Patrick Mahomes' Contract Structure is a Blessing for the Chiefs, Curse for the Rest of the NFL
On July 6, 2020, Patrick Mahomes's record-breaking contract extension made waves across the sports world. It was a 10-year extension, ultimately worth up to $503 million over 12 years. The numbers were eye-popping, and the length of the deal seemed outrageous.
However, NFL contracts do not function in a vacuum. Guaranteed money, proration, base salaries and other under-the-radar details often push the science of NFL contracts beyond the understanding for most fans. Many NFL teams employ cap experts for a reason.
Heading into the 2021 offseason, the Chiefs have restructured Mahomes's 2021 salary cap number, opening up $17 million in salary-cap space for the 2021 season. The future that Chiefs general manager Brett Veach surely envisioned with Mahomes's contract became more clear with this move. It paints a picture that almost seems impossible.
Seven years, $150 million, with an average annual value of $21.4 million.
That is the contract Patrick Mahomes signed on July 6, 2020.
A $21 million per year deal is roughly what the Carolina Panthers paid for Teddy Bridgewater. Las Vegas Raiders quarterback Derek Carr signed a five-year, $125 million extension ahead of the 2017 season averaging $25 million per year.
It seems too good to be true. And, well, it partially is. In order to explain how the seven-year, $150 million deal fits within the larger Mahomes contract, a basic understanding of NFL contracts is needed. The Art of NFL Contracts series I wrote last year should be able to bring you up to speed.
Before diving deep into the intricacies of Mahomes' contract, there is one concept that needs reviewing: contract restructures. Restructures have been used religiously so far in the 2021 NFL offseason due to the salary cap falling to $182.5 million across the league. Restructures turn yearly monetary delivery systems like base salary and roster bonuses into a signing bonus. When a team moves that money over to a signing bonus, it then spreads out the money that was moved over up to five years of the contract and guarantees it.
As an example, say a player is on a three-year/$12 million contract that pays $4 million per year in base salary. If a team chooses to restructure $3 million of the year-one base salary, that $3 million would spread out over the full contract, adding $1 million to each year. The $1 million per year that is spread out is referred to as the prorated bonus and becomes fully guaranteed.
The year-one salary cap hit (the base salary plus the prorated bonus from the restructure) is now $2 million instead of $4 million. The year-two and year-three salary cap hits are now $5 million each instead of $4 million. This is an incredibly basic example, but the concepts are the same for real-world NFL restructures.
There are a few rules and realities that need to be known when it comes to restructures, roster bonuses and signing bonuses in light of Mahomes's contract:
1. The maximum years a salary bonus, and thus a restructure, can spread out on a contract is five years. If a contract is seven years long and a team restructured the deal in year two, then the prorated bonus from the restructure only applies to years two through six.
2. Roster bonus money is paid to the player near the start of the new league year. This offseason, that would be March 17.
3. Signing bonus money is paid to the player in full as soon as possible after they sign a contract or restructure their contract.
4. Cash flow is different than salary cap hits. A player can be paid a lot more money than their salary cap hit in a given year because of the signing bonus money being prorated over their contract. The salary cap hits are based on salary cap accounting.
Remember to keep these concepts in mind when talking about Mahomes's contract.
Why is Mahomes's contract special?
Patrick Mahomes's contract is unorthodox on the surface in two ways.
1. It is 12 years long.
2. Most of the yearly money is delivered in roster bonuses.
Here is where the brilliance of the deal starts to show.
Remember, the maximum number of years a restructure can spread out on a contract is five years. That means to create the maximum savings possible from a restructuring, the player's contract needs to be five years or longer at the time of the restructure.
Currently, Mahomes is the only quarterback in the NFL signed for longer than five years. In fact, Mahomes will have five or more years left on his contract for seven more years. That means the Chiefs will get the maximum savings for any restructuring they do on his contract for a longer period of time than any other quarterback is even signed for.
It gets more interesting from there.
