Patrick Mahomes just became a very rich man. Mahomes also gave the Kansas City Chiefs a discount.
While it seems the two previous sentences can't coincide, it is the reality that was created when Mahomes signed a 10-year contract extension that could pay him half a billion dollars over the next 12 years. While Mahomes' mega-deal became the biggest in North American sports history, it could very well turn out to be a bargain for the Chiefs.
How is a contract that averages $45 million a year and pays out a potential $503 million a bargain? Using some concepts from my previous series, The Art of NFL Contracts, let's break down the deal.
The Full Contract
Chart via overthecap.com.
Mahomes' contract is the largest in North American sports history. He beat out Mike Trout’s $426 million deal by a fair bit, in terms of total money. Even though the Chiefs seemingly broke the bank to pay Mahomes, upon further inspection, the value becomes apparent.
The Signing Bonus
A $10 million signing bonus in a contract this big is quite an anomaly.
As a quick refresher, signing bonuses are fully guaranteed sums of money that are paid to the player as soon as possible upon signing, but the salary cap cost of these bonuses can be spread out over five years. Players like it because they get money immediately. Teams like it because they can spread out the cap hit.
Why did Mahomes get such a small signing bonus? For the most part, it is because there are other ways for him to get guaranteed money. Due to this small signing bonus, the Chiefs were able to form the first part of Mahomes' contract in an extremely favorable way.
The First Three Years
The first three years of Mahomes’ new deal might actually be the most shocking thing about the entire contract.
To understand this, we must first understand that this new contract is an extension. Ten more years were tacked onto Mahomes' existing contract, which already included the fourth year of his rookie deal and the fifth-year option the Chiefs had picked up earlier this year.
This didn’t have to happen. Even with Mahomes' meager signing bonus, there had to be a deliberate effort to keep the next two years' cap hits at almost exactly what they were before the extension. Money was moved around to preserve those numbers, and that concentrated effort led to pretty extraordinary results.
There have been four recent examples of quarterbacks signing extensions off of their rookie contracts, and out of all of them, Mahomes has the smallest total cash against the cap in the first three years, despite being the last and best one to sign.
This is the main way that Mahomes’ new deal is very team-friendly. By easing into the more expensive years of the deal, the Chiefs will have cash to sign players like Chris Jones if they wish. COVID-19 isn’t as scary a threat to the team's cap space. The Chiefs will be able to defer bigger cap hits to later in Mahomes’ deal when the cap has risen because of the new CBA. It's a bit crazy to see how flexible the Chiefs cap will still be with Mahomes' new deal on the books, which begs the question — why did Mahomes accept this deal? To understand that, we have to understand roster bonuses.
The primary system that Mahomes will get guaranteed money is through deferred, guaranteed roster bonuses.
As it stands now, Mahomes’ salaries in 2020, 2021, and 2022 are fully guaranteed. From 2023 on, Mahomes will have deferred roster bonuses in most years throughout the contract, structured as follows:
I can now see why the contract was reportedly 100+ pages.
While complicated in nature, when stripped down, the deal is relatively simple. On the third day of every league year, the Chiefs guarantee Mahomes either a roster bonus or full salary for a contract year that is one to two years into the future.
This is the security Mahomes gets with this contract. This guaranteed money waterfall makes it very difficult for the Chiefs to cut Mahomes without eating a large dead cap hit. This is because in a given year, the current year will be guaranteed and the year after will sometimes also be guaranteed. Each year, the Chiefs will need to decide what to do in regards to Mahomes' contract in the first few days of the league year, before Mahomes’ contract guarantees a lot of money for the next year.
With this waterfall structure of guaranteed roster bonuses, Mahomes has great financial security. This roster bonus structure is what was referred to as “guaranteed mechanisms” in the initial reporting about the contract.
So why did the Chiefs and Mahomes' agents go this route, with roster bonuses?
The answer probably has nothing to do with cap space, but lies in the fact that it’s just what Mahomes preferred. Guaranteeing base salaries could’ve functionally done the same thing as roster bonuses, but the way the player receives the money is different. Base salaries pay out over the course of the year in game checks. Roster bonuses, however, are paid out in one lump sum mere days or weeks after the league year starts in March. This way, Mahomes will get more money in a lump sum at the beginning of the year.
Another important thing to note: at any time, Mahomes and the Chiefs can agree to convert roster bonus money into a signing bonus. This conversion will then spread the reallocated money over the contract up to five years, which will relieve the cap hit in the year it’s done, but add more money to the contract down the road from the reallocation. This provides a built-in opportunity for cap flexibility later in the deal.
The five-year rule obviously didn’t escape the Chiefs, as Mahomes' biggest roster bonus, $49.4 million in 2026, happens with five years left on the contract. While a $60 million cap hit could be normal in 2026, it feels more like a forced date for the Chiefs and Mahomes to revisit his contract and possibly move some money around.
There is a smaller, very fun aspect in Mahomes' new contract that includes some incentives. Even suggesting that Mahomes could have performance incentives is a bit preposterous, but the targets are properly Mahomes-ified.
Starting in 2022, when the extension truly kicks in, Mahomes will earn $1.25 million if the Chiefs win the AFC Championship game and an additional $1.25 million if Mahomes wins the league MVP award. Ridiculous incentives for a player who makes the ridiculous happen.
These incentives are classified as “not likely to be earned,” so when they are earned they count against the cap the following year.
“$45 Million Per Year”
Mahomes’ contract continues to prove that raw APY, or average per year, is a poor way to judge contracts. It’s especially poor to use to judge a contract that is over a decade long.
On the surface, Mahomes’ extension averaging $45 million a year is scary considering the cap is only at $198.2 million right now.
However, Mahomes will not earn more than $45 million in one year until 2027, with the highest cap hit before that being $42.45 million in 2023. That $42.45 million cap hit is 21.4% of the 2020 cap of $198.2 million. That’s a ton of money! The raw APY of the deal, $45 million, is 22.7% of the 2020 cap — almost a quarter of the Chiefs' current cap.
The issue is that it is irresponsible to look at a contract from this view. Contracts are structured in specific ways for a reason, and Mahomes’ deal will probably never take up over 21% of the Chiefs' cap, as it’s hard to field a team if his contract did. With the new CBA and NFL TV deals promising a soaring cap, eventually, after rebounding from the COVID-19 pandemic, the NFL cap will exceed $198.2 million. The higher that number goes, the better Mahomes’ deal will look — and it already looks pretty darn good.
The Final Verdict
Mahomes told reporters during his press conference after signing his mega extension that he “wants to keep great players around me.”
If that is his wish, he has granted it. While Mahomes gets generational wealth and solid financial security, he gave the Chiefs great financial flexibility by limiting how much money will be taken up by his contract early on in his deal. Mahomes is currently slated to have the NFL's top QB cap hit in 2023, which is very late for a new quarterback contract. Plus, with players like Deshaun Watson and Dak Prescott getting extensions very soon, Mahomes may not even have the biggest cap hit by the time we get to 2023.
Mahomes could’ve asked for the world. He could’ve asked for his contract to be tied to the cap. He could’ve asked for short-term deals to maximize his earnings. He could’ve actually hampered the Chiefs' cap space.
As it stands now, he didn’t. The number is large, the years are long, and some cap hits are high, but it could’ve been worse in a multitude of ways. He gave the Chiefs the gift of flexibility and foresight. As Mahomes said himself: “We’re chasing a dynasty.”