NFL Contract Language and Why It Matters
A look at some of the language and terminology utilized in NFL player contracts. What do they mean?
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The National Football League rarely misses a Friday news dump opportunity, and this past Friday was no exception with the news of Jimmy Garoppolo’s 2-game suspension for violating the league’s Performance Enhancing Substances policy.
If the report is accurate, the idea of not having a valid therapeutic use exemption is a big miss by Jimmy Garoppolo and his camp. The need for the exemption is well known in these types of cases, and to put $11.25 million in guaranteed protection on the line is a huge blunder.
Over the years I have reviewed my fair share of NFL player contracts. Some of the language and clauses employed by the NFL teams are wild given the circumstances.
This week I wanted to look at some of the contract language in NFL player contracts.
Jimmy Garoppolo
Since Jimmy G. was the guiding light for this week’s newsletter, it only makes sense to look at the contract language related to his 2-game suspension.
Before this suspension, Garoppolo’s base salary (also known as P5 or Paragraph 5) of $11.25 million was fully guaranteed. The three legs to a full guarantee are skill, cap, and injury.
The guarantee protection of that salary can be voided if Garoppolo violates the terms of the guarantee protection. One of those is suspension for violation of the league’s policy of Performance Enhancing Substance use.
The relevant portion of Garoppolo’s contract applicable to his 2-game suspension:
This section is from the 2024 salary guarantee section of Garoppolo’s current player contract with the Las Vegas Raiders. Buried in the language there is a piece related to the NFL Policy of Performance-Enhancing Substances.
In short, if Garoppolo were to be suspended for violating that league policy, he would be in default and the team would have the right to void the salary guarantee.
With the reported 2-game suspension Garoppolo is now in default from the guaranteed protection.
This type of language, on salary guarantees, is quite common across the league.
Hazardous Activities
Part of the guarantee protection may also include a list of hazardous activities that would void the guarantee protection if the player were injured while participating in such activities. With the list of “hazardous” activities teams may also include the “may include but not limited to…” attachment.
One of my favorite lists of prohibited activities was from a prominent player contract from 2016.
The team included a specific list of activities deemed as “hazardous”. If the player were to get injured while engaging in one of these activities, the player’s full guarantee salary protection would become void.
I remember reading this contract back in 2016 and telling a friend “This player can’t do anything fun outside of football”.
At the end of the day, the team must protect their liability interests with large guarantee protections included in big market contracts.
Automatic Conversion Rights
A commonly used contract tool utilized by teams is an automatic conversion rights clause. Coincidently this is often the most confused clause amongst fans.
The piece of detail to take away from this clause is the restructured bonus amount is to be paid concurrently with the player's salary through the season.
When you see a news update that X player has restructured their contract to create X amount of cap savings; that means the team completed a basic restructure. On a basic restructure, in this scenario, the player does not receive money upfront via a bonus, because the bonus will be paid throughout the season in line with the player’s base salary.
A basic restructure does not require a new contract to be signed, rather the player will sign an addendum to the current contract.
A more accurate report would state the team completed a restructure of X player’s contract to create X amount of cap savings.
If the terms of the contract change, then a new contract would need to be drawn up and that could include new upfront money for the player. An example of needing a new contract would be if void years were added to the contract.
Insurance
On rare occasions, NFL teams may take out an insurance policy against a portion of the player contract. The most common part of the contract, for an insurance policy, is the signing bonus.
The use of insurance policies may be limited to large dollar amounts paid through the contract.
If the team re-signs their star quarterback with a $60 million signing bonus, the team may take out an insurance policy against the bonus. If in the event the player is injured, suspended, or for any other reason unable to play football, the team can recoup money through the insurance policy. The money recouped would also be reflected in the salary cap charges for that player with a credit or adjustment for future years of the contract.
Final Thoughts
Player contracts are filled with protection language best suited for the team’s interest. A player needs to employ an agent or knowledgeable source to ensure their side of the contract interests are well protected.
Reminder the next two weeks should be busy. On Monday, February 19, there are 39 player contracts scheduled to have the future years in their contract void, including multiple players on the Houston Texans.
On Tuesday, February 20, the window for teams to use the franchise or transition tag opens. I suspect there will be a handful of tags handed out this year but lower than in past years.
-TC