Agent's Take: What you should know about Tom Brady's unique contract
Tom Brady's hometown discount -- which amounts to $24M the Pats can use on other players -- is unlikely when other veteran QB deals come due.
Tom Brady is in the greatest quarterback of all-time discussion and a sure-fire first-ballot Hall of Famer because of his sustained excellence. He is also distinguishing himself from his peers with the unprecedented approach he has taken in his recent contract negotiations.
2013 contract extension need to know
Brady had completed two years of a four-year, $72 million extension that made him the NFL's highest paid player (by average yearly salary) at signing in 2010 when he took a big hometown discount during a 2013 offseason renegotiation. He freed up $8 million and $7 million of salary cap room for the Patriots in 2013 and 2014 by lowering his cap numbers those years to $13.8 million and $14.8 million.
Depending upon how it's characterized, Brady signed a five-year, $57 million deal or a three-year, $27 million extension (the value of his new contract years). Either way, it was substantially less than his market value. He received $33 million, which was fully guaranteed, in the first two years of the new deal instead of the $30 million he was scheduled to make in the remaining two years of his old contract. He had $30 million of the guaranteed money in a signing bonus with a significant portion deferred. Brady received $10 million of his signing bonus in 2013, $15 million in 2014 and the remaining $5 million is payable on Feb. 15.
The final three years of Brady's pact (2015 through 2017) for $24 million were guaranteed for injury at signing. These years also became guaranteed for skill (without an offset) by him being on New England's roster for the final game of the 2014 regular season.
2014 renegotiation need to know
Right after the 2014 regular season ended, Brady gave up the skill guarantee of his $7 million, $8 million and $9 million base salaries in 2015, 2016 and 2017. In exchange, $1 million was added to each of his base salaries for these years. Since there is only an injury guarantee left in each of the remaining years of his contract, the Patriots aren't required to fund his guarantees. According to league rules, a team must place into an escrow account the amount of any skill guarantees in a contract. The change in Brady's contract gives the Patriots use of $24 million that wouldn't be available otherwise because of the funding requirement.
Brady's contract maneuver only frees up cash, not salary cap space. In fact, Brady's 2015, 2016 and 2017 cap numbers go from $13 million, $14 million and $15 million respectively to $14 million, $15 million and $16 million because of his modest salary increase.
NFL front office executives I spoke to, most of whom negotiate contracts for their respective teams, were surprised by Brady's move. "I've never heard of a player voluntarily giving up guaranteed money, especially for so little in return," one AFC team executive said. "I could have possibly seen him doing it if the Patriots had given him a way to void out of the deal. I would have been shocked if he [Brady] agreed to let the skill guarantees kick in on a specific date each year like the 49ers do. The funding issue could have still been avoided that way too."
Guarantees in practically all of San Francisco's lucrative contracts are injury guarantees, which typically become fully guaranteed on April 1 of each specific contract year (i.e.; 2015 base salary becomes guaranteed on April 1, 2015). The team executives also were skeptical of Patriots owner Robert Kraft's cash flow being so poor that getting the $24 million was essential.
Brady reworking his deal also makes it much easier for the Patriots to release him provided he stays healthy. Guarantees from future contract years accelerate into the current year's salary cap when a player is released. For example, if the Patriots cut Brady after June 1 or using a post-June 1 designation this year with the skill guarantee still intact under his 2013 renegotiation, then the Patriots would have had $30 million in dead money, which is a cap charge for a player no longer on a team's roster. The $30 million in dead money would have consisted of $6 million in signing bonus proration and $24 million from his 2015 through 2017 base salary guarantees. There also would have been a $12 million cap charge in 2016 from his 2016 and 2017 signing-bonus proration. Once the skill guarantees were removed, the Patriots only have $6 million in dead money in 2015 for releasing a healthy Brady after June 1 and the same $12 million cap charge in 2016 as with the skill-guarantee scenario.
What it means for Brady to do this
Don't expect other NFL superstars to follow Brady's lead. One factor is the player/agent relationship or dynamic. Agents are supposed to work for players. Sometimes it seems as if it's the other way around.
In the typical player/agent relationship, a player will give his agent input about a contract on a big-picture level initially but may not get involved in the process again until the final stages of a negotiation, if at all. Because of this dynamic, an agent is usually given wide latitude to negotiate a contract he or she feels is in the client's best interest. My preference as an agent was to get feedback from the client during the negotiation process where I explained the positives and negatives of team offers, and made sure he was comfortable with and understood any counteroffers I made. This was particularly important when I received what I considered an acceptable offer.
