The Detroit Lions decided against placing a franchise tag on All-Pro defensive tackle Ndamukong Suh for $26.87 million. This decision sets the stage for Suh to become one of the most coveted NFL players to ever enter free agency.
It is extremely rare for a dominant player in his prime to be available as an unrestricted free agent. Suh's availability is reminiscent of Hall of Fame defensive lineman Reggie White hitting the open market when the NFL's current system of free agency began in 1993.
Suh said late in the 2014 season that he was going to let his agent Jimmy Sexton pick his next team, which suggests that he is going to the highest bidder. Sexton was also White's agent when he changed the landscape of the NFL as he became the NFL's highest-paid defensive player by signing a four-year, $17 million contract with the Green Bay Packers.
Suh is expected to seek a deal exceeding the six-year contract extension that two-time NFL Defensive Player of the Year J.J. Watt signed with the Houston Texans last September. Watt's deal averages $16,666,667 per year and contains $51,876,385 in guarantees, a record for a defensive player. The deal also makes him the NFL's highest paid non-quarterback (by average yearly salary).
Why state incomes taxes matter
With a deal of this magnitude, state income tax ramifications will be a consideration in evaluating competing contract offers. The difference in net wages between playing in Florida for the Miami Dolphins and in Minnesota for the Vikings was a piece of data that I used as leverage against the Vikings when I co-negotiated the five-year, $32.5 million contract that Hall of Famer John Randle signed as a transition player in 1998. That deal made him the NFL's highest paid defensive player.
Robert Raiola, who is the Sports and Entertainment Group senior manager at O'Connor Davies in New Jersey, said: "I've found in my accounting practice I'm doing more analysis for the agents of the athletes we work with determining the state taxes implications of contract offers. Taxes may not be the deciding factor for our clients but are definitely a part of the decision making process, especially as more money is involved."
The taxes for professional athletes are more complicated than people in most professions because their income is earned in the states where they play. Not only must athletes file taxes in their home state but in nearly every state where they play a game. According to Raiola, Detroit, Cleveland, Cincinnati, St. Louis and Kansas City are among the cities that also tax athletes.
A duty days method is used to calculate athlete taxes in most places. Any day where an athlete participates in mandatory team activities beginning in the off-season and ending with his team’s final post-season game is considered as a duty day. For example, if there are 180 duty days in a season for a football player who spends six days in California, he will be taxed in the state on 3.33 percent of his salary.
The only states where NFL teams are located that don't have a state income tax are Florida, Tennessee, Texas and Washington. California has the highest tax rate in the country at 13.3 percent when income is over $1 million.
"An athlete who plays for a California team and is also a California resident will be paying over 50 percent of his salary in income taxes in most instances," Raiola said.
I've enlisted Raiola to provide his expertise in illustrating the difference in competing Suh contract offers for several of his potential suitors. The baseline offer: $102 million over six years, with $55 million in the first three years before taxes. Most of the teams play a base 4-3 defensive scheme. Although Suh reportedly is interested in playing for a team in a major market like New York, the Jets and Giants aren't the best fits.
The Jets should have close to $50 million in salary cap room but the defensive line is one of the team's strengths with Muhammad Wilkerson and Sheldon Richardson.
The Giants may not be in a position cap-wise to make a serious run at Suh after devoting $14.813 million of cap space to defensive end Jason Pierre-Paul with the franchise tag. The Giants have approximately $11 million of cap room after using the designation on Pierre-Paul.
This baseline offer may be conservative. It's conceivable that Suh could sign a deal paying him like an elite quarterback with a bidding war where Sexton is able to play multiple teams against each other.
The results are contained in the chart below. All federal and state taxes are included in the calculations. Since the opponents of each team in future years can't be determined at this time, the "jock taxes" that athletes must pay for road games are being estimated after 2015.
