Closing Bell For The Business Beat

With the 2010 season fizzling out, and the accompanying realization that all good things must come to an end, I thought I would clear out my notebook of league happenings.

I know some people in Derek's thread worried that I would be launching a 400 part series on the CBA. Not to fear. I am not a reporter, so I won't be breaking stories this off-season. What I can provide is a framework to consider as the off-season unfolds.

CBA Framework

This will, of course, be the dominant discussion of the off-season. Owners and players are playing a game of chicken. I just don't understand why. I highly recommend reading this story. It says basically everything I have been wanting to write on this topic. Let me link it again because I really think this is everything you need to know about the state of the CBA right now.

In summary, the owners have opted out of the CBA and want the players to take a pay cut. What I don't understand is why. As the article (which I will link a third time for completeness) shows, there isn't much evidence that the owners have been harmed by the current deal or are suffering in terms of their businesses. Are they really going to go through the potential PR nightmare of a lockout in order to goose up what seem to be pretty solid margins?

Now, I have pointed out in the past that there is dead weight to cut in the salary cap. You could slice a pretty large amount off of the cap and player cash payout probably wouldn't be changed materially. The reality may well be that the current level of player compensation is at its natural point and that point is below the current cap. Certainly, the current cap isn't constraining salary growth in any way, but it also doesn't seem to artificially boosting it either. So if you are an owner, is this really worth risking the top line for?

The article I have repeatedly linked also has certain flaws. For instance, it measures rookie payout. That isn't the relevant measure. The relevant measure is payout on rookie contracts after the first year. That is when things blow up with guaranteed money and second-tier bonuses.

But the point is the same. Why is this happening? The owners don't seem to be losing money, or even making an inadequate profit. Are they really going to risk damaging the product by staging a lockout?

So the players think that the owners are bluffing. And the owners are trying to show they aren't. It makes no sense for a deal to not be reached. But with the high-ego people involved here, the most significant risk is that the owners follow through with their threats just to show the union that they can, and the union doesn't concede just to show the owners that they don't have to. And the end result makes everybody worse.

Right now, though, it is all posturing, just as it has been all along, each side trying to show the other side that they really aren't kidding. The NFL shows it is serious about short term pain for larger future margins. The players show they really think the NFL is bluffing, and won't harm the product and (what appear to be) the current attractive margins just to add a couple of percent more to its pockets.

At some point, they will start to negotiate, probably in the weeks following the Super Bowl, and then we will know. Right now, though, it is the same as it has been for the past 2 years: lots of noise, zero substance.

Contract Futures: Mike Vick

It is a hot topic, this question of whether to extend Vick now or after the season. What is especially interesting about it is that there seems to be no urgency on either side to get something done.

I’m going to go down the path of what such an extension might look like and what implications it would have for the rest of the roster below, but first, I want to make an important point:

We Are Still Stuck With The 30% Rule.

This rule, you will recall, is the reason that we haven’t had any extension talks with DeSean Jackson, and why neither he nor his agent, the venerable Drew Rosenhaus, have complained much about it. Essentially, it limits the amount of salary – defined not just as the base salary, but also as things like roster bonuses, likely-to-be-earned incentives and other non-guaranteed payments – that a player can make going forward.

One Vote For An 18 Game Season

The 18 game season is getting a lot of ink today. I have thought a lot about the impact of such a schedule, and I think I surprised myself a little, but I like it (although I don’t think that is going to be the majority view on this site). Here are a collection of notes on the 18 game season. 

This is the most obvious solution to the labor dispute. Keep cash player payout about the same (in % of revenue terms) and go to an 18 game season. The reason this is so beneficial is that increased revenue from two additional games creates a huge profit margin for owners, because debt service (and other fixed costs) don’t vary with revenue, and that debt is allegedly the biggest squeeze on owners’ profitability. (See this post, especially the edit at the end.) So owners get more and players get a share of a bigger pot. Everyone wins, financially.*

The players already agreed to an 18 game season. Mike Florio bangs the table about this one, and justifiably so. I am sure Asante Samuel and Todd Herremans and other players don’t want to play 18 games during a regular season. But I am also sure they don’t want to take a pay cut, which could come from being locked out or through bargaining. Which do you think will dominate in the end? We see that in prior negotiations, in fact, they were fine with up to 22 regular season games.

Therefore, at a minimum, this is a negotiating ploy. The ultimate goal for the NFL is to increase profit margins. Whether it is by increasing revenue without changing fixed costs, or by decreasing player costs, the plan is a fatter margin. The players want their share of revenue to be constant – remember, right now, the cap isn’t a binding constraint on salaries right now, there is upward potential if they just keep the number the same. Both sides will use this issue to get what they want. But I think that in the end, since both sides have objectives met by adopting the expanded schedule, I think it is going to happen.

I’m not aware of a definitive look at injury risk. The biggest negative for the proposal is injury risk for players who go through two more games in a year. Bill Barnwell points out that injuries increase as a season progresses (of course they do) but I haven’t seen any research that suggests whether incidence of injury increases with games in a season, or decreases, or is unchanged. A natural experiment is the fact that we actually have teams that play 18 (or more) game seasons right now, once the playoffs are taken into account, so we can actually compare playoff teams to non playoff teams and see what the injury impact is. Further, it is possible to look at players’ careers and post-NFL lives as a function of games played per season and see what the marginal impact is. But I don’t know if that work has been done – I’m sure Pat or one of our other well-versed readers will point me to it if it does exist. My main question: would going from 16 to 18 games make a huge difference, or is that marginal long-term impact much smaller than, say, the impact of going from 6 to 8 games?

