to surpass Rodgers' as the NFL's highest paid player by less than 1 percent in average yearly salary.
High-end quarterback contracts have failed to keep up with the growth in the salary cap. When Rodgers signed his contract, the cap was $123 million. It has grown to $155.27 million this year, which is a 26.23 percent increase, over the three years. The franchise tag, which is an accepted measure for high-end salaries at the respective positions, has increased even more. The quarterback non-exclusive franchise was $14.896 million in 2013. Kirk Cousins' $19.953 million franchise tag with the Washington Redskins is almost 34 percent greater than it was three years ago.
Newton and Wilson are among the NFL's highest-paid players with contracts averaging $20.76 million (includes $60 million in guarantees) and $21.9 million per year (with $61.542 million in guarantees) respectively. The Panthers and Seahawks are fortunate Newton and Wilson signed extensions. Each would have been in a position to easily top the existing standards if they had played out their rookie contracts.
A $25.94 million exclusive franchise tag, which is the average of the top five 2016 quarterback salaries (typically salary cap numbers) when this year's restricted free agent signing period ended on April 22, would have been necessary. The exclusive tag and the types of seasons Newton and Wilson had would have given them leverage for long-term deals in the same neighborhood as Luck's suggested walk-away point of $25 million per year with $75 million in guarantees.
Stagnation hasn't happened with the top of the defensive player market. Mario Williams was the NFL's highest-paid defensive player in 2013 at $16 million per year. The highest-paid defensive player has increased by nearly 20 percent in average yearly salary during this span. Dolphins defensive tackle Ndamukong Suh currently holds the distinction on his six-year, $114.375 million deal averaging $19,062,500 per year. It's conceivable that the margin will increase further this offseason if Denver Broncos franchise player Von Miller signs a long-term deal.
It's an anomaly for Suh to have the most money fully guaranteed at signing and guaranteed within 12 months of signing. Since it has been a quarterback historically, expect a market correction to take place.
Negotiation strategy and the $200 million proposal
Negotiations for Luck's new contract are already underway. My basic strategy to get an acceptable four-year extension would have been to initially offer a much longer deal with total compensation and a contract structure the Colts wouldn't be comfortable with to make the shorter-term deal seem a more much reasonable alternative when eventually proposed as a compromise or concession.
Whether to put the first offer on the table or let the other side go first is a dilemma in many negotiations. It would have been advantageous with a deal of this magnitude to make the first offer to define the starting point of the negotiations and to try to influence the counteroffer made by the Colts.
This first offer would have been a seven-year extension at slightly under $30 million per year ($206 million to $209 million total) with $90 million in player friendly guarantees. Prior to making the offer, conceptual discussions laying its groundwork would have been necessary so the proposal wouldn't create a chilling effect where the Colts would lose motivation to try to reach an agreement or completely shut down negotiations.
A way to accomplish this would have been by analyzing the franchise tag numbers since it's a foregone conclusion that Luck will be given an exclusive franchise tag if a new deal can't be reached before early next March barring a career threatening injury or a significant regression this season. This tag would prevent some quarterback-needy team with an abundance of salary cap room from signing Luck to an offer sheet in 2017 that the Colts might have a difficult time matching since he wouldn't be able to negotiate with other teams.
Preliminarily, the 2017 exclusive quarterback number projects to $23.5 million. A second franchise tag in 2018 would be $28.2 million, a 20 percent increase over Luck's 2017 franchise number. A third franchise tag with a 44 percent increase over the 2018 figure at almost $40.608 million would be unprecedented but its use wouldn't be easily conceded. The average of franchising Luck three straight years would be $92.308 million. This figure would be used as a guide for the overall guarantee and new-money average of the initial proposal.
Another methodology to justify the offer would have been adjusting existing contracts in the stagnant quarterback market by the growth in the non-exclusive quarterback franchise tag since the deals were done. I used a variant of this approach in actual negotiations as an agent when I wasn't satisfied with the actual positional market of a player by using the increase in the salary cap as the growth factor. Franchise tag growth would have been used since it's more favorable to Luck. I found that teams might not totally accept this kind of methodology but wouldn't outright dismiss it either. Partial acceptance was beneficial to the client.
Rodgers, Matt Ryan and Drew Brees have the best adjusted contracts, which are in the chart below.
|Name||Year Signed||Growth Factor||Guaranteed Money||New Average||Adjusted Guaranteed Money||Adjusted New Average||Contract Length|
|Rodgers||2013||33.95%||$54M||$22M||$72,332,304||$29,468,716||5 Year Extension|
|Ryan||2013||33.95%||$59M||$20.75M||$79,029,740||$27,794,358||5 Year Extension|
How Peyton Manning factors into the Luck negotiations
The Colts' treatment of Peyton Manning, the first overall pick in the 1998 draft should be particularly relevant in Luck's negotiations since the two are inextricably linked in the team's history. The decision to use the first overall pick in 2012 on Luck after Manning missed the entire 2011 season with a career threatening neck injury was responsible for him spending the last four years of his career with the Broncos. Luck compares favorably to Manning during the first four NFL seasons as illustrated in the chart below.
Manning also had a challenging fourth season, although not to the same degree as Luck. The Colts went 6-10, which got Jim Mora fired while Manning's 23 interceptions were the second most in the NFL. Unlike Luck, Manning didn't win his first playoff game until his sixth season in 2003.
The Colts made Manning the NFL's highest-paid player in 2004 at $14 million per year after his six-year rookie contract expired when the cap was $80.582 million. The cap has gone up almost 93 percent since then. This deal averages almost $27 million per year in today's $155.27 million cap environment. Using the non-exclusive franchise tags as a growth factor doesn't make sense in this instance because a different method of calculation was used prior to the current Collective Bargaining Agreement.
Manning also essentially got a one-year deal for $26.4 million with a bad neck in 2011 because the Colts released him in 2012 from his extremely front-loaded five-year, $90 million contract. There was $70.2 million in the first three years of his Broncos deal. These facts also shouldn't be ignored.
Final thoughts on making Luck a $25 million man
Luck seemed well on his way to changing the NFL salary landscape with his next contract where he would become the NFL's first $25 million per year player while setting the standard in most key contract metrics prior to his dismal 2015 season. It's still a realistic possibility provided that Luck uses his leverage. The Colts don't have any legitimate alternatives because nearly every potential franchise quarterback is signed long term or under a rookie contract.
The Colts will be paying Luck for what they expect him to become. The expectations for Luck haven't changed because of his 2015 performance: Be an elite quarterback who consistently puts the Colts in Super Bowl contention.
It would be a surprise if Luck and the Colts don't reach an agreement prior to the start of the regular season. If the Colts have reservations about making the necessary salary commitment to Luck this offseason, it will be in his best interest to bet on rebounding this season and forcing Irsay to pay him a truly shocking number next offseason rather than sell himself short contractually now.