The Football Educator recently addressed the elimination of option bonuses in rookie contracts and the effect this had on the upper selections of the first round in the annual NFL Draft. Option & roster bonuses provided loopholes to circumnavigate rookie pool restrictions on NFL Clubs as they signed their rookie class under the NFL Salary Cap for a given season. Contracts were constructed with nominal year one costs to abide by rookie pool limitations, but second year option/roster bonuses protected by various non-exercise fees/guarantees ballooned these deals into the top echelons of positional groups. Linebackers who had never played a snap suddenly were compensated with the best of the best at the position. Wide receivers with nary a reception to their credit were financially rewarded on par with Pro Bowl veterans. Quarterbacks charged with reversing the fortunes of losing franchises, and yet not a single victory under their belt, were signing top 10 contracts.
Predicting the need
But it’s not as if both the League and Union didn’t see this coming even with earlier versions of the Collective Bargaining Agreement. Measures were implemented in an effort to control escalating compensation over the life of a rookie contract. There was enough foresight to predict player agents would look for loopholes around rookie pool restrictions and the thought was to cap yearly increases after the first season to guard against huge salary escalation. That came in the form of the 25% Increase Rule.
25% Increase Rule – The CBA definition
No Rookie Contract may provide for an annual increase of more than 25% of the player’s Year-One Rookie Salary unless such contract provides only for Paragraph 5 Salary equal to the then-applicable Minimum Active/ Inactive Salary for each League Year of the Contract. By way of example, if a player drafted in the second round signs a four-year contract with a $400,000 signing bonus, a $500,000 Paragraph 5 Salary, and no performance incentives in his first season, the player’s Year-One Rookie Salary will equal $600,000, i.e., the prorated portion of his signing bonus ($100,000) plus his Paragraph 5 Salary ($500,000). Accordingly, the player’s maximum annual increase in Rookie Salary may not exceed $150,000 ($600,000 × 25%).
This total in increase accounts for NFL Salary Cap charge and not necessarily the cash value of the compensation for any given year. That is an increase can be limited to 25% on the total NFL Salary Cap charge (guaranteed & likely to be earned), but cash reimbursement can well exceed that percentage for any given season. So in essence the 25% Increase Rule was somewhat limiting under the old CBA, but not much more than cosmetically when coupled with bonuses.
25% Increase Rule – Stafford’s example
In 2009 the Detroit Lions selected Georgia QB Matthew Stafford with the first overall selection of the NFL Draft. Stafford signed a 6 year, $72 million dollar rookie contract that averaged $12 million per season (pre-escalators).
|Season||P5 (Base)||25% Rule #||Option Bonus||1 Time Roster|
|2010||$395,000 (G)||$3,875,000||$17,400,000 (G)($3,480,000)||$9,105,000 (NG)|
Considering Detroit’s 2009 rookie pool allocation and the selection of Stafford #1 in the 1st round, the $3.1M base was the most the Lions could guarantee in year 1 and stay within the limits of the rookie pool. So calculate the following;
- 2009 – $3.1M X .25 = $775,000 (no subsequent season after year 1 can increase by more)
- 2010 – $395,000 + ($17,400,000/5 yrs = $3,480,000) = $3,875,000
- 2011 – ($9M of which $1.17M is guaranteed) + ($3,480,000 2nd yr proration of OB) = $4,650,000
- 2012 – ($10,500,000 of which $1.945M is guaranteed) + ($3,480,000 3rd yr proration of OB) = $5,425,000
- 2013 – ($11,500,000 of which $2.72M is guaranteed) + ($3,480,000 4th yr proration of OB) = $6,200,000
25% Increase Rule – Doing the math
It may or may not be evident how Stafford’s agent (Tom Condon) was able to get around the rule, but in a sense the Lions & Stafford maxed out 2009 to comply with the rookie pool in year 1, took the minimum salary for a 2nd year player in 2010 (guaranteed) and created a guaranteed option bonus that would prorate to fill in the remainder of a 25% increase over $3.1M from 2009. Then they guaranteed just enough P5 (Base Salary) to cover the annual allowable increase over the following years. The remainder of the salaries, incentives, and escalators hinged on easy to reach qualifiers that would all but guarantee these amounts later, but not initially for 25% Increase Rule accounting purposes.
The newer version of the CBA & the 25% Increase Rule has changed very little. However all incentives must now be accounted for in the overall number. Rookie contracts no longer have “Not Likely To Be Earned Incentives”, meaning incentives not immediately figured into the Cap number of a player.