There will likely be concessions to make the physical toll a bit easier to take. That includes things like fewer preseason games, larger active and inactive rosters, an extra bye week, and even lighter off-seasons. Will this mitigate the injury/long term damage concerns? Probably not entirely. But it will help.

We are already asking 90% of players to play more than they already do. We expect every player on every team to be able to play 19 or 20 games – i.e. win the Super Bowl. We aren’t currently asking a player to be able to play 16 games and then go home; even those whose teams don’t make the playoffs in the end would have to have been able to go another three or four weeks if they had advanced. We are now going to expect that to be 21 or 22 games. That is really the change in expectations, regardless of the fact that it won’t be achieved by 30 of the 32 teams. Heck, at least 75% of the players in the league won’t meet the old expectation under an 18 game regular season anyway.

I feel bad about the injury risk, but barring more evidence, for me, it's part of the game. We can claim sympathy for players all we want, but we are asking them to play tons of games already – in fact, that is their reward for being good! More games and more injury risk! I understand that players are concerned by the reality, and they should be – I hope they get a great deal of money both while playing and after retirement in return for the marginal games. I don’t begrudge them a cent. But we all knew it was a brutal sport going in. My problem is the impact on the players that exists – once I get past that, the impact from two more games doesn’t bother me, barring data showing that the marginal long-term impact increases significantly with games played in a year.

The real issue for me is entertainment value.Yes, I’d love two more games. I would absolutely be more likely watch them on tv live. I’d pay money to see them. If I had season tickets, I’d pay more for nine regular season games plus one preseason game than for eight and two, so you could make me pay more. I would be entertained, and thrilled to watch more football. As a fan … I would be thrilled with a longer season. Even in years when I was just waiting for it all to end (2005, for instance) I wouldn’t have been that sad to have had two more games. Not in a way that outweighs how great it would have been to watch two more games of the 2004 regular season. Yes, the Super Bowl in late February or whatever will be tough to take, and I don’t envy the teams that have to play in Green Bay or Buffalo at that time of winter, but in general, more football is a very good thing.

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* I swear, on the EMB a year or two ago, I put up a prediction of how this would turn out, and it included five prongs: no change in cash as a % of revenue to players, 18 game season, increased penalties for badly-behaving players, limits on rookie contracts, and somewhat increased payouts to retired players. But I can’t find the post. Ugh. I still think that is a deal that gets done, though.

Renegotiating The Rookie Pay System

There was a very interesting article put up on Yahoo by Doug Farrar of Football Outsiders. It discusses the “real” story of the rookie wage scale negotiations – which is the effort to reduce rookie contracts.

Rookie contracts are front of mind lately. Sam Bradford’s new six-year, $78 million contract with a whopping $50 million guarantee is the illustration for this. Both sides of the labor negotiations likely agree that this contract is an illustration of the problem. But the sides don’t agree on exactly what the problem is. Before I get into Farrar’s article, let’s examine exactly what the point of dispute is.

What The Sides Agree On

Bradford’s contract is a nice illustration of the dispute. Both sides will agree that a system that gives $50 million of guaranteed money for a guy who hasn’t thrown an NFL pass – heck, a guy who only played in two games at any level in the past 18 months – is insane. There’s not even a good way to justify it.

So why do teams pay that amount out? The reason is an unintentional side effect of the rules currently in place that were supposed to limit rookie contracts.

Some of you will recall the 30% rule that is in place for veteran players this season. If you don’t remember this rule, it is the one that is keeping DeSean Jackson from getting, or even asking for, a contract extension. The rule is essentially that his salary in an extension can’t increase from year to year by more than 30% of his 2009 base salary. So if a player made $1 million in 2009, he can only make $1.3 million in 2010, $1.6 million in 2011, and so on.

There are two ways around the 30% rule. First, you can set performance-based incentives. However, low salaries and high performance-based incentives in future years won’t get a player to sign an extension; such a deal is in the team’s benefit, while a player is better off just waiting to be a free agent in that situation.

The second way around the 30% rule, and the one that is more important for this topic, is to give guaranteed bonuses. This guaranteed money doesn’t count against the 30% restriction. But the Eagles, for example, have taken the position that they don’t want to give DeSean Jackson a contract that is 70% guaranteed money. And who can blame them? But if they wanted to get a deal done with Jackson, that is what they would have to do.

Rookies have a similar restriction, but it is set at 25% and based on their rookie season. Combined with a cap specifically on what rookie cap hits can be in their first year, this was designed to limit the size of rookie salaries.

But again, you can get around that restriction with guaranteed bonuses. And while DeSean Jackson has to play for the Eagles because he has a contract in place, a rookie doesn’t have to play at all until his first contract is signed. And because a first round rookie is very valuable, and worth more to a team than the rookie cap number grown at 25% per year, teams began to cave and give a higher and higher amount of guaranteed money in each rookie deal.

