Rookie Contracts and the 5th Year Option
Patrick D. Starr
A guest entry from Tom Vanderslice
Many draft analysts have used the new rookie salary scale like a hammer to convince you that Ryan Tannehill (or Blaine Gabbert, or Jake Locker) is a totally reasonable Top 10 draft pick. Setting aside my personal opinions on that particular argument, I’d like to look at one of the lesser discussed aspects of the rookie scale as it applies to first and second rounders and how that might inform us on the Texans’ strategy and options at #26.
Under the new CBA, all drafted rookies receive a 4-year deal, but contracts for first rounders include a mandatory 5th year team option. There are two important questions when considering the 5th year option: What does it cost the team? and What is it worth to the team? Based on last year’s rookie contracts it appears the cost will be relatively flat across position groups, but the value will ultimately be very position specific and this may point us towards some prospects that could bubble up to the bottom of the first round and some that could drop down to the top of the second round.
What does the 5th Year Option cost the team?
The team option for a 5th year delays when a player can reach unrestricted free agency, and so teams are obviously expected to compensate the player for this up-front. I’ve compiled the important contract figures from the late first/early second round last year below. The drop from pick 32 to 33 was nearly $1M in signing bonus and $1.5M in guaranteed money. A team trading from the early 2nd round into the late 1st round can expect to commit $1.5M-$2.5M more to the player over the initial four years, in addition to whatever draft pick compensation was needed to complete the trade. That doesn’t seem like a lot spread over 4 years against the salary cap, but it is a 20-30% increase in the total contract value.
4 yr Total
(Millions of Dollars, sources: rotoworld and miscellaneous media reports)
What is the value of the 5th Year Option to the team?
The value of the option year obviously depends on the development of the player – a team is never going to pick up the option of a bust (yes, I have David Carr shaped blinders on). But I think it is safe to say that, on draft day, all teams are expecting their first round picks to develop into elite players. I think the best way to value the option year is to compare it to the only other way the team can restrict a player’s free agency – the Franchise Tag. Because this rookie contract structure is new, it is hard to say whether players will feel the same about the option year as they do about the tag, but the CBA does provide for pretty significant financial penalties for holding out of the option year (including a player missing game checks for missing preseason games).
The salary for the 5th year option is calculated based on the average of the 3rd to 25th highest paid players at that position in the 4th year of the contract. This is calculated in the same way that the Franchise Tag (top 5 salaries) and Transition Tag (top 10 salaries) are calculated. The salary cap is projected to stay relatively flat over the next few years, but it is still hard to tell exactly what these numbers will look like in the future. However, we can get an approximate value based on what the tag values would be today.
5th Yr Option
Savings v Franchise
(Millions of Dollars, source: spotrac.com. Full disclosure: I’m as big a critic of relying on spotrac’s numbers as there is, but because the NFL doesn’t publish these numbers it is unfortunately as good a resource as there is for large aggregate data like this)
A quick glance shows that this option is likely to be most valuable for quarterbacks, defensive linemen, and wide receivers. This means a team might prefer to take a player like Brandon Weeden or Rueben Randle “a little early” in the bottom of the first instead of the top of the second because it could save them $4M or $5M in the long haul. Conversely, this option is least valuable for tight ends and cornerbacks, so a team might prefer to wait until early in the second round on players like Coby Fleener or Janoris Jenkins because they are risking $2M to save not much more than that in the future.
While the relative salary disparity doesn’t jump off the page, RB is another position group where the 5th year option has significant value. Running backs have notoriously short careers and many teams are hesitant to “pay the man” after his rookie deal. Matt Forte and Ray Rice, drafted in the middle of the second round in 2008, are both prime examples. It is safe to say the Bears and Ravens would gladly go back to 2008 and pay an extra $2M to have those players under contract for one more year at a reduced rate and delay the “franchise process” another year. Using the 5th year option and the franchise tag, a team will easily be able to control an elite running back’s rights thru his 6th or 7th year, at which point most running backs are on the down side of their careers. Any team considering taking a running back between 33 and 45 would be smart to try to sneak into the end of the first round to secure the players rights for an additional year.
Finally, interior offensive linemen are hidden in the position chart above. Due to a quirk of the Franchise Tag rules (that I’m really surprised wasn’t changed in this CBA) all offensive linemen are grouped together. In reality, tackles dominate the list of highest paid offensive linemen (2/3rds of the top 25) and this is why guards and centers are rarely franchised. For 2012, the option year would cost a team $7.2M for any offensive linemen, but this is more than all but the top 3 or 4 veteran guards make and more than all centers are paid. It is pretty safe to say that if a team is willing to play a G or C that much in year 5 they can work out a long-term deal that will be cheaper for the team. Consequently, the 5th year option has practically zero value for interior OL. This is most interesting because late in the first round is where top interior OL historically start coming off the board. I believe any team late in the first round considering a guard or center gets significantly better value holding off for a few picks. In the extreme case, if the Giants drafting at 32 want to take Peter Konz they should offer to swap spots with the Rams at 33 for free!
What does this mean for the Texans at 26?
In ranking players relative to each other in the 25-40 range the 5th year option should marginally increase the value of quarterbacks, wide receivers, running backs, and defensive linemen and marginally decrease the value of interior offensive linemen, tight ends, and cornerbacks. Many of the names commonly linked to the Texans in mock drafts fall into one of these position groups. If the Texans have two players valued near-equally from a talent perspective, expect the coin flip to be more heavily weighted towards the wide receivers like Wright, Hill or Randle than the guards like Silatolu, Glenn, or Zeitler or the tight end Fleener.
This might also point to potential trade partners looking to jump back into the end of the first round. A team in the early second round targeting a QB or RB could be interested in moving up for the right price for purely contractual reasons.