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

By
Andrew Brandt
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Alex Smith and Colin Kaepernick, here after a 2013 preseason game, were teammates on the 49ers in 2011-12. (John Sleezer/Getty Images)
Alex Smith and Colin Kaepernick, here after a 2013 preseason game, were teammates in San Francisco for two seasons. (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.

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

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

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….

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15 comments
anothervoiceofreason
anothervoiceofreason

Please give me your ear for a moment before dismissing the following comments. I've been in high tech sales for the past 20 years, both as a sales rep and as a sales executive. If I offer a sales job to someone at a guaranteed base salary of $100k/yr, with no incentives, how am I going to motivate him to put in the extra work to become a top producer (and generate more revenue for the company) when he knows that he can work as much or as little as he chooses to earn that salary? I can either pay him or fire him. Now, if I have another prospective hire, who I offer $75k salary + $75k commission for hitting his quota, and he wants that offer...guess who I'm going to hire? Because the guy who knows how hard he's going to work and how good he is at his job is the one who's most likely to succeed and instead make $150k/yr! If Kaep didn't believe in his abilities, he might have dug his heels in and demanded more guaranteed "base salary" to ensure his payday no matter how much he sucked on the field. It seems like everyone who's been bashing him are the lazy workers who in their own jobs put in minimal effort...just enough not to get fired...but aren't the types to challenge themselves to improvement. I wouldn't hire a single one of you. And that includes the QBs who win a superbowl (as part of SB winning TEAM) who don't think they have to continue to prove their worth to anymore. In this world, you're only as good as your last day. The other one has a lazy man's mentality. Believe in yourself, be willing to bet on yourself if you know you're good, and also be willing to be cut if you were wrong. What integrity and self-confidence this guy has! The insecure pus*y is the one who demands a guaranteed contract because he's scared he can't live up to last year's numbers. The truly intelllgent people on this thread will understand exactly what I'm saying. Plus, is $85 mil really that much worse than $100 mil over the grand scheme of things? If you can't live a blessed life on $20 mil than you are truly the biggest idiot of all!

eddie767
eddie767

Kaep.seems to be, at least, the 2nd 49er that was screwed by his agent. The CB, that lost bonus due to not working in SF, was 1st. What agent doesn't get a multi - yr instead of yrly . guarantee for a young player? $13 M is a lot of money, but he really has 5 one yr contracts. I thought most players like/want to know where they will be the next yr, if not old/injured. Oh well, if he's happy I still think he's crazy. Just my 2cts.

dawnsblood
dawnsblood

What I wonder is how common is it for a player to buy insurance that pays the team if he suffers a significant injury. Kaep's contract is the first I have ever heard of it. . .

Go_Niners!
Go_Niners!

Shockingly team-friendly contract for Kaep once you get into the actual terms.  They can pretty much cut him anytime with a very small commitment (unless he's injured).

bryon999
bryon999

The Chiefs weren't as good as their record indicated last year.  Their point differential suggests regression this year.  I'd look at developing whoever they drafted this year or maybe drafting another QB next year.  Smith should be on a year to year basis.

ProfessorGriff
ProfessorGriff

Chiefs should go 4 years $55 for Smith with about 30-35M in guarantees

Ocean_State_Patriots_Fan
Ocean_State_Patriots_Fan

Judging by his performance these last two seasons, the 49ers struck a proverbial “gold mine” with “Kap.”It’s only fitting that San Fran has now, in turn, given him the equivalent of one in the form of a $126MM extension.Sometime during the six-year tenor of that new contract, and sooner rather than later, the young Bay Area signal caller needs to become more of a pure pocket passer.Otherwise, “Kap” risks having a football legacy that may end up resembling something closer to “fool’s gold.”

OemD
OemD

"Somewhere Andrew Luck and Russell Wilson are smiling." Don't forget about Cam...

eddie767
eddie767

I'm late, to article, but like you this seems strange to me too. It seems like they want , the $13 M, guaranteed money back if he gets hurt. I'm wondering if this is legal and what was agent thinking.

AllThingsConsidered
AllThingsConsidered

@Go_Niners! Would you please stop contradicting the narrative by many commenters here that the 49ers are just idiots who don't know what they're doing, and basically committed suicide by signing Kaep for so much money? You don't want to burst any bubble now, do you?

RobertM
RobertM

@bryon999 I am a Chiefs fan and hope that they only give him year to year deals for this and then next year. They have 2 very promising rooks (Bray last years pick and Murray this years draft pick). 2015 should see a new QB of the future in KC starting and team will be a serious contender for SB. Aaron Murray or Tyler Bray are the future and Reid will coach em both up this year to be ready to step in 2015.

Sportsfan18
Sportsfan18

@OemD Mostly, it's the rumors that the salary cap could up by $10 million a year for the next two years or so like it just did this past season.


When the cap (if it does) goes up like $30 million, it is that much easier to fit a huge QB contract under the team salary cap.


Teams now are trying to fit $17 to $22 million a year for the top QB's into the cap as it is today.


Fitting roughly $20 million in when the cap goes up another $10 to $20 million will make it that much easier.


Yes, your point is valid and on target too...  If guys like these are getting this money...


Luck, Wilson and others must be licking their chops...

scottdraud
scottdraud

@RobertM @anothervoiceofreason I see your point but the one thing you are missing is the risk of injury. Most people work jobs that have a low risk of a career ending injury . The NFL has a very high risk of at least career altering and sometime career ending injuries. This is why I never blame an athlete who tires to get as much up front money as he can. To believe in yourself and your abilities is one thing but to think that a teammate won't miss a block, or that your cleats will never get stuck in the grass is another.

mcentyre42
mcentyre42

The Niners are idiots in the first place for letting Alex Smith lose his starting spot to an unproven QB Kapernick. He already has seen the Super Bowl when he wasn't ready & now has to go through the ups and downs of learning all of the things Smith had already learned the year they went to the Super Bowl. They DUMBASSES Would be UNDEFEATED IN SUPER BOWL CHAMPIONSHIPS. All of this is coming from an true OLD SCHOOL 49er fan (JOE MONTANA, ROGER CRAIG) ,

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