The perverse result is that teams have wound up in a situation where a guy who made the Pro Bowl at two different spots in 2009 would be laughed out of the room for asking for an extension with a ton of guaranteed money, but a QB with zero NFL experience who played only two college games in 2009 due to injury gets $50 million guaranteed without any criticism being leveled at the Rams.

The problem with having so much guaranteed money is that if Sam Bradford is a bad NFL QB, the Rams still have to pay him $50 million. For the league, that is awful. For the NFLPA, that is money that could be spent on veteran players who actually perform.* JaMarcus Russell is the poster boy for this. And the risk imposed by the huge guaranteed money paid to players at the top of the draft has turned getting a top 10 pick from a consolation prize for being a bad team into an anchor that can ruin an already-struggling franchise.

After the jump, I will explain where the sides disagree, and discuss the various ideas on the table.

Contract Futures: Incentives For Rookies

Now that all of the picks from rounds 3 through 7 have been signed, I wanted to take a minute to discuss a feature of those deals. Teams are split about the length of those deals. Some do three years in length and some, like the Eagles, do four.

A feature of the four year deal is that it has a salary escalator built into the fourth year. This is because restricted free agency makes it likely for a player on a three year deal to get tendered at a much higher base salary for his fourth year assuming he is any good. In order to make players forgo that potential upside, teams write somewhat more limited upside into the contract.

For example, according to a league source, Kurt Coleman’s deal includes an escalator that gives him a raise from a minimum salary in his fourth year up to a $1.1 million base salary if he plays in 35% of defensive snaps in two of his first three seasons, and if just one of a basket of other things happen: Coleman intercepts 7 passes in any year; Coleman leads the team in interceptions; Coleman leads the team in interception return yardage; or, most importantly, if the team as a whole reaches an unspecified incentive (such as total interceptions or total tackles, or the like).  As I understand it, usually the team incentives are written such that the team is likely to achieve that incentive at least once in the next three years.

His fourth year base salary can further escalate to $2 million if Coleman plays in a Pro Bowl in his first three years, as well as one of the same basket of things above happening.

This structure appears to be consistent for all of the late round picks, as I understand it – 35% playing time in two seasons as the primary trigger, and $1.1 million as the escalated salary.

Teams vary in how they structure incentives like this. According to the source, however, the Eagles are somewhat unique in that most teams offer an escalator to $1.308 million (or, in the case of the Texans, $1.408 million) rather than $1.1 million. Last year, the Eagles’ escalator was $1.0 million, as opposed to the rest of the league which used between $1.22 million and $1.308 million.

To compensate for that difference, the Eagles offer the second $2 million escalator. As I understand it, that is not typical league-wide.

Whether this second escalator is actually an achievable number is an open question, but three later round Eagles under Reid have made the Pro Bowl in their first three years in the league: Jeremiah Trotter, Brian Westbrook and Trent Cole. Plus, Stewart Bradley and Brent Celek, for example, were relatively close – Bradley had a good shot last year before he got hurt, given the press he was getting, and Celek was a victim of some extraordinary tight end play in the NFC. So it isn’t like that second tier isn’t possible if the player is any good.

That said, it is only a fair offset if about one in every four players who qualifies for the first tier also qualifies for the second tier. I am skeptical about whether that is likely to be the case. Overall, I’d guess this is a savings for the team.

From what I have seen, it doesn’t seem like the Eagles are paying more in signing bonus to their rookies to compensate for this difference. That means one of two things: either the agents see the second tier escalator as a fair offset for the lower first tier escalator, or they just don’t think it is worth their energy to argue about for guys who have to focus first and foremost on making the roster. I asked another league source about this issue, and he told me that generally agents care about this difference, but when the team shows that it has done the same for similar players and that there is precedent, the agents back off.

The real question is why do the Eagles make the effort to do things differently than the rest of the league in this case? My take is that they value top tier talent more than lower tier talent. They’d rather bump an exceptional guy higher and save that money on the backup-type players. They’d rather pay $2 million to a guy who makes a pro bowl early than pay an extra $200k to a situational player, like an Omar Gaither.  Chances are they will extend the pro bowler anyway, so it is an investment in the future in a way, while for the mid-level guy, who they might not keep, it is just throwing good money away.

That's just reading tea leaves though. More complications for an organization that likes them.

Contract Futures: 2010 Draft Class

The good news is that 10 of the 13 picks from April have been signed to deals. However, there are still a trio of players left unsigned. While Riley Cooper is not expected to be a problematic signing – unless the Texas Rangers surprise us and try to buy him back out of his football career – Brandon Graham and Nate Allen could present more difficult negotiations.

Brandon Graham

Graham is on the record as saying that he doesn’t want to be a holdout:

"I need to be here on time because I know that I have an important role," said Graham, the Eagles' first-round pick. "I don't want anybody thinking I'm better than them holding out and stuff like that.

"You lose respect."

The problem is that with first round picks, relative positioning is very tricky. And the problem is not because of signing bonuses. What winds up being the ultimate sticking point are escalators. Andrew Brandt had an article last yearon his experience with the Maclin negotiations and what wound up being the main problem.

