Gronkowksi vs Hernandez: Contract Comparisons
With the Patriots locking up their two star tight ends I thought it might be worthwhile to dig deeper into the deals and see exactly what the teams thinking was about the two players. On its face everyone is going to say that Rob Gronkowski got the better deal based on the fact that his deal is worth a potential $54 million compared to Aaron Hernandez’s deal which on its face is worth about $38 million. But when you dig in and look at the cash flows you get a better sense of “real” money vs “fantasy” money.
The first thing to compare is the actual length of the contracts. The Patriots only gave Hernandez 5 years yet they gave Gronkowski 6 years. That has nothing to do with what they feel about Gronkowski as a player compared to Hernandez. The 6th year was given to Gronkowski due to the rules regarding proration in the CBA. Because of the timing of bonus money potentially due to Gronkowski the Patriots need that 6th year to lessen the cap charges as they move forward. That 6th year carries the second highest cash payment on his deal ($10 million in base salary and bonuses) and will never be earned. So lets compare apples to apples and bring Gronkowski down to $44 million over 5 years. Still more than Hernandez, but a better comparison for analysis.
The first thing that we need to look at with contracts is the expected money that a player will earn. I like to consider the prorated “dead” money of a contract as a protection against a players release. While certain teams can absorb more in dead money than others I think if a team is going to lose net cap space by releasing the player the player is more or less protected. Hernandez likely has two protected seasons on his extension. In 2014 he will carry a dead charge of $7.5 million on a cap of only $4.2 million, plus he also has some guarantee protection. In 2015 it’s a cap of $5.8 million on dead money of $5.0, though no guarantees are present in the deal. By 2016 all bets are off and he will be playing each season to maintain his contract.
Gronkowski has a similar situation. The Patriots did a bit of neat cap maneuvering with the Gronkowski contract, by putting a bonus in that is not paid until the third extension year, but for cap purposes is accrued for beginning in year 2. That gives the Patriots multiple options with Gronkowski. They could, in theory, cut him after just the first year of his extension and only take a cap hit of $3.2 million for doing it, a net gain of $5.4 million. Now Gronkowski does have injury protection that year and the Patriots would have to move swiftly to cut him, as his salary becomes fully guaranteed after a certain date, but there is no guarantee he sees year 2. Where it gets more interesting is in that third year. If the Patriots decline the option they would actually receive a cap adjustment for $2 million for the money prorated in 2015 that was never paid out. From a cap perspective the Patriots would gain $7 million in cap space and more importantly avoid paying $13 million in cash that year. So Gronkowski has to play really well to see as many years on his deal as Hernandez.
Hernandez’ contract I think shows more faith by the Patriots in Hernandez and an acknowledgement of more upside in Gronkowski. Here is a look at the yearly cash flows and keep in mind when you look at them that only the first two years really matter on both contracts.
Hernandez’ deal is more in line with the market as well, which again points to a team confident in what they will receive, while Gronkowski’s trails the market before blowing it away at the end. There was a thought that the Patriots feared that Hernandez would make the claim he was a wide receiver and thus it could hurt their future ability to franchise him, but his