Tuesday, March 5, 2013

Could the Quarterback Market Be Facing an Evil Bubblin’?

It is no secret that the quarterback position is the most vital one in football.  It can also be argued that with the various rule changes in the last decade designed to protect quarterbacks’ safety and promote the passing game, the quarterback is more important than ever.  Consequently, QBs make more money than any other position.  But with the meteoric rise in QB salaries compared to only modest increases in overall team salary caps in recent years, could we potentially see a bursting of the quarterback salary market bubble similar to that of the housing market or looming college tuition market?


Flacco Getting His Scrooge McDuck On

Let’s take a deeper look.  The biggest NFL headline this week is Joe Flacco's historic contract which amounts to $120.6 million over six years with $52 million guaranteed, making him the highest paid player in the league.  Upon signing the deal, Flacco will immediately get $29 million cash in his pocket plus another million in base salary during the 2013 season.  Let’s be clear that this figure is different than the cap hit Baltimore will incur this season.  Flacco will only count a modest $6.8 million towards Baltimore’s cap this year and a reasonable $14.8 and $14.55 million in 2014 and 2015, respectively.  However, his cap charges through 2016-2018 will be a whopping $28.55, $31.15, and $24.75 million.  To be fair, we won’t know the overall team salary cap limits in those years, especially with the influx of TV revenues that will ultimately boost team caps, but it will still represent an astronomical percentage of the team’s salary cap.  In terms of average payout per year, Flacco’s $20.1 million alone accounts for over 16% of the Ravens cap.

Upon receiving a $29 million check yesterday, Flacco can dive head first into a money pit like Scrooge McDuck.

Some will argue that this is an absolutely ridiculous contract for a  player who has never finished higher than 7th in QB rating, never passed for 4,000 yards, never threw more than 25 touchdowns, and has never made a Pro Bowl.  Others will argue that he just carried his team to a Super Bowl to the tune of a sizzling 117.2 playoff QB rating and could not have any more leverage than he does now.  But does either point really matter?  Salary cap gurus such as Jason Fitzgerald at overthecap.com believe that this is really no different than Eli Manning’s 2009 then record-setting contract which paid him an average of $16.25 million per year, thus making him the league's highest paid player at the time.  Neither Manning nor Flacco has ever been confused with Tom Brady or Peyton Manning, but what they are doing is resetting the market for future free agent QBs looking to cash in themselves.  Eli’s contract set the tone for his brother’s contract as well as Drew Brees’s (which we will get to later).  Flacco’s contract will now set the tone for Aaron Rodgers and Matt Ryan, two quarterbacks with a better track record who will almost certainly ask for more than Flacco.  In other words, while Flacco is the highest paid player today, things will quickly change.  Consider him the trendsetter, not the king. 

“Show Me The Money”

So how does this compare to recent years?  Albert Breer of NFL Network wrote an interesting article last week that investigated the top average QB salaries in 2007 versus those in 2013.  In 2007, each team’s salary cap was set at $109 million.  The average cap hit of the top five QBs was $10.73 million, representing roughly 9.8% of a team’s salary cap.  In 2013, each team’s salary cap has risen to $123 million; however, the average cap hit of the top five QBs is $19.14 million, representing a staggering 15.6% of a team’s cap.

Consider it like this:  While the overall team salary caps have risen by just under 14% in the last six years, top quarterback salaries have risen by a whopping 78%.  Sooner or later, something is going to have to give or certain teams might pay the price.  Even crazier is that at the time of the Eli Manning extension in 2009, the last salary capped year in the old Collective Bargaining Agreement, allotted team salary caps were actually $5 million higher than today.  So while Eli Manning’s $16.25 million per year seemed wacky at the time, his deal only represented 12.7% of the Giants salary cap, still a much lower proportion than Flacco’s current deal.  If Manning’s deal is akin to Cosmo Kramer, Flacco’s is like"Crazy" Joe Davola.

Peyton Manning and Drew Brees – Guinea Pigs?

Peyton Manning and Drew Brees, two quarterbacks with far superior résumés than Flacco, both signed hefty deals last offseason.  Manning’s average payout per year is $19.2 million while Brees’s is $20 million.  While both future Hall of Famers are on the back ends of their careers unlike Flacco, we can still use their average yearly payouts to compare to Flacco; however, as we delve deeper, Manning’s contract starkly differs from Brees’s, so each deal will have a differing effect on its team’s salary cap structure.
Considering Manning’s age (he enters his age-37 year in 2013) and his risky medical history, the Broncos took a cautious pay-as-you-go measure to his five year contract.  His second and third year salaries are only guaranteed if he passes a physical on March 13th, and his fourth and fifth seasons are only guaranteed if he is still on the roster at the end of each previous season.  Even if Manning passes the physical next week, the Broncos can easily cut bait after year three with zero financial repercussions.