Agents avoid negotiating team-friendly, below-market contracts unless absolutely necessary. Quite frankly, these types of deals aren't in an agent's self-interest, which shouldn't be a consideration with any contract negotiation for a client. Agents are usually paid a commission on the contracts they negotiate. The maximum fee an agent can charge for negotiating a contract under NFLPA regulations is 3 percent. Agents also use the best deals they've negotiated in recruiting new clients while competitors will use deals that are deemed below market and team friendly against them in recruiting, regardless of the circumstances surrounding the negotiation.
Most players aren't willing to give teams a hometown discount because money is considered as a measuring stick in the locker room and around the NFL. All-Pro cornerback Richard Sherman shed some light on this mentality shortly before signing a five-year, $70 million extension with the Seahawks in 2014. Sherman said, "It's all about respect in this game and the only way people show respect is the dollars. We'll see what happens." Safety Ryan Clark, a 13-year veteran, expressed similar sentiments in 2013 during an ESPN television appearance: "If you look at the structure of the NFL today, it's about one-upmanship," he said. "The culture we have is about money."
The most likely scenario for another similar situation to Brady's occurring is for an older veteran player to give his agent specific instructions about consciously leaving money on the table so his team can improve the talent around him or retain key players. Although an agent wouldn't be happy receiving this marching order from his client, it's the agent's job to execute his or her client's wishes while protecting him as much as possible in his contract under these circumstances.
I probably would have initially tried to change my client's mind by explaining to him the downside of the decision. Only after being sure my client understood the worst-case scenarios of his decision and was comfortable with those outcomes, would I accomplish his objective. Fortunately, John Randle, Keenan McCardell, Jimmy Smith or any of the other players I helped represent weren't interested in this type of concept. A front office executive who negotiates contracts for an NFC team told me, "I would never suggest to the agents of any of our players that their clients do what Brady did. I know most would hang up on me or think I was joking. The idea had to start through conversations between Kraft and Brady."
On Drew Brees: Drew Brees would appear to be a good candidate for a steep hometown discount because he has the NFL's second-highest 2015 cap number at $26.4 million (with a $19 million 2015 salary) heading into the fourth year of a five-year, $100 million deal signed in 2012 -- and the Saints easily have the NFL's worst cap situation for next season. The Saints are projected to be $23 million over the 2015 salary cap, assuming it is set at $142 million. The soon to be 36-year-old may not be willing to do the Saints any favors with a massive pay cut in an extension after acrimonious negotiations as a franchise player in 2012 led to him filing and winning a grievance against the team clarifying whether franchise tags applied across teams or were specific to teams.
Brees was a named plaintiff in an antitrust lawsuit against the NFL during the 2011 lockout. As a part of the lawsuit settlement talks, he wanted an exemption from the franchise tag for the rest of his career but eventually relented. He's also a former member of the NFLPA's executive committee, so he likely understands how starting a trend of undercutting the market place could potentially have a negative impact on contract negotiations of other quarterbacks.
The NFLPA probably isn't happy with Brady's willingness to be so accommodating towards the Patriots with his contracts but would never an express a negative opinion publicly about the contract dealings of such a prominent player. Given the history between the NFLPA and Brees, the union likely would try to discourage him for doing the same thing if it had knowledge of his intentions beforehand.
The 2004 class: The 2004 first-round quarterback draft class -- Eli Manning, Philip Rivers and Ben Roethlisberger -- could receive new deals in the offseason because they are entering the final year of their contracts in 2015. It's conceivable at least one of them could give his team a slight financial break in negotiations for a contract extension, but the discount wouldn't approach anything close to Brady's.
Roethlisberger could be the first of the three with a new contract because Steelers president Art Rooney II indicated during the early part of training camp that his contract situation would be addressed after the season. The Pro Bowl quarterback's 2013 declaration about "doing whatever it takes to stay" in Pittsburgh was interpreted by some that he would embrace Brady's concept. He may have been referring to contract structure. Roethlisberger's training camp comments suggest he is looking for a deal at his market value because he felt that he was already giving the Steelers a hometown discount at his $12.1 million 2014 salary and the $11.6 million he is scheduled to make in 2015.