In negotiating the contract for Jeremy Maclin, the wide receiver taken after Crabtree in the first round (albeit nine picks later), one of the difficulties was that the selection was sandwiched in the first round by players who were defensive linemen, offensive linemen, a tight end, a quarterback, etc. Should that matter, you ask? For the purposes of base contract and guaranteed money, not really. The player is picked where he’s picked; it’s of no import -- except for a quarterback -- what position he plays.

The place it matters is upside, i.e., escalators. It’s challenging to equate the level of difficulty of the escalator to players in entirely different positions where statistical accomplishments -- very important to a wide receiver -- are largely irrelevant, save for sacks. The primary escalation marker for many positions is playing time, not directly relevant to a receiver.....

In the Maclin negotiation, the concern about escalators from the Maclin camp was that even though the Eagles pass as much as any team in the league, they spread the ball around, lessening the chances for dramatic impact of the escalators.

There are going to be two groups of comparables for slotting purposes. The first group is the players above and below him. The second group is defensive linemen taken around him. Here is the list of those players.

Obviously, the point I am making is that the Eagles veterans, let alone their rookies, report to camp before any of those teams open up. Thus, it is highly likely that Pierre-Paul and Morgan, at a minimum, will wait to see what Graham does before finalizing their own deals.

That puts an immense burden on Graham (if he wants to get into camp on time) to sign before his key benchmarks for 2010 have been established. And more importantly, it puts that burden on his agent, who ultimately is responsible to his client for maximizing that guy’s income.

Graham is represented by Joel Segal. Last year, Segal negotiated two first round deals: Aaron Maybin (signed August 21, jointly negotiated with Chafie Fields) and Percy Harvin (signed August 2). Both guys did not report to their teams on time, and Maybin was arguably set back significantly by the time that he missed.

None of that is meant to be doom and gloom. But let’s set our expectations accordingly. It isn't the end of the world if Graham misses some camp, especially rookie camp. Three weeks like Maybin, yeah, that is no good. But a few days? It's almost to be expected.

Not surprisingly, by the way, the Eagles appear to have prepared for the possibility of him missing time. That is likely why they have 81 guys on their roster, nine of whom are defensive ends. Even with Victor Abiamiri unlikely to participate in camp, they still have eight guys at a position where they usually have six or seven in camp. Let’s put it this way: I don’t think I’m going out on a limb by guessing that Eric Moncur is unlikely to last a minute past Graham’s signing.

Nate Allen

The thing about Graham is that he isn’t the most important draft pick to get to camp on time. That guy is Nate Allen. As the current starting safety, it is crucial that he be ready to go in Week 1, more than any other member of his class.

So getting Allen signed is a priority. For second round picks, this isn’t a huge issue. There is the stickiness of the early reporting date to worry about, though. Fortunately, the closest comparable is TJ Ward, a safety taken the pick after Allen, who is due to report to rookie camp three days earlier. Here are the players and defensive backs surrounding Allen, and their report dates.

 

That aside, deals for second round picks are less complicated to negotiate. And any escalators built into the deal will be that much more likely to be reached by the player given that he will be starting from day 1. Unlike for Maclin, who was playing for a team where passes get spread around, or Graham, where DEs rotate snaps. Allen will probably be asked to play something close to 100% of defensive snaps, assuming he is healthy.

This contract should be easy to negotiate.

Riley Cooper

Picks in the 5th rounds get the contracts they get, in many ways. A poster named erformc on the EMB has been looking at the bonuses that our signed picks have gotten relative to 2009 draft picks.

His analysis has taught me a couple of things about how bonuses are set. First, the bonus is based not on the overall pick relative to the prior year, but based on the round. For example, Ricky Sapp’s deal was pegged to the 3rd pick in the 5th round for 2009, not to the 134th overall pick. Second, the round in which you are picked has a huge impact on your bonus. For example, last year the last pick in the 4th round, Terrence Thomas, got a signing bonus of $399,250. The first pick in the 5th round, Jason Phillips, got $208,067.* This is almost certainly because of how the rookie cap allocation formula works – that dictates a lot of how the bonus seeding process is determined – but it still strikes me as odd. A nearly $200K difference between the 136th and 137th overall picks? Wow.

Here is how the bonuses for Eagles picks have stacked up against comparable 2009 picks so far, along with my estimate for how Cooper will wind up falling. Note that for the most part, the bonuses for our picks have been rounded, so the percent increases are going to be a little off, especially for the later picks:

 

We will see how Cooper stacks up once he is signed, but if the pattern holds, I should be pretty close.

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* Note that Phillips got $156,050 as a signing bonus on a three-year deal. The number shown puts that figure on a four-year deal equivalent: $208,067 = (4/3)*$156,050. This is consistent with the second pick in the 5th round, who got a bonus of $206,900 for a four-year deal.

Contract Futures: Trent Cole

Should Trent Cole hold out? Starting with an original post at McNabb or Kolb, and continuing in the comments section of Derek’s post from a couple of days ago, there seems to be a lot of interest in what the future of the Eagles star defensive end will be. Starting with this post, I’m planning an occasional series of posts on other players, I will look at individual players’ contract situations and what we can reasonably expect the future to hold.

What is Trent Cole’s current deal?

In Cole’s second year in the league, he was given an extension through the 2013 season. Since his rookie deal ran through 2008, there were five new years agreed to as part of that deal.