For purposes of this illustration, the tax implications of playing a game in London and charitable contributions aren't a consideration. Endorsement and marketing income has also been excluded. The following assumptions are being made: Suh is a residence of the state and city where he plays and his agent fees are the maximum 3 percent allowed under NFLPA regulations. For convenience sake, the net wages for each team have been rounded.
| How taxes impact Suh's deal | ||||
| Team | State | State Income Tax Rate | $55M First 3 Years After Taxes | $102M Over 6 Years After Taxes |
| Dolphins | Florida | None | $31,800,000 | $58,990,000 |
| Jaguars | Florida | None | $31,800,000 | $58,990,000 |
| Seahawks | Washington | None | $31,730,000 | $58,860,000 |
| Colts | Indiana | 3.3% | $29,980,000 | $55,640,000 |
| Falcons | Georgia | 6% | $29,680,000 | $55,090,000 |
| Lions | Michigan | 4.25% | $29,405,000 | $54,550,000 |
| Raiders | California | 13.3% | $27,245,000 | $51,110,000 |
Here's a look at the salary cap situation and preferred contract structure for each of the seven teams in chart.
Atlanta Falcons: The Falcons have approximately $31.5 million of cap space after parting ways with offensive guard Justin Blalock, wide receiver Harry Douglas and running back Steven Jackson. Suh would anchor a defensive line for new coach Dan Quinn that has had difficult consistently putting pressure on opposing quarterbacks. The Falcons have ranked in the bottom five of the NFL in sacks during each of the last three seasons. In 2014, the team tied for 30th with 22 sacks. Five of the sacks came in Week 16's contest against the New Orleans Saints.
The Falcons would probably structure Suh's deal with a signing bonus and option bonus like Matt Ryan's contract. An option bonus is essentially an additional signing bonus that's usually paid in the second or third year of a contract to exercise later years in a deal. Since an option bonus is given the same treatment on the salary cap as signing bonus, it is prorated or evenly spread out over the life of a contract for a maximum of five years. Fully guaranteed base salaries at signing without offsets that void or reduce after the option has been exercised would be a part of the deal to make it too cost prohibitive for the Falcons to release Suh before the option payment date.
Detroit Lions: It would be a major surprise if Suh re-signs with the Lions before the three-day window that agents of prospective unrestricted free agents have to negotiate with other teams starts on March 7. The star defensive tackle risked injury and poor performance during his contract year, so he's likely going to make the Lions sweat. The Lions will likely need to meet Suh's contract demands with a player-friendly structure in order to get him to forego free agency.
The Lions have a $9,737,500 cap charge for Suh in 2015, regardless of whether he re-signs or goes elsewhere, because of the bonus proration attributed to his 2015 contract year, which voided on Feb. 6. Using the signing/option bonus structure in Calvin Johnson's seven-year, $113.45 million contract extension would be most advantageous, cap-wise, in the short term. $53.25 million of Johnson's extension was fully guaranteed at signing if the $4.5 million roster bonus from his rookie contract, which was payable on the same day the new deal was executed, is considered as a part of his guaranteed money. The Lions will need to do something similar with Suh.
Given that a couple of teams without state income tax would likely be in the running to sign Suh, the Lions may need to gross up their offer to make it more competitive. Detroit's offer would need to be a little more than $59.5 million after three years, and approximately $110.3 million in overall dollars for Suh to have the same net wages at these junctures with a deal containing $55 million in the first three years and $102 million over six year for a team where there isn't a state income tax.
Indianapolis Colts: The Colts are the only team on the list that uses a 3-4 base defense. The team is approximately $42 million under the $143.28 million salary cap. General manager Ryan Grigson has been aggressive in free agency during the last two years. The Colts made Gosder Cherilus the NFL's highest-paid pure right tackle in 2013 with a five-year, $35 million contract. Most of Indianapolis' big deals are structured deals with a signing bonuses and base salary guarantees. Suh would have the necessary leverage to get the second year, and at least a part of the third year base salary fully guaranteed at signing.
Jacksonville Jaguars: The Jaguars have the most cap room in the NFL at close to $70 million, partially because of having the most carry-over room at $21.768 million. Owner Shad Khan has pledged that the team will be very active in free agency. The Collective Bargaining Agreement requires teams to spend 89 percent of the salary cap in cash over four year periods of 2013 through 2016 and 2017 through 2020. Jacksonville's spending through 2014 is slightly over 82 percent. The abundance of cap room, Florida lacking a state income tax and the need to spend money gives the Jaguars an advantage over other teams.