Due to Mahomes's main yearly money delivery mechanism being roster bonuses, the Chiefs' actual cash flow changes very little with any restructure. The "actual cash flow" simply comes with Chiefs CEO and Chairman Clark Hunt writing and delivering checks to the players. As pointed out earlier, converting a roster bonus to a signing bonus right before the league year is only delivering the payment around a week early. For any restructuring Mahomes does in the future, Hunt already knows when and how much he will have to pay. It is obvious that Veach talked to Hunt about this specifically and got him to sign off on the payments for each year in the contract.
Combining the two unorthodox aspects of the contract creates something special. It creates a contract designed to already start pushing money out until the end of Mahomes's career, and it does its job well.
Mahomes's Contract Pushed to the Limit
The Chiefs converted Mahomes's full roster bonus into a signing bonus around a week before the official start of the 2021 season. This move set into motion the strategy behind the contract.
Using the principles outlined throughout this article, Mahomes's contract transforms into something incredible when every year's roster bonus is turned into a signing bonus.
Salary Cap Hits in a Given Year (Before restructure / After restructure)
2021: $24.81 million / $7.43 million
2022: $31.45 million / $13.23 million
2023: $42.45 million / $24.2 million
2024: $39.95 million / $28.18 million
2025: $41.95 million / $33.96 million
2026: $41.95 million / $37.40 million
2027: $59.95 million / $49.30 million
2028: $44.45 million / $51.6 million (The first year the future cap hit is above the current cap hit.)
From 2020 to 2026, the contract transformed from a seven-year/$227.9 million contract averaging $32.5 million per year to a seven-year/$149.73 million contract, averaging just $21.39 million a year.
The Chiefs will have options with how they go forward with Mahomes's contract, and they won't have to restructure the full roster bonus every year. By not writing the contract with concrete terms in place from day one, the Chiefs can pick and choose how much they will restructure each year. If they are able to roster Mahomes with a bigger salary cap hit in a given year, they may choose to not restructure his full roster bonus, and that choice is a great tool for the Chiefs.
And by the way, Mahomes does not lose out in this structure either. He still is paid the original salary that was outlined in the original contract he signed. In 2021, for example, he is still getting paid $24.8 million, with most of that money now coming as a signing bonus. With these restructures, Mahomes actually adds more and more of a potential dead cap hit to his contract as the years go on, which gives him even more security. There is no reason he should not be happy with this yearly maneuvering.
It is a good thing Mahomes will be happy with this, as it seems the Chiefs will likely restructure his contract pretty much every offseason going forward.
The Chiefs could be as aggressive as in the example given above. The Chiefs could also dial it back in some years. Regardless, Veach and the Chiefs have shown through their actions what Mahomes's contract actually is and how it will transform from here.
Why did the Chiefs and Mahomes do this?
This contract can only happen because of two people: Patrick Mahomes and Clark Hunt.
Mahomes bursted onto the NFL stage as a sensation from day one has given the Chiefs the ultimate security; the Chiefs know they have their franchise quarterback for the next 15 years. The commitment to a quarterback for 15 years is needed because this contract is impossible to get out of without destroying the Chiefs' salary cap. After a few restructures of the deal, the dead cap hits from cutting/trading Mahomes are obscene. Mahomes and the Chiefs are married, but both seem satisfied with that.
Hunt factors into this as well because the organization has to be stable to take on this commitment. Hunt knows this is a long-term investment with immense benefits if Mahomes stays happy and healthy. Hunt seems fine with the risk this contract brings as Veach had to get him to sign off on this contract. Without a stable franchise, this deal is not possible.
With the contract in motion, the Chiefs now have the luxury of having Mahomes, with the math laid out here, under contract for well-below his market value for at least six more years. As the salary cap soars, the Chiefs will continue to pay Mahomes below his market rate as quarterbacks like Josh Allen get paid on short-term deals that stretch their team's salary caps to the limit. Mahomes' contract might never truly test the Chiefs' cap if the Chiefs meet with Mahomes in 2027 and rework his deal.
There is no denying that during his time with the New England Patriots, Tom Brady took contracts worth less than his value over his career. While he was paid as a top-10 quarterback most years, he should have always been the highest-paid quarterback in the league. Mahomes's contract is trending in the same direction as Brady's. While Mahomes will earn a ton of money over the life of this deal, according to his salary cap hit, he will always be underpaid.
Read More: The Art of NFL Contracts, Part 1
