Monday, May 11, 2009

Matthew Stafford's contract

No. 1 draft pick Matthew Stafford's contract with the Detroit Lions is an example of how the value of a contract often gets exaggerated when reported by the media. Stafford's contract has been reported as being for six years and $72 million, with $41.7 million guaranteed and an additional $6 million in incentives that could push the total value to $78 million. Those numbers could be correct -- if Stafford plays a certain percentage of the Lions' offensive snaps. However, if Stafford doesn't achieve certain qualifying incentives in his contract, he'll never receive close to that $41.7 million he's supposedly "guaranteed."

The only parts of Stafford's contract that he's fully guaranteed to receive right now are most of his base salaries and the protected value of his option bonus. He did not receive a signing bonus, which isn't unusual for a high draft pick. In 2008, none of the first seven players drafted got a signing bonus. Stafford's base salaries are $3.1 million for 2009, $395,000 for 2010, $1.17 million for 2011, $1.95 million for 2012 and $2.7 million for 2013. In 2010, the Lions will have to decide whether to exercise an option for 2014 by paying Stafford a $17.4 million option bonus. If they exercise the option, the bonus gets prorated from 2010 to 2014, and Stafford gets a base salary of $3.495 million for 2014.

Here are Stafford's salary cap numbers if the Lions exercise the option and Stafford does not achieve any playing-time or performance incentives --

2009 $3.1 million
2010 $3.875 million ($395,000 base salary plus $3.48 million option bonus proration)
2011 $4.65 million ($1.17 million base salary plus $3.48 million option bonus proration)
2012 $5.425 million ($1.945 million base salary plus $3.48 million option bonus proration)
2013 $6.2 million ($2.72 million base salary plus $3.48 million option bonus proration)
2014 $6.975 million ($3.495 million base salary plus $3.48 million option bonus proration)


Those are the basic elements of Stafford's contract, and they illustrate the 25 Percent Rule, which applies to rookies' contracts. The 25 Percent Rule essentially says that certain amounts in a rookie's contract can't increase each year by more than 25 percent of the first-year total of those amounts. Signing bonus prorations and most other amounts treated as signing bonuses aren't included in the calculation of the 25 Percent Rule, but option bonus prorations are included. The only first-year money Stafford gets is his base salary of $3.1 million, 25 percent of which comes to $775,000. So the applicable amounts in his contract -- in his case, those are his base salaries and option bonus prorations -- can't increase by more than $775,000 each year. And not coincidentally, that's exactly how much they increase each year.

The amounts listed in the chart represent the minimum he is scheduled to earn if he's on the Lions' roster through the 2014 season. The total of those amounts is $30.21 million. Not only is that not anywhere close to $41.7 million, Stafford isn't even guaranteed to receive all of that $30.21 million. The actual amount he's absolutely guaranteed to receive under any circumstances is a mere $17.05 million.

Let's take a look at what happens if the Lions decide very early in Stafford's career that they made an egregious mistake, and Stafford is closer to being the next Bobby Garrett than he is to being the next Bobby Layne. Suppose Stafford plays less than 35 percent of the Lions' offensive snaps during the 2009 regular season, and the team decides not to exercise the option in his contract for 2014. Stafford's option bonus is mostly protected, which means that if it's not exercised, a clause in his contract automatically kicks in and assures that he'll get most of the money anyway. If the option isn't exercised, Stafford's base salaries automatically increase to $3.875 million in 2010, $4.65 million in 2011, $5.425 million in 2012 and $6.2 million in 2013, and he becomes a free agent in 2014. You'll notice that those amounts are the same as his cap numbers if the option is exercised, and the total amount is the same. However, there's a catch to that $6.2 million in 2013.