His base salaries from his rookie deal were left more or less untouched. The only new monies from the deal were a) base salaries from 2009-2013; b) a pair of $6 million bonuses, one paid in 2006 and the other paid in 2007, both of which were ultimately treated as signing bonuses; and c) some relatively small workout bonuses ranging from $100K to $175K per season. Thus, at a baseline, the deal included $13.8 million in base salaries, $12 million in signing bonuses, and $650K in workout bonuses.

In addition, Cole can earn salary escalators in his contract ranging from $500K to $2 million per year. In total, these performance-based escalators can pay him an extra $5 million. Note that he has actually earned the escalators for the 2009 and 2010 seasons.

The easiest way to think about the deal is that it pays him between $5.3 million and $6.3 million per year for the five new years on the deal, with $2.4 million per year of that guaranteed.

Is Cole underpaid?

He certainly is highly-paid as it is. But to know if he is underpaid, we need to look at some comparable deals.

Cole is currently 27 years old. First, let’s look at some information put up by JI Halsell at Football Outsiders from last fall. Focusing only on the new money portion of that chart, let’s look at how Cole stacks up against the 4-3 DEs / 3-4 OLBs on that list (the 2nd through 6th ranked guys). I threw on three Eagles DE comparables signed between 2006 and 2008 as well. I have also put on sacks in the three years prior to the contract signing, and career pro bowl appearances as of the signing. These are not, of course, the best possible metrics for evaluating defensive end play, and I don’t intend to start a discussion of how good Cole is. My point here is to show whether Cole has any right to be considered with those guys (click for larger size): 

 

As of the date of the signing, I’m not sure Cole is as good as Ware has been. But is he as good as Freeney or Allen at the time they signed their deals? I could see that argument being made. At a minimum, it is not unreasonable to put him in Suggs’s or Smith’s league.

So if I am Trent Cole, I figure that I should be getting $10-12 million per year. Not because of what I have done, necessarily, but that the range is what a team would value my expected contribution to be over the next 6 years.

But Cole signed his deal of his own free will. Why would/should he ask for a new one?

Ah, now here’s where it gets difficult. Sure, Cole is underpaid. Absolutely. But so what? He signed a deal early, a deal that both he and the Eagles were happy with at the time of the signing. He took sure money over the risk of injury and the risk that he wasn’t this good and likely regrets that today. But that’s the way the cookie crumbles. Right?

Yes, that’s a nice theory. But the reality is that players get their deals renegotiated all the time. It isn’t always good for their image with the public, but so what? Brian Westbrook got a straight up raise. So did Donovan McNabb. There is precedent. So the question isn’t whether Cole has a right to ask for more, the question is whether he has enough leverage to get the Eagles to reset his deal. The worst that can happen is they say no.*

So what should Cole do to get a new deal? Should he hold out?

Here is the real question worth debating. What should Trent Cole do?

The first thing he should do is have his agent start letting the Eagles know he wants to redo his deal. Quietly. See what the response is. If he isn’t getting the action he wants, the next thing to do is to take the campaign public. Leak it to the media, let some intrepid reporter start making noises.

That’s all fine, and may have happened, or be in process. But the first real noticeable action is to hold out. Not out of training camp. Out of OTAs. Why OTAs? Because they aren’t mandatory. There are no penalties for missing OTAs, especially for a veteran like Cole who doesn’t really even get much out of them. Send the message.

Cole didn’t do that though. Which makes the question of holding out of training camp a strange one. Training camp holdouts are subject to penalty, most significantly 25% of the proration from his signing bonus. Remember: the Eagles ultimately paid $12 million in signing bonuses because the 2007 portion was converted to signing bonus prior to it being paid. That means that Cole would be subject to having to repay $500K if he violates section 9(a) of article XIV of the CBA:

No forfeitures of signing bonuses shall be permitted, except that players and Clubs may agree … that if a player willfully takes action that has the effect of substantially undermining his ability to fully participate and contribute in either pre-season training camp or the regular season (including by willfully withholding his services in either pre-season training camp or during the regular season or willfully missing one or more games), the player may forfeit the greater of: (a) 25% of the prorated portion of his signing bonus for the applicable League Year for the first time such conduct occurs after the beginning of training camp until the end of the season for his Club, and the remaining 75% prorated portion of his signing bonus for the applicable year for the second time such conduct occurs during that period that year; or (b) the proportionate amount of his signing bonus allocation for each week missed (1/17th for each regular season week or game missed).

Assuming Cole has such a clause in his contract – and it is my understanding that most if not all contracts signed since 2006 have such a clause – that’s a steep price to pay. Would the Eagles pursue a claim? Probably not – Cole is too valuable to alienate like that. But why open the door in a year where owners are looking for reasons to attack?

One way to think about the costs and benefits of holding out is to consider that Cole could add $5 million for 2010 (upping his deal average from $5.3m to $10.3m) with a cost of $0.5m. Thus, if he has just a 10% probability of the holdout resulting in a raise, he should be neutral on whether to use this strategy.

However, that is a massively simplified way of looking at it. In fact, the Eagles could become less willing to give him a raise at all. The cost of holding out could be much greater due to alienating the negotiating partner, especially since Cole is contracted to the team through the 2013 season. And I would say that holding out would lower the chances of the Eagles cutting a deal to approximately 0%.