The Jaguars adopted a pay-as-you-go structure during free agency last year. A player's cash and salary cap numbers are the same in each contract year because he is receiving salary guarantees instead of a signing bonus under this model. The first contract year usually consists of a fully guaranteed base salary and a roster bonus due a few days after signing. Theoretically, the Jaguars could frontload Suh's contract where he makes upward of $30 million in 2015 where the cap numbers become more manageable as the deal progresses.
Deals with this structure typically have higher cap numbers, particularly in the early years, because of the absence of a signing bonus. Since there isn't any signing bonus proration, teams have more cap flexibility. A team won't have any dead money (a cap charge for a player no longer on the roster) if a player is released during the latter years of the deal once the guarantees have expired provided that his contract hasn't been restructured.
Miami Dolphins: The Dolphins clearing space over the last few days had led to speculation that the team is preparing to make a splash in free agency. The team has approximately $10 million of cap space after putting a $7.071 million transition tag on tight end Charles Clay. More cap room can be easily created by releasing additional players.
The same structure the Dolphins adopted when the team was aggressive during free agency in 2013 could be used with Suh. Those deals contained modest signing bonuses and salary guarantees to keep the first year cap number low. The base salaries in the first two years of these deals were fully guaranteed at signing. The second year cap number typically was more than twice as much as in the first year.
Mike Wallace, who signed a five-year, $60 million deal, had the most extreme jump. His cap number went from $3.25 million in 2013 to $17.25 million in 2014. A similar type of increase in first and second cap numbers might be necessary with Suh. Some of the deals had conditional third-year base salary guarantees that were player friendly. For example, $3 million of Dannell Ellerbe's 2015 base salary became fully guaranteed on the fifth day of the 2014 league year, which was last March 15. The Dolphins or any other team where there isn't a state income tax could try to sell Suh on the concept that the overall dollars in the deal don't have to equal what they would elsewhere. For instance, a six-year contract with $94.3 million over six years and $50.85 million in the first three years is equivalent to a six-year, $102 million deal with $55 million over the first three years in Detroit, after taxes.
Oakland Raiders: The Raiders should be a more attractive destination for free agents than in the past because general manager Reggie McKenzie landed foundational players in the 2014 NFL Draft with outside linebacker Khalil Mack at the fifth overall pick and quarterback Derek Carr in the second round (36th overall). The team is second in the NFL in cap room at slightly over $59 million. Oakland can have over $70 million in cap room by getting rid of some aging veterans (Kevin Boothe, Maurice Jones-Drew, Matt Schaub and LaMarr Woodley) acquired mostly through free agency in 2014.
California's high state income tax rate puts the Raiders at a disadvantage. Oakland's offer would have to be approximately $64.2 million over the first three years and almost $118 million for six years to be the same after taxes as an offer with $55 million in the first three years and $102 million over six years from one of the Florida teams.
Seattle Seahawks: Seattle is included as a dark horse team only because of reports that Suh would like to play close to home. Suh is a Portland native. The Seahawks have slightly less than $24.5 million of cap space before accounting for restricted free agent tenders, which could eat up around $5 million of this space.
It's possible for the Seahawks to fit Suh under the cap using the same basic framework as in Earl Thomas' and Richard Sherman's contracts while signing Russell Wilson and Bobby Wagner to conventional contract extensions. A signing bonus accounts for 27.5 percent of Sherman's guarantees, and 36.9 percent of Thomas' guarantees are in that form. Suh's signing bonus wouldn't exceed $20 million using these constraints. His 2015 cap number could be as low as $5 million. Wilson and Wagner shouldn't take up more than $7.5 million of the existing 2015 cap space combined with new deals based on Seattle's structural conventions.
Signing Suh could make defensive tackle Brandon Mebane a cap casualty. The Seahawks would gain $5.5 million cap space by releasing him. The true impact would be felt in 2016 and beyond when the deals of Suh and Wilson had much higher cap numbers. The roster depth the Seahawks have had while Wilson was on his rookie contract would be a thing of the past.
Joel Corry is a former sports agent who helped found Premier Sports & Entertainment, a sports management firm that represents professional athletes and coaches. Before his tenure at Premier, Joel worked for Management Plus Enterprises, which represented Shaquille O'Neal, Hakeem Olajuwon and Ronnie Lott. You can follow him on Twitter: @corryjoel | You can email him at jccorry@gmail.com