In an NFL contract, base salaries can be guaranteed "for skill" and "for injury" and against cap considerations. A fully guaranteed salary protects a player in all three scenarios. If he can no longer play effectively, suffers a career-ending injury or simply has too high of a cap number, he'll still receive his salary if it's fully guaranteed. And Stafford's base salaries are fully guaranteed through 2012. His 2013 base salary, however, is not fully guaranteed, because of a rule in the Collective Bargaining Agreement that deals with guaranteed salaries. Article XXIV, Section 7, (d)(ii) of the CBA says, "In a Player Contract entered into in a Capped Year, 50% of the Salary fully guaranteed for any League Year beyond three years after the Final Capped Year will be included in Salary and Team Salary during the League Year or Years of the Contract in which the Salary Cap is in effect in a proportion to be determined by the Team." The "Final Capped Year" currently is 2009, which means that half of any salary fully guaranteed beyond 2012 would be charged against the Lions' salary cap in 2009. As a result, Stafford's 2013 base salary (and 2014, if his option is exercised) is not fully guaranteed. It's guaranteed against cap considerations and "for injury," but it's not guaranteed "for skill." So if the Lions decide Stafford simply doesn't have the skill to play for them, they can cut him without paying his salary for 2013. If that happens, and if Stafford never acheives any playing-time or performance incentives, the Lions will have paid him only $17.05 million.

So, why has Stafford's contract been reported as having $41.7 million in guaranteed money? Most likely, it's because Stafford's agent, Tom Condon, wants everyone to think that he got his client that much guaranteed money. In reality, though, that's not the amount that Stafford is guaranteed to receive -- it's the amount that he COULD BE guaranteed to receive, if he achieves certain qualifiers and the Lions exercise his option. If Stafford achieves his qualifiers in 2009, there's a $9.105 million roster bonus in 2010, an additional $7.83 million in fully guaranteed salary for 2011 and an additional $755,000 in fully guaranteed salary for 2012. Along with the $17.4 million option bonus and his standard base salaries for 2009 through 2012, the total comes to $41.7 million, the figure cited by the media. But $24.65 million of that "guaranteed" money is dependent upon Stafford meeting his qualifiers. (The contract also includes built-in ways for Stafford to receive most or all of that money even if it takes him until 2010, 2011 or 2012 to achieve his qualifiers.)

The rest of Stafford's $72 million consists of a potential $7.8 million salary escalator in 2012 and escalated salaries of $11.5 million in 2013 and $11 million in 2014. But again, the only way for him to have those salaries is by reaching his qualifiers in certain seasons. And if those aren't enough, he has additional escalators of up to $1.5 million in certain seasons that could push his total contract value to its maximum of $78 million.

On a related note, I hate to correct ESPN.com's NFC North blogger, Kevin Seifert, considering that he has cited my blog three times. But in his May 8 entry about Stafford's contract, he mistakenly says that the use of the option bonus is "exact strategy" I wrote about in this post that I made on March 21 about a loophole around the 30 Percent Rule (and possibly the 25 Percent Rule for rookies). But it's not the same strategy. Option bonuses aren't a loophole around the rules, because the CBA specifically states that option bonuses count in the calculations for either rule. The loophole involves completion bonuses, which can be guaranteed but do not count in the calculations for the 30 Percent Rule.

4 comments:

SomeChoi said...

Thanks for this info. I've been looking for these details ever since the eve of draft day.

Question: Does this mean he receives the $41.7M if all he does is play 35% of the snaps in 2009 OR 45% in 2010 OR 2011 OR 2012? (I'm assuming "The contract also includes built-in ways for Stafford to receive most or all of that money even if it takes him until 2010, 2011 or 2012 to achieve his qualifiers" means playing 45%).
If that's the case, then the $41.7M is "realistic" even if not "guaranteed" because he'll get that $41.7M unless he's as atrocious as Andre Ware.

AdamJT13 said...

I don't have the specific playing-time percentages he'd have to reach, but the numbers in your comment would be the minimum they'd have to be without making the incentives LTBE.

And yes, it could be a realistic expectation that he'd get that $41.7 million, but it's not guaranteed by any means.

BD said...

Great Post. One question though. Is playing time the only trigger? Have you seen other trigger stated (stats/number of starts/wins)?

Down with Detroit Shirts said...

Great post! after Stafford getting injured again today, I wanted these facts for any discussions on what he "costs" the lions. Thanks.