So if I were Trent Cole, I would absolutely not hold out of training camp. OTAs, yes. Training camp … I’m not sure I see the upside, given that the Eagles usually don’t respond well to being pressured. In fact, they do seem prone to cutting off their nose to spite their face in such instances.

Should the Eagles renegotiate Cole’s deal?

One of my favorite questions. I think that the biggest hazard of the team’s long term deal strategy is that by year 5 or 6 of the deal, players become unhappy with it. While the Eagles measure time in terms of the extension years – so this is only year 2 of this contract from the Eagles’ point of view – this is the 5th season that Cole will play under the renegotiation. It seems to him like a long time ago that this deal was agreed to. And it was.

Further, when a player so drastically exceeds expectations, as Cole has done and as Westbrook has done before him, it is probably good for the organization to reward such a performance. It creates incentives for everyone.

The problem is drawing the line. In a situation like Sheldon Brown’s, where he had certainly outperformed his deal but where the remainder of it was in line with his actual market value – he didn’t actually get much more money from the Browns in the end – it is a tough call.

Similarly, you have to be careful about the “rules” for qualifying for a raise like that. The Eagles have claimed that they won’t consider giving a player a raise until the third year of the extension period kicks in. They also look at how long the existing deal has left.

The magic number appears to be 3 years in and/or 3 years left. For Cole, that’s 2011. So if the 3-and-3 rule is correct, then the Eagles should say, yes, we will discuss this, but not until next year. Sorry.

That said, this year presents a unique opportunity. Obviously, the lack of a cap allows deals to be somewhat front-loaded, creating spending room in future capped years. Given how expensive a fairly-priced Trent Cole would be, that front-loading could be quite helpful if the team is going to give him a raise eventually. So if the team is willing to make an exception, this is a key year to do so.

If it were me, I think I’d extend Trent sometime before the season starts. But I think the Eagles should certainly put him near the top of their to-do list for 2011. Along with Kevin Kolb, Stewart Bradley, DeSean Jackson, Brod Bunkley … the list for next year is certainly getting long and expensive, isn’t it?

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* Well, ok, let’s acknowledge the players’ complaint, which is that the worst that can happen is the Eagles organization marginalizes him and hurts his value out of spite. I am sure that is what Lito Sheppard and Mike Lewis would claim. Is that realistic? Not in this case, and for those two guys, even then it is a tough argument. But it is one that probably has traction in the locker room, so let’s just all note it and agree to move on.

Why Do We Believe That Top Draft Picks Are Overpaid?

For years, there has been a paper floating around by a couple of economists, Cade Massey of Yale University and Richard Thaler of the University of Chicago, which looks at the "value" in draft picks, and at the market for draft picks in trades. They have recently updated it (downloadable from SSRN) and actually have been promoting it a bit. The main finding of the paper boils down to this chart (Figure V in the paper):

 

Expected performance is highest for the best players in the draft, but at the top of the draft, the players are expensive, so the “surplus” value net of compensation is concave. How do they come up with this? To determine the value of a player, they look at player performance for guys on their second contracts in the league, and then look at what those guys’ salary cap hits are, and finally associate performance levels with those salary hits. So a pro bowl performance is worth $X, starting worth $Y, backing up worth $Z, etc. They then subtract what the draft pick’s actual salary cap hit was from that benchmark value, and the net is the surplus that the draft pick generated.

I will discuss their methodology more below, but the main reason for this post is that Thaler recently wrote an article in the New York Times, where he said:

It turns out that the N.F.L. and the players’ union are trying to renegotiate their collective bargaining agreement. One topic reported to be on the bargaining table is shifting some of the pay away from early draft picks.

The owners and players should find common ground on this issue, because it makes absolutely no sense to be giving so much money to unproven rookies, many of whom turn out to be busts. By reducing the premium paid to the highest draft choices, the league could restore the redistributive goal that the draft was created to achieve. And veteran players would probably agree with the principle that eight-figure salaries should be reserved for players who have already proved themselves on the field.

Last week, Brian at Advanced NFL Stats put up a solid rebuttal to that point. Look at the graph again: the surplus value is positive at all points. All draft picks are getting undercompensated, he observed:

Surplus value peaks shallowly at the bottom of the first round and through the second round. That's where teams get the biggest bang for the buck. But still, the draft pick surplus is significantly positive throughout the entire draft. Contrary to Thaler's remarks in his recent NTY [sic] article, draft picks are bargains compared to veterans.

According to Massey and Thaler, although the top picks appear to be overpaid relative to later picks, draft picks in all rounds are underpaid relative to veteran players. Thaler's own research contradicts his recent statement that it makes “absolutely no sense to be giving so much money to unproven rookies.” It makes perfect sense to me.

I think that Thaler’s point, though admittedly not well presented, is a bit stronger than Brian makes it out to be. Massey and Thaler measure total compensation to players. They don’t distinguish between guaranteed money and non guaranteed money. But for players at the top of the draft, most of their pay comes from guaranteed money. The veteran deals that create the benchmark are largely non-guaranteed. Therefore, there is much more leeway to cut costs for veterans if they stop performing than for draft picks if they bust.

This makes the risk of top picks far greater than the chart above makes it seem to be. As I will point out, later, Massey and Thaler fail to account for this on either side of the equation, but this guaranteed money increases the risk of the deal and doesn’t increase the payoff. That is the problem with the contract rules for draft picks.

Said another way, we shouldn’t be concerned that Matthew Stafford got 6 years, $72 million at the top of the draft, because in expectation, he was likely to be more valuable to the Lions than that – we should be concerned that he got $41.7 million of guaranteed money, which drastically reduces the team option to cut him if he winds up being horrible.

However, that isn’t to say that I like this paper. In fact, I have always had issues with it, for several reasons. One reason is what Brian called the brick-layer theory:

Now that I'm thinking about the Massey-Thaler paper again, I'm wondering if the overvaluation of top picks might be justified, at least to some degree. Massey and Thaler seem to assume a linear "bricklayer" model of football player production. By that I mean that a bricklayer who lays 10 bricks per minute and makes $10 per hour can be replaced by two slower bricklayers who each lay 5 bricks per minute and make $5 per hour. In this model, absolute performance is what's important.

But one great QB cannot be replaced on the field by two average QBs, and a team can only field 11 players on the field at a time. It can only carry 53 players on its roster. The bricklayer model does not apply. Further, relative ability is what matters in football, not absolute ability.

Beyond this, I have other problems with the paper as well, as I will describe after the jump.

Peters Gets Paid (Again)

It appears that Jason Peters has achieved a $9.79 million escalator in his contract.  According to NFLPA records, his base salary for 2010 now stands at $12.69 million for 2010, which is a huge increase over the $2.9 million base that used to be in their database. I had not seen this escalator publicly discussed before, so this was a surprise to me.

UPDATE: I am told by one of the team's beat guys that a team source says that this is not actually an escalator, nor is it new money. Appartenly, the team has converted bonus money into base salary. Assuming the original reporting on the deal is correct, this seems to mean that $9.79 million of the $11 million signing bonus [or, perhaps more accurately, the 2010-2013 prorations of the signing bonus of $8.8 million plus the $1 million workout bonus for 2010] wasn't actually paid in 2009, and now is base salary in 2010. That seems to move $6.6 million of prorations out of 2011-2013, when presumably the cap will be back in place.

I bring this up for two reasons. First, it can help us think about extensions for guys like DeSean Jackson, Kevin Kolb and Stewart Bradley. Second, it is one more piece in understanding what exactly the Eagles are spending this year.

Extending Around the 30% Rule

I have discussed the 30% rule in the past. What it does is limit the ability of the team to increase salaries beyond the player’s 2009 base salary. For guys like Jackson, Kolb and Bradley, that could be problematic.

The Peters escalator illustrates one way around that. The salary escalator in question was likely classified as “not likely to be earned” (or "NLTBE").* The standard may have been making the pro bowl, the standard may have been games/snaps played, who knows. But regardless, it was put into the deal, and it allowed the player to earn more money without it being factored into the calculation for salary. [UPDATE: Just to be clear, this point is true regardless; DeSean Jackson got a large NLTBE bonus in 2009 for that very reason.]

The use of escalators, therefore, is a way to give players pay increases without violating the 30% rule. Further, for players like Kolb and Bradley, they have the added advantage (for this purpose) of not having played last year. Therefore, minimal playing time, like 35% of snaps in 2010, could be used as a trigger for escalators and would be classified as NLTBE, because they played less than that in 2009. This is just one way a creative team could potentially get around the 30% rule without just putting the entire extension into a signing bonus.

[UPDATE 2: As ICDogg points out in the comments, "Completion Bonuses" are a clever way around the 30% rule as well. Cap guru AdamJT13 explains these here. However, it is worth noting that this technique doesn't really get around the issue of putting large amounts of guaranteed money vs. non-guaranteed money in an extension, though it could combat risks of "bad behavior". It also back-loads a deal rather than front-loading it, which makes it a sub-optimal strategy for the Eagles.]

Eagles Spending

Derek asked me the other day over e-mail how the Eagles were doing against a hypothetical salary floor, now that they had axed every free dollar that they could.

By my estimates, they have saved about $43 million in cash this year. But they had a whole lot committed before that, so right now, they will spend (or have already spent) about $103 million in 2010, a number which will go up after they sign draft picks.

In cap terms, that number is actually bigger by my current estimates, at about $108 million. Adding in spending on draft picks and potential extensions/acquisitions to come, I would expect that number to increase to a level where it is comfortably over any floor we consider.

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* Note that I do not know for certain that it was classified this way, or that classifying it as likely to be earned (“LTBE”) would have changed whether the deal complied with the rules. But I believe that if it had been classified as LTBE, we would have heard about it before.

Extending DeSean And The 30 Percent Rule

Some confusing stuff today from the beat guys on whether DeSean Jackson could be extended. The writers seem to suggest it is close to impossible. I'm not buying it. I believe that a creative team can get this done if it wants to.

From Domo:

Under the terms of the CBA, base salaries are limited to 30 percent increases per year. Even at the maximum 30 percent rate, it would take Jackson 4 years just to get his base salary up over $1 million, which is a lot of money to me and you, but is chump change for a Pro Bowl wide receiver who scored more than a quarter of his team's offensive touchdowns last season.

