Explaining the Fifth-Year Option for Teams
Six days before the first round of the 2014 draft begins, NFL teams have a key decision point Friday night regarding the first round of the 2011 draft: whether or not to apply the fifth-year option, a novel feature of the 2011 Collective Bargaining Agreement (CBA). The option represents yet another tool in NFL management’s arsenal to assert control over ascending young players.
Of all the negotiation issues in the recent CBA negotiations, the rookie pay issue was the easiest issue to settle. Owners were embarrassed by outsized contracts for previous high picks such as Ryan Leaf and JaMarcus Russell, while the NFLPA was only too happy to oblige and move money from unproven rookies to proven veterans. Indeed, the only potential voice for incoming rookies were top agents who benefited from the old system. Agents’ interests, however, were not among anyone’s priority in the CBA negotiations.
Thus, the squeeze was on. Rookie earnings, especially at the top of the draft, were shaved by more than 50%. As an example, 2010 top pick Sam Bradford netted $48 million in his first four years, with 2011 top pick Cam Newton earning $21 million over the same time frame. On the plus side, the players were able to shorten the typical length of first-round contracts from five or six years down to four years (the now-mandatory length for all draft contracts), allowing players to reach free agency a year earlier. Well, about that…
The Option Year
The four-year term mentioned above can turn to five years at the team’s discretion. In the prior rookie pay system, teams and players negotiated “buy backs” of additional contract years, often for significant compensation to the player. The new CBA eliminated such bells and whistles from these deals but does permit teams to add a year to first-round contracts without buying it. Article VII, Section 7(a) of the CBA allows teams to apply a fifth-year to first-round contracts, provided it is exercised before May 3 of the player’s fourth season, with salary as follows:
- For players picked 1-10, the transition tag for their position in their fourth year (thus, the 2014 transition tag for 2011 picks);
- For players picked 11-32, the average salary of players ranked 3rd-25th in salary for that position.
For star players—such as Newton or J.J. Watt in this year’s group—the option equates to a free franchise tag at a price far below the real tag (teams can still apply the tag in the player’s sixth year). Even for lesser players, there is little risk in extending the contract for an extra year with no up front cost. Let me explain.
As discussed many times in this space, NFL total contract amounts that lack any true guarantees are just numbers on a page; the sums are illusory. That is largely the case with these fifth-year option amounts.
The option years now being applied are, at this time, guaranteed for injury, activating only if the player suffers an injury in 2014 rendering him unable to play in 2014 and 2015, a rarity in the NFL. In my nine years in the Packers’ front office, I can only recall a couple of times—both involving neck and spine injuries—where players injured one season were unable to play in the following season. Thus, except in very limited cases, NFL teams can release 2011 first-rounders before the fifth-year option triggers in March with no remaining financial obligation for the option amount.
The “true guarantee” for the option—guaranteeing the player against release due to skill, injury and salary cap reasons—does not activate until the start of the 2015 league year in March. NFL teams now have 10 more months of contract control and negotiating leverage with very little risk.
In the risk/reward analysis that all teams do on contract decisions, the balance tilts to exercising the option. In my opinion, the reward of having the player under contract, even at a relatively high one-year rate, outweighs the minimal risk of having to pay the player for a potential career-ending injury. The risk of serious injury is small; the reward of contract control is potentially significant.
In fact, the only way I would not apply the option for 2014 is if the player has a tenuous future for 2014, let alone 2015. The risk of serious injury is small; the reward of contract control is potentially significant.
Exercising the option allows the team to:(1)evaluate the player another season before the decision point for the “true” guaranteed year, and (2)use the leverage of another contract year to negotiate an extension on team-friendly terms, knowing the player is under team control through 2015.
By Friday night, we will know which of the 2011 first-round picks were not optioned; a number I would sense is going to be low. To those whose option was declined, that is certainly not a ringing endorsement on their status with the team. They could have been kept under contract another year for what is—at the moment—a low risk investment.