On Russell Wilson: It is unrealistic to expect any quarterback still playing under a rookie deal to give up significant money on his first veteran contract. Comparing their situations to Brady's is like comparing apples and oranges. Russell Wilson, expected to sign a lucrative new contract prior to the start of the 2015 season, has made slightly less than $2.2 million from his rookie contract while Brady has earned more than $150 million from his playing contracts during his 15-year career. Another AFC executive told me, "Wilson is at least another contract or two and a few years away from considering anything like Brady has done."
The team executives also thought the income of Brady's wife, Gisele Bundchen, played a role in Brady's decision. According to Forbes Magazine, Bundchen is the world's highest-paid model with an estimated $47 million in earnings for the 12-month period ending last July. She reportedly made $42 million during the previous 12 months.
The Patriots Way effect of Brady's deal
The Patriots should be extremely grateful Brady didn't use the contract leverage he possessed over the past two years. The team would have been choosing between undesirable options.
The primary choices would have been creating cap room through conventional restructures, leaving Brady's $21.8 million cap numbers in 2013 and 2014 intact and letting him play out his contract or giving him a market rate extension -- or close to it -- with one or two years left on his deal. Focusing primarily on 2013 could have created $7 million of cap room by converting $14 million of his $15 million salary into signing bonus to bring his cap number down to $14.8 million. The trouble with this approach is Brady's 2014 cap number would have ballooned to $28.8 million with the $7 million increase because of the extra signing-bonus proration.
The Patriots could have gotten the same $15 million of cap space Brady created with his actual 2013 renegotiation by converting $25 million of his $30 million in salary from his remaining two contract years (2013 and 2014) and adding three voidable dummy contract years for signing bonus proration purposes. Brady's 2013 and 2014 base salaries would have dropped to $2 million and $3 million. This concept is problematic because the Patriots would have had a $15 million cap charge in 2015 once Brady's contract voided from the signing bonus proration in the dummy years.
Leaving Brady's contract intact with $21.8 million 2013 and 2014 cap numbers likely would have changed the composition of New England's rosters in these years and potentially affected the team's ability to be Super Bowl contenders. In 2013, wide receiver Danny Amendola may not have been signed to a five-year, $28.5 million deal (with $10 million in guarantees and worth a maximum of $31 million through incentives). This may have been a positive considering Amendola hasn't come close to living up to expectations. The $3.575 million and $4.7 million of cap space he's taken up since signing could have been put to better use. Cornerback Kyle Arrington could have left through free agency. Defensive end Rob Ninkovich's three-year extension signed during the 2013 season may have been put on hold with cap space at a premium.
The bigger impact would have been this season. Offensive guard Logan Mankins may have been an early offseason salary cap casualty after refusing a pay cut instead of departing through a trade toward the end of the preseason. Picking up $8 million of cap room from releasing Vince Wilfork could have been preferable to the $4,123,567 of cap space gained from his pay cut. More important, it may not have been possible to find $7 million of cap room to sign cornerback Darrelle Revis.
Putting a franchise tag on Brady in 2015 for $26.16 million, a 120 percent increase of his 2014 cap number, would have been next to impossible. "I'd make every effort to re-sign Brady before he hit the open market," said one NFC team contract negotiator. "There would be teams interested in him despite his age because he hasn't shown many signs of slowing down and there's nothing else out there in free agency. The [Houston] Texans would scare me the most because of his relationship with [coach] Bill O'Brien." Brady turns 38 before the start of the 2015 regular season.
An AFC team contract negotiator told me, "I'd like to keep the deal around Peyton's [Manning] for no longer than three or four years without a lot of real guaranteed money because there's concern that he could hit wall at any time." Manning received a five-year contract from the Denver Broncos in 2012 averaging $19.2 million per year with $18 million fully guaranteed at signing.
The best option probably would have been creating cap room in 2013 through an extension. The team executives didn't have the same age concerns with paying Brady two years earlier. The consensus was signing Brady to a multiyear extension where he replaced Brees as the NFL's highest-paid player at more than $20 million per year, assuming the same February timeframe as his 2013 renegotiation. Under this scenario, the Patriots would have had the best chance of making their actual roster moves over the past two seasons but with an increased payroll because Brady wouldn't be giving them a steep hometown discount.
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 email@example.com
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