The Art of the Rookie Extension Deal

[dt_divider style=”thick” /]With mandatory minicamps just finishing it’s officially holdout season: The time of year when players publicly announce their displeasure with their current contract and choose not to attend training camp to create leverage for an extension or a new deal. You’ll see this with players on their rookie deals and disgruntled veterans who believe their latest contract isn’t up to par relative to their recent performance. For this piece though, let’s talk about the former group rather than the latter.

Recently, Jason Fitzgerald of Over The Cap wrote an excellent piece on Odell Beckham Jr. and why it doesn’t make sense for him and other first round picks heading into their fourth accrued NFL season to holdout. A player is eligible for an extension after the third year of their rookie contract is complete. However, Fitzgerald explains that teams have all the power. According to Over The Cap, players heading into their fourth season lack leverage for an extension because the more they miss mandatory camps the more they are subjected to fines and lose portions of their signing bonus. They also are at risk of losing an accrued season that will delay their unrestricted free agent status. Essentially guaranteeing the player will cease holding out and rejoin the team at some point in time.

Until the next collective bargaining agreement this rule is set in stone. While players really have no form of action to force teams to extend them after their third year, it doesn’t mean such extensions never occur. Some teams reward cornerstone players by opening up negotiations after their third season without the player having to holdout. It is similar to how baseball teams buy out a player’s arbitration years and delay their ability to become a free agent. This is for players who want financial security right away and teams wanting surplus value on star players. The Dallas Cowboys are well known as of late for extending their players once they’re eligible. They’ve extended first round picks left tackle Tyron Smith and center Travis Frederick in 2014 and 2016 respectively, with both players having two years left on their rookie deals. The team is also planning on extending right guard Zack Martin as training camp nears this offseason – likely using the extra cap money from designating Tony Romo as a post-June 1st cut.

Why would a franchise extend a player with two years remaining on their deal? It seems risky to award a player more money in the short term when you don’t exactly have to. A first round pick is generally considered inexpensive in year four and five of their rookie deal compared to what they’ll command on the open market. However, some teams believe that getting a deal done early has its benefits.

By signing a player prior to them becoming an unrestricted free agent, teams can actually save money in the long term with the salary cap rising yearly (the salary cap increased from $155.27M to $167M this offseason) as well as avoiding the high price of the franchise tag. When I posed the idea of whether this made sense or not to Dan Hatman this is what he had to say, “If you can get the agent/player to agree to it, we have seen the compensation come in lower than potential market value, as the cash flow increases now and the liability shifts to the team.” It’s a tradeoff for both the team and the player. The player receives more money earlier and sacrifices some cash if he were to hit the open market. The team on the other hand saves in the long run, but also has the liability of having to pay that player if he were to be significantly injured or gets into off-field troubles in the short run. It can also potentially have a loyalty effect by way of a hometown discount if a team needed to re-sign the player down the road.

The 2011 draft had a few players who were extended with two years remaining of their deal in Patrick Peterson and J.J. Watt. But let’s use Tyron Smith as an example. Smith signed an eight-year $97.6M extension in July 2014 heading into his fourth NFL season. As of today, Smith ranks as the fourth LT in the NFL in terms of average annual value (AAV) behind Russell Okung, Trent Williams, and Terron Armstead. If Smith was to hit the open market within the last two to three years he’d probably have the highest AAV of any LT in the NFL and more fully guaranteed money than the $22M fully guaranteed in his extension deal. Smith’s $12.2M AAV is below what he’d earn if he were a free agent as he’s arguably the best left tackle in the league. Dallas and Smith restructure his contract almost annually and turn some of his base salary into a signing bonus in order to free up additional cap space. He’s heading into his two highest cap hits in 2018 and 2019 at $17,545,000 and $15,545,000 respectively, which could possibly be restructured within the next two offseasons to create more cap room. This deal is extremely friendly for the Cowboys organization and actually offers Smith less financial security than he could earn on the open market.

There are a few factors that make extending these players sooner rather than later a smart business move instead of a highly risky proposition. Smith, Frederick, and Martin are all vital to Dallas’s identity as a tough, grind-it-out ground team. They’re all arguably the best players at their position. I’m not an offensive line specialist, but I believe those who are would agree that those three rank extremely high at their respective positions. There are also no off-the-field troubles with these linemen. Players are essentially investments for NFL teams. If a player is an off-the-field risk, it’s difficult to justify giving him an early extension. Dez Bryant wasn’t offered the same contract extension right away like his offensive line teammates because he was a potential off-the-field liability – though he is now a leader in the Cowboys locker room.

A player with the talent level of Beckham Jr. will eventually be signed long term by the New York Giants. His on-field antics might be enough to scare the team from signing him long-term early, however. As Fitzgerald pointed out in his article, there’s really nothing Beckham Jr. can do to initiate extension talks this offseason. A slight red flag in character, albeit not an extremely serious one, can make a team wait on offering an extension.

It will be interesting to see if at the next CBA meetings, the rule will be changed to allow players to renegotiate earlier, allowing teams to lock players up after their second year in the league. I’m not exactly sure that’s what the NFLPA would want as it might lower the value of the best players in the NFL if too many take deals earlier in their career and become All-Pro players. There could potentially be a lot of surplus value from those contracts for teams. On the other hand, it could allow more players financial security and increase the overall average salary as most players are more productive in the first half of their career than the second. Which would probably make the NFLPA fight for a rule change at the next CBA. Though if a player can sustain a long enough career, then playing through the rookie contract can potentially earn more money long term. As then a player could be franchise tagged and hopefully signed to a deal worth his ability. However, for the majority of players, they realize that their playing window is always closing and must make as much money as possible in a short amount of time. An injury can happen at any point in a player’s career. Teams may not like the idea of giving a player more money that early in their deal or as Dave Archibald pointed out to me, dealing with more potential holdouts. But teams have the option to not offer the extension that early. And they wouldn’t have to worry about players holding out long if the number of accrued seasons remains the same. There are certainly potential benefits and flaws to the current system as well as one that allows players to cash in earlier for both sides of the negotiating table.

As of now players eligible for extensions from the 2014 NFL Draft like Beckham, Martin, Aaron Donald, Khalil Mack could be listening to offers for the rest of the off-season. Derek Carr, also from the 2014 draft class, recently signed a 5 year $125M extension that makes him the highest paid player in league history. That will likely change in the years to come as the league’s salary cap increases with every passing season and more young franchise quarterbacks will be up for extensions that will surpass Carr’s. Carr is the most notable from the players in the 2014 class mentioned because he was a second rounder, not a first. That meant the Raiders couldn’t option him for a fifth year and delay a newer deal. This then created more urgency on the Raiders’ behalf to get a deal done sooner. Not everyone will get extended of course, but this is an opportunity for franchises to get ahead of the market on key players if possible and players to cash in on their talents earlier on.

Check out more of Joseph’s work here, including a look at Kareem Hunt’s superior balancea lesson in tanking, and Chris Godwin’s separation ability.

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