On the other hand, the Saints deal with Drew Brees, who enters his age-34 year, involved a prodigious $37 million signing bonus that gets prorated over the life of the contract.  In other words, cutting Brees before the contract ends is virtually impossible from a cap perspective.  Brees has volunteered to restructure his contract to create more space this year for the fiscally precarious Saints, but pushing money to later years is the ultimate “cutting off the nose to spite the face” move.  His three cap hits after 2013 are $18.4, $26.4, and $27.4 million.  There is simply no room to budge.
While the Saints current and future financial situation is dire compared to the Broncos, the underlying commonality is that the large salaries doled out to each player will have an impact on which core players each team can retain.  As a result, both teams could find themselves in “all-in” situations for 2013, but in fairness to the Broncos, they could conceivably make one more push in 2014.

In Denver’s case, they have a slew of key players who are due up for a new contract soon.  Ryan Clady, Eric Decker, and Wesley Woodyard are all entering the last year of their deals, while Von Miller and Demaryius Thomas have only two years remaining.  The latter two players will command mega paydays above $10 million per year.  Older players like DJ Williams and Champ Bailey can come off the books soon to alleviate some of the burden, but Denver is going to have to let some high quality players walk unless they want to stretch themselves thin at other spots.  Trying to pay everyone is a calculated risk that can easily backfire, especially if the team suffers a significant injury or two.  It’s basically the equivalent of trying to ford the river in Oregon Trail. 


Don't worry, Broncos fans.  Nobody will drown or die of dysentery as a result, but your team could be taking a major risk by trying to retain all of these key impending free agents.

New Orleans is in a much trickier place.  The Saints are still $5 million over the 2013 salary cap despite restructuring the contracts of Curtis Lofton, David Hawthorne, Jahri Evans, Ben Grubbs, and Marques Colston, all players who just signed last year.  Those moves might create cap space now, but it causes future cap pains.  While restructuring appears to be an immediate help, all it does is procrastinate and exacerbate your problems.  Evans, Grubbs, and Colston will all be in their 30s next year and guaranteed to be on the roster (thanks to the restructures) simply because of their large dead money totals if cut.   Furthermore, their 2014 cap situation is even worse than 2013, and that’s before even worrying about re-signing impending free agent Jimmy Graham, the team’s best young commodity.  And this isn’t even taking into account the glaring holes and ineptitude on the defensive side of the ball.

Jump to Conclusions Mat

It is still too early to truly tell if the growing bubble will eventually burst for certain teams or if the market will adjust accordingly, thus pinching pennies out of the lesser heralded positions and players.  The point remains, however, that front offices across the NFL are going to have to perform extra due diligence when pondering these pricy quarterback investments, especially if quarterback salaries continue grow at a rate superior to team salary caps.

For the handful of top franchise quarterbacks, teams likely do not have a choice.  For Green Bay, an organization known for never overpaying free agents, they will be forced into giving Aaron Rodgers a king’s ransom simply because the opportunity cost of letting him walk is too high, even if he wants close to $25 million per year. 

But what about the starting caliber quarterbacks who are not at a Pro Bowl or All-Pro level?  Will they make $15-16 million per year?  Or more appropriately, will they deserve that?  Will teams be virtually powerless and not have a choice but to pay them?  This is especially relevant for average QBs such as Josh Freeman (free agent in 2014), Andy Dalton (2015), Christian Ponder (2015), and Sam Bradford (2016).  That might actually be the true litmus test, especially if one team shells out closer to the $18 million range if one of those quarterbacks happens to post a career year right before free agency a la Flacco.  Personally, I do not think those players are worth anywhere from 1/8 to 1/7 of a team’s cap, but with the high level of difficulty in finding and developing legitimate starting quarterbacks, some franchises will naturally disagree.

The domino effect of this will be the extra added emphasis on sound drafting, something a wisely run franchise like Green Bay already does because rookie contracts are far cheaper than free agent contracts.  For front offices, one of the many positives of the new Collective Bargaining Agreement is the rookie wage scale which pays higher picks at a much lower rate than in the past.  Another caveat is that rookies cannot restructure or get extensions until after year three.  For a team like Seattle, that means Russell Wilson will be making less than $1 million for the next two years.  For San Francisco and Houston, it means elite pass rushers Aldon Smith and JJ Watt will be making under $4 million this season, a third of what QB bust Mark Sanchez makes and a quarter of what fellow pass rusher Mario Williams will make.  Meanwhile teams like the Saints, which have not had great success drafting cost-efficient players the last few years, are finding themselves as a giant bubble waiting to burst in Rev. Run’s bathtub because of bloated contracts.  Then again, the Saints did win a Super Bowl in the process.  For that, I will leave Saints fans a Rev. Run quote in case they are perturbed at their grim future: “When you’re grateful, you have no time to be mad or hateful.”