The Tale of Two QB Contract Negotiations

After spending the offseason angling for a big-money contract extension, Colin Kaepernick got his deal. Is ex-teammate Alex Smith next? Some unique challenges stand in the way
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Alex Smith and Colin Kaepernick, here after a 2013 preseason game, were teammates in San Francisco for two seasons. (John Sleezer/Getty Images)

Alex Smith and Colin Kaepernick, here after a 2013 preseason game, were teammates on the 49ers in 2011-12. (John Sleezer/Getty Images)

On Wednesday Colin Kaepernick and the 49ers consummated months of negotiations with a contract extension reported to be worth up to $126 million, with $61 million guaranteed. While the reported numbers are never what they initially appear to be, this represents a profound statement by the team about their most important and dynamic player.

I thought these negotiations were amongst the two most interesting in the NFL this offseason, the other being the ongoing talks between the Chiefs and Alex Smith, the quarterback Kaepernick once backed up.

I will analyze the Smith negotiations below. First, the Kaepernick deal, recognizing that the true contract numbers will not become available for a while.

Five Thoughts on the Kaepernick Extension

1) I think that the reports of $110 million or $126 million are just meaningless numbers. As readers of this space know, NFL contracts are not like NBA and MLB contracts, where reported values are real. Even the guarantee is, well, not really all guaranteed. My sense is the reported $61 million guarantee—vaulting Kaepernick to the top of the list in NFL guaranteed money—will be “stair-stepped,” with annual triggers activating different amounts of guaranteed money at different stages of the contract (thus not a “true” guarantee). As reported by Pro Football Talk, the $110 million contract is, in actuality, a $13 million contract and then "we'll see."  Certainly, the expectation is that Kaepernick will earn tens of millions of dollars in future guarantees that activate April 1 in each of the next four years, but as of now those guarantees are for injury only (should he be unable to play the following season due to serious injury), a guarantee of relative little value.

2) I think the length of Kaepernick’s rookie contract was a key factor. While the NFL took a sledgehammer to the previous rookie compensation system in the new collective bargaining agreement, Kaepernick was one of the few golden ticket winners. Although the second-round earnings on his rookie deal ($5.1 million over four years) paled in comparison to first-round riches, he was not saddled with a team option for a fifth year like first-rounders are—for example, the Panthers’ Cam Newton. That would have given the Niners two more years of contract control, and the lack of such leverage worked to Kaepernick’s benefit.

Kaepernick and Harbaugh have reached two straight NFC title games together, and the 49ers are banking on more. (Christian Petersen/Getty Images)

With Kaepernick as the quarterback, Jim Harbaugh's 49ers have reached two straight NFC title games, and three consecutive overall. (Christian Petersen/Getty Images)

3) I think the 49ers may have played a heavy hand due to Kaepernick’s highly undervalued existing contract. While all the comparable quarterbacks who received extensions over the past year—Joe Flacco, Aaron Rodgers, Tony Romo, Matt Ryan and Jay Cutler—would have earned double-digit millions the next year absent an extension, Kaepernick would have made approximately $1 million in 2014. With an always-present injury risk, the team used his undersized 2014 salary as a hammer here.

4) I think Kaepernick showed some admirable loyalty to his agent. It was no secret around the NFL that many of the most powerful agents were circling, anxious to corral one of the top players in the game. With the barbarians at the gate, Kaepernick remained loyal to the agent who helped get him to where he is, Scott Smith of XAM Sports. Too many players leave agents for bigger agents or agencies when their careers advance to another level. Those agents who had been targeting Kaepernick will now pounce on the lack of guarantees in the contract, with the implication that they could have negotiated a much more favorable deal had he switched to them.

5) I think that, based on their structuring of other veteran contracts, the 49ers are tying significant earnings in the contract to per-game roster bonuses. This feature, which I used in Green Bay and is used by several clubs, allows the player to collect money every week as long as he suits up, while protecting the team if he does not. Using these clauses with Kaepernick, their most important player, would pave the way for their use in upcoming extension talks for players such as Michael Crabtree, Mike Iupati and Aldon Smith.

In sum, the 49ers traded striking announced numbers in exchange for the structure that they wanted: a pay-as-you-go, year-to-year contract with protections for injury and downturn in performance. Kaepernick will play for $13 million in 2014 instead of $1 million; that we know. Beyond that, time will tell.

Now on to Kaepernick’s mentor, mentioned during his press conference Wednesday, Alex Smith…

Smith and the Chiefs

Two years ago the Colts released Peyton Manning, setting off an aggressive courtship between the future Hall of Famer and 12-15 teams including, despite later denials, the 49ers.

Smith, the 49ers’ incumbent, knew of that courtship—he shared Manning’s agent, Tom Condon—and accepted some wooing himself, flying to Miami to meet with the Dolphins. After the mutual “cheating” (and Manning choosing the Broncos), the 49ers and Smith reunited with a three-year, $24 million deal. Now that contract, assigned to the Chiefs in 2013 as part of a trade for Smith, is set to expire after this season. And although the Chiefs are publicly optimistic about a pending extension, this presents a difficult negotiation.

The past year was an active one for veteran contract extensions for top-level quarterbacks, with deals consummated for Flacco, Rodgers, Romo, Ryan and Cutler. Although every deal involved different circumstances approaching the negotiation, all range from $18-20 million average per year (APY) and $50-60 million in guarantees, setting a clear market for upper-echelon quarterback extensions.

Smith and Andy Reid led the Chiefs to a nine-win improvement in 2013, the first year in Kansas City for both. (David Eulitt/Getty Images)

In their first seasons with the Chiefs, Smith and Andy Reid led the team to the playoffs. (David Eulitt/Getty Images)

Condon will point to Smith’s superlative win-loss total over the past three seasons, as both a 49er and Chief. Since 2011 Smith is 30-9-1 as a starter during the regular season, a .763 winning percentage outpaced only by Peyton Manning, Aaron Rodgers and Tom Brady. Condon is also likely feeling bullish about Smith, knowing (1) he negotiated one of the key comparable deals (Matt Ryan) and (2) while Smith is certainly not Manning, any quarterback with demonstrated success still in his prime presents a precious free-agent commodity in the NFL. To wit, this offseason saw Michael Vick, Matt Cassel and Josh McCown—all of whom finished 2013 as backups and a level below Smith—garner $5 million APY in an open market.

Knowing Condon well from multiple negotiations and decades together in the business, he will use the strategy that has worked so well for him: anchor at a position and hold. That position is likely comparable to the market described above, as he now waits for the Chiefs to move.

Smith can be patient as he (1) is scheduled to make a respectable $8 million this season and (2) has accumulated significant career earnings, $57.65 million since entering the NFL as the top pick in the 2005 draft. That luxury gives Smith and Condon the ability to resist jumping at a front-loaded deal.

The bottom line

Ultimately, the Chiefs must decide if they are willing to put Smith in the range of recent top-level contracts. Logic says that if they were going to, this deal already would have been done.

My sense from afar is that while they certainly like Smith for the present and perhaps near future, they are not sold on him as their long-term answer. Further, no coach enjoys—or is better at—tutoring and developing young quarterbacks more than Andy Reid.

Pressed to predict what will happen here, I would forecast a deal that may give the impression of being “long-term” but in actuality it would be an extended engagement rather than a marriage. In this scenario, Condon would implement the structure used with the Colts for Manning in 2011: substantial amount in 2014, perhaps $15-20 million, followed by a considerable March 2015 option to extend the contract another four or five years. This would allow both sides future flexibility if they decide to only be together one more year.

It is quite an offseason in the business of football for two quarterbacks who were former teammates….