How to View New Contracts
How to View New Contracts
Primer on my personal view and way of comparing new contracts across the league.
Welcome back to another weekly edition of Cap & Trade Newsletter!
How should we view and compare contracts? I won’t dive into what is right and wrong. But I would like to discuss my personal methods on reviewing contracts and measuring them against other players in the league.
These methods have come from many years of review and discussions among other experts to find the common path towards contract review.
Avoid the fluff! We’ve all seen these tweets with the dreaded “up to” phrase:
3 year extension worth up to $71 million. With the disproportion of use across the league on incentives and escalators, nobody (that I am aware of) measures contract based on maximum value. The standard is to utilize the base value, the total value minus any available incentives or escalators. Waiting for the base value details can take days or even a week before we obtain true data for contract comparison.
Average Per Year
Average Per Year, APY, is a common figure to use when measuring contract value against other contracts. Ranking players and their contracts by APY is pretty common in the media world. This is a very simplistic way to measure or rank. Unfortunately using APY does not account for salary cap inflation.
Contract Data to Use
For today’s exercise we will use data from the safety position. For reference we will pull from the Minkah Fitzpatrick extension with Pittsburgh as that contract is now the #1 valued safety contract.
Some of the data points I like to use, we will explain them further:
Base Value
Base Value APY
Inflation Adjusted APY
APY Percentage of Salary Cap
Three Year APY Percentage
Total Guarantee
Full Guarantee
Guarantee Percentage
Guarantee APY
One, Two, and Three Year Cash Flow
Vesting Schedule
Definitions
Base Value: Total value of the contract minus incentives and/or salary escalators.
Base Value APY: Total base value divided by the contract length in years.
Inflation Adjusted APY: We apply the rate of salary cap inflation to the base value APY to measure APY strength of older contracts.
APY Percentage of Salary Cap: Base value APY divided by the league salary cap for the year the contract is signed. A way to measure APY strength outside of inflation.
Three Year APY Percentage: Cash earned in Year 3 of the contract divided by base value APY. This can give an idea on the structure of the contract.
Total Guarantee: Amount guaranteed over the life of the contract including future guarantees that will vest during the contract.
Full Guarantee: Amount locked in as a guarantee at the signing of the contract.
Guarantee Percentage: Total or full guarantee amount divided by the total base value.
Guarantee APY: Total or full guarantee amount divided by number of years of the contract.
Cash Flow: Amount of cash earned in each specific year of the contract.
Vesting Schedule: Future dates where money becomes guaranteed and/or paid.
New Money: Contract value minus existing money to be earned from previous contract. Think of this as a prepayment.
OK I now deem you a contract expert!
Team Structure
A few months back, in this newsletter, we discussed how contract structure varies from team to team. That is another piece of the puzzle that should be considered when comparing player contracts. Heavy cash, functional guarantees…we could go on and on.
Let’s bring on the data tables!
Comparables
Here are the top active safety contracts used in this comparison exercise. The table is sorted by Average Per Year (APY). For extensions the APY is on New Money.
Here we see Fitzpatrick’s extension cleared the market and is now the highest valued contract at the safety position, overtaking Jamal Adams with Seattle.
Entire Contract Value
Percentage of salary cap is one metric I quickly reference for contract strength (ref the above definition). Adams’ contract with Seattle has a stronger APY on an inflation basis. Harrison Smith’s contract holds up well on this metric alone, just eclipsing Fitzpatrick.
The APY 3yr % is a relatively new (new to me) measurement put together by Brad Spielberger. The simplicity of the measurement is wonderful.
This table tells us Marcus Williams of receiving 4.76% more of his cash in 3 years over the stated APY amount. That is a common structure staple of Baltimore provides in exchange for lower contract APY figures.
Guarantee Structure
Here we will see the difference in team structure when looking at total guarantees and full (at signing) guarantees.
Pittsburgh deviated from their past guarantee structure to provide Fitzpatrick the needed market equivalent guarantees to complete the extension. The top table shows the other contracts have vesting guarantees beyond the full guarantee provided in the contract.
Pittsburgh’s contract structure and player loyalty offers “virtual” guarantees beyond the full guarantee. That is something a player agent must educate their clients on when dealing with teams like Pittsburgh.
Fitzpatrick’s 49.3% full guarantee percentage is very strong compared to the market as an extension. Justin Simmons, on the franchise tag, may have had a bit more leverage.
Fitzpatrick has a sizeable advantage over Jamal Adams in full guarantee offered at signing, with Adam’s total guarantee topping Fitzpatrick. This again is due to contract structure. Seattle, generally, doesn’t offer strong full guarantees in their contracts. As an offset to that, the team provides an early vesting schedule on the future guarantees. The vesting dates are quickly after the superbowl well before the new league year starts.
Cash Flows
Cash is King is my usual motto.
From the table above you can see the strength in Fitzpatrick’s contract on a cash flow basis. Despite the under against Jackson’s contract in Year 0, Fitzpatrick is at the top through the remainder of his contract.
This table showcases the strength of a short term UFA contract, Diggs was signed to a 3 year contract as an unrestricted free agent this past offseason. This table is showing the running cash flow earned through a percentage of the contract. The figures are close when comparing the top of the market contracts.
Summary
In closing always be aware of the “up to” numbers and initial contract numbers posted on Twitter. The agent’s goal is the paint the best picture available at the time of execution. The complete numbers generally lag 3-5 days after contract execution for examination.
I could have gone deeper on this exercise looking at structure and vesting schedules. For the most part these are the main metrics in common use across the industry for contract comparison.
Enjoy!
-TC