Signing bonuses are exempt from the 30-percent restriction, which means the Eagles could theoretically solve the problem by giving Jackson a ginormous signing bonus. But teams are reluctant to do that because of the language in the CBA restricting forfeiture of signing bonuses if a player gets into Michael Vick-like or Plaxico Burress-like trouble. Not that they expect Jackson to go out and slaughter dogs or shoot himself in the leg in a bar any time soon, but hey, you never know.

"There's really no loophole around [the 30 percent rule]," the league executive said. "The only thing you can use is the signing bonus. But you've got to still maintain some reasonable percentage of a deal. Otherwise, you're putting yourself out there naked. If the guy does something stupid down the line like Vick or Burress did, you're absolutely screwed."

From McLane:

A signing bonus does not count toward the base salary, so the Eagles could theoretically give Jackson a big roster bonus. But if the signing bonus is higher than the base salary, it would fold back into the base salary in the new collective-bargaining agreement.

It isn't just Jackson who we have to consider this rule applying to, it is Kevin Kolb and Stewart Bradley as well, and that could be an even bigger problem. If Jackson is truly unable to get paid this year because the team's hands are tied by the rules in place, so what? In that case it is what it is. For the other two, their deals are up after this season, and risking free agency -- and potentially unrestricted free agency if a new CBA is signed before the free agent signing period is allowed to start -- is clearly dangerous.

Let's try to sort out exactly what the rule is, so that we understand exactly what is possible and what is not. Here is how the NFLPA summarizes it:

30% Rule (Article XXIV, Section 8(b), pages 133-134 and 241)
Renegotiations/extensions entered into in the 2010 League Year of 2009 NFL player contracts may not increase per year from 2009 to 2010 or beyond more than 30% of 2009 Salary. For example, if 2009 Salary is $2m, the maximum Salary available in 2010 is $2.6, 2011 is $3.2m, etc. Salary for 30% Rule does NOT include amounts treated as Signing Bonus or early termination buyout prorations tied to NLTBE incentives (those tied entirely to LTBE incentives are open issue with NFL), but DOES include option extension bonus prorations.

First, understand that the 30% rule isn't anything new. New contracts have NEVER been allowed to grow at more than 30% per year based on the first year of the contract. The change is that now, extensions / renegotiations are pegged to the 2009 value of the old contract. That obviously limits what can be done.

Second, it doesn't really apply to "Paragraph 5 salary" or "base salary". Later in the summary quoted above, the NFLPA defines Salary, which is the way it is defined in the CBA sections that discuss the 30% rule:

Salary=base salary, roster bonus, reporting bonus, signing bonus prorations, LTBE’s and other payments to players.

So the 30% rule salaries we are talking about are defined to be Salary less "Amounts Treated as Signing Bonus" and early termination payments. Those amounts treated as signing bonus are NOT going to include roster bonuses, because roster bonuses and signing bonuses are different and are treated differently.

Finally, I think part of the confusion about this rule comes from why it even exists. The NFLPA quote above cites two sections of the CBA: pages 133-134 and page 241. There is nothing on pages 133-134 that give any indication of why this rule would be applied this way in an uncapped year. The answer comes from page 241:

Section 4. Effect of Early Termination on Player Contracts:

(a) If otherwise in compliance with this Agreement upon execution prior to notice of early termination, a Player Contract may not be found to violate this Agreement solely by reason of a subsequent early termination of this Agreement. For example, a Player Contract that, upon execution, complies with the 30% Rule set forth in Article XXIV, Section 8(b), may not be found to violate the 30% Rule solely by reason of a subsequent early termination, although neither the Player nor the Club may, after notice of early termination of this Agreement, exercise any options, or otherwise exercise rights or take actions that would, upon exercise or implementation, cause the Player Contract to violate the 30% Rule.

It's confusing language, but the interpretation seems to be that a renegotiation of an existing deal is considered "taking actions" that would cause the contract to violate the 30% Rule. So it isn't really that base salaries are limited to 30% increases, it is that you have to keep the renegotiated deal, when considered in connection with the original deal, from violating the 30% rule.

But here's the thing: rookie contracts have always been very limited in just this way. You are stuck with a relatively small rookie cap, which limits the total first year cap number for all your rookies. And then rookie salaries are governed by a 25% rule -- similar rule, just 5% lower. But somehow, teams are still able to give massive contracts to first round draft picks. They give out bonuses and escalators that are classified as "Not Likely To Be Earned" but in fact are virtually certain to be earned. They give out large signing bonuses to rookies. 

So is there a way around the restrictions for a creative team? Absolutely. Yes, it is difficult, but come on. If you can give out those things to rookies, what is the hesitation about giving them to your actual, proven stars? Heck, this is the team that came up with Westbrook's immensely complicated pay raise in 2008 despite huge restrictions. There is no reason that they can't get any deal done that they want to.

What cannot be done is front-loading those deals to take advantage of an uncapped year. So to the extent that there are players whose deals will allow for such a structure, those would take priority. DeSean Jackson, therefore, is not necessarily a priority, whether or not he "deserves" a raise right now. Kolb and Bradley, on the other hand, may be different stories altogether.

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By the way, the Redskins are brilliant. They figured out a way to stuff a ton of Albert Haynesworth and DeAngelo Hall's money into this uncapped year. Now that's creativity. You may not like the players, or the real price paid for them, but those guys won't be clogging up their cap once it comes back thanks to this move.