Definitions of the complexities of contract negotiations

Much was written on the condensed version of Free Agency after the summer long NFL lockout.  What normally was considered “the routine” in contract negotiations saw all the rules thrown out the front office window’s.  GM’s and agents frantically worked to get players resigned, draft choices into camp and Free Agents on the plane to their new teams.  Much of this complicated process was delegated across the organization to ensure timeliness and accuracy in the face of opening training camps. But how does it work when given the opportunity to operate without a compressed time frame? To answer that question let’s look at a simplified version of an NFL Free Agent signing. Identify the talent The Scouting process identifies a player as a good fit in the offensive/defensive scheme of a club and that player becomes targeted on a list at the position of need.   The club analyzes various factors to bracket the player in a particular “salary pool” from both the League and Club perspective (usually by position).  Some of the components of developing an initial offer;
  • Age & experience
  • Past statistical production
  • Playtime history (actual time on the field)
  • Current salary and other salaries at position
Find some “Comps” It’s important to find “comparable” players using all those factors and this comes from thorough knowledge of the League’s player pool.  It gives you a leverage point and a baseline from which to begin contract negotiations when you can logically match Player X to Player Y. Average salary became an acknowledged way of comparing “apples to apples”.  For example, Top 5 average salary at position versus Top 10 average.  Emphasis then shifts on how much “cash” is actually paid over the course of the contract at any given point.  The more upfront and guaranteed through bonuses or the like, the better for the player.  The more pushed back through the contract into base salary, the better for the club. The Opening Bell or “Let’s get ready to rumble” A push-pull occurs between the club and agent with cash commitment and payout over the length of the agreement.  There are various ways for both sides to ensure the even distribution of compensation over the life of the deal.  Here are five of the most common forms of compensation;    
  1. Signing Bonus (SB) – Guaranteed and paid in exchange for the execution of a contractual agreement.  Usually paid up front, can be deferred over an agreed payment schedule.  Prorated for “cap purposes” over the life of the contract (up to 5 years).
  2. Roster Bonus (RB) – Guaranteed when the player meets the criteria of being on the club’s roster at an agreed upon date.   Usually paid up front, can be deferred over an agreed payment schedule.  Counts for “cap purposes” the year it is earned.  Can be converted to SB.
  3. Option Bonus (OB) – Guaranteed when the player meets certain criteria (usually roster status on certain date) that triggers a built-in extension of the existing agreement.  Player paid X $’s in exchange for additional Y years.  Treated like SB for “cap purposes” as soon as the date it is executed.
  4. Base Salary (P5) – Minimum salary based upon # of Credited Seasons (3 games active roster to earn one credited season).  There is no maximum (must adhere to current CBA rules) but there is a prescribed minimum.   P5 can be either guaranteed (fully or partial) or non-guaranteed.  Paid and accounted for in 1/17th installments (16 games + bye week).  Counts fully against the CAP until terminated and reconciled.
  5. Incentives – Common are off-season workouts, playtime and production.  Paid upon completion of an agreed upon stipulation; 90% of scheduled workouts, play 80% of offensive plays, rush for 1000 yards.  Incentives can also be negotiated to “escalate” future P5 salaries if a player meets threshold requirements.  Simplified explanation – reconciled and charged against CAP, paid to player at the end of season.
Any combination of the above categories creates some rather interesting, if no contentious negotiations.  It’s extremely important to note that CASH and CAP are entirely different and managed under separate accounting principles. And the League has just informed me that I’ve gone over my “CAP limit” of words covering contract negotiations.  We’ll pick up with an actual contract breakdown soon!  
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