Last week, San Francisco 49ers quarterback Colin Kaepernick signed a 6-year extension that could be worth as much as $126 million. The base deal is worth $114 million with $12 million in potential escalators. It contains $61 million in total guarantees, with approximately $13 million fully guaranteed and $48 million in injury guarantees.
A frequent discussion in the NFL surrounds the lack of guaranteed contracts. A given contract will include some guarantees, but they are not usually fully guaranteed for most players. The rookie wage scale has opened the door for more fully guaranteed deals for rookies, but otherwise, fully guaranteed contracts are rare. There are a variety of reasons for that, and one of them is due to part of the Article in the NFL I want to break down today.
We've been breaking down the CBA article by article, and today we move on to Article 26, "Salaries". It focuses on league minimum salaries, and some basics related to contracts, but I wanted to open by looking at Section 9, which is the last section of this article.
"Funding of Deferred and Guaranteed Contracts"
Section 9 discusses the funding requirements for deferred and guaranteed money in an NFL contract. The section states in part:
"The NFL may require that by a prescribed date certain, each Club must deposit into a segregated account the present value, calculated using the Discount Rate, less $2,000,000, of deferred and guar anteed compensation owed by that Club with respect to Club funding of Player Contracts involving deferred or guaranteed compensation ...
"The present value of any future years' salary payable to a player pursuant to an injury guarantee provision in his NFL Player Contract(s), shall not be considered owed by a Club under this Section until after the Club has acknowledged that the player's injury qualifies him to receive the future payments."
This section allows the NFL to require teams place all future guaranteed money (except for injury guarantees) at a given point on the calendar into a bank account. We can look at Jimmie Ward's contract as an example. Ward's rookie deal is a 4-year deal worth $7,112,524, with an option for the fifth year. The first three seasons of Ward's deal are fully guaranteed for skill, cap, and injury release. Excluding his signing bonus (paid up front), that appears to cover $2,229,888 in base salary and any bonuses. As I am reading Section 9, that means the 49ers have to front that much cash now.
This section of the CBA has not been frequently discussed, but if you google it you'll find a few things. From what I've seen, the league justifies this requirement by saying it's to protect the players if a club were to go bankrupt. Given the amount of cash flowing into NFL coffers, that's a pretty amusing notion.
The only potentially reasonable argument I could see in favor of it could be for teams that might have cash flow issues because of big projects. By that, I am specifically talking about new stadiums. The San Francisco 49ers are getting some public help on their stadium, but they are paying the vast majority of the loans on this stadium. They'll get some upfront money through the SBL sales, but even those have some financing options. That and the fact that the naming rights pay out over 20 years mean there will be a good chunk of 49ers cash flow going to non-player costs. The 49ers should do fine in making their money back many times over with this potential cash cow of a facility, but for now, cash flow could be a bit of an issue.
Whether the reasoning for this funding rule is BS or not, it's there, and teams can use that as an excuse for the many rolling guarantees we see in contracts. In Colin Kaepernick's recent contract extension, future salaries become guaranteed on April 1 of each league year. In each of those years then, the funding for the following season's salary would thus need to be set aside. It's the way the 49ers have done business. Yes, they could conceivably release Kap before April 1 of each year for skill or cap reasons, but does anybody actually think that will happen?
The latter end of the deal is going to be interesting as we see how Kap develops, but in any NFL deal of this length, those latter years would pretty much never be fully guaranteed. The lack of more full guarantees (or at least complete injury guarantees, for example) is on the NFLPA in their labor negotiations with the league. Kap has put together a deal that will pay him a lot of money, but also provides an early opportunity for the 49ers to extend some other players. I think both parties can live with that. People look for a clear winner and a clear loser in a negotiation, but they easily ignore the shades of grey that are a part of any negotiation. And when you're talking about the NFL and its salary cap, and trying to keep enough money around for the other talented players, it becomes even more grey.
Section 1 of Article provides a rundown of the minimum salaries each player can be paid. The salaries hit the salary cap like normal, with the one exception being the veteran minimum salary benefit. The salaries are determined based on credited seasons (CS). Section 2 details credited seasons. A player earns a credited season for each season during which he was on, or should have been on, full pay status for a total of three or more regular season games. This does not not include games for which this player was on: (i) the Exempt Commissioner Permission List; (ii) the NFI List; (iii) a Club's Practice Squad; or iv) a Club's Injured Reserve List.
Subsection (a) is for players on the Active/Inactive List.
Section (b) is for players not on the Active/Inactive List, but not including practice squad players. Practice squad salary information is broken down HERE.
Section 5 sets the schedule for payment. A team and player can agree to a different schedule of payment, but the default schedule is weekly or bi-weekly pay during the regular season. There has recently been some debate about switching the default to a year-round payment schedule. Players that have handled their money well have a problem with it given the present value of money. One thought would be default to the year-round payment schedule, and then allow people to switch to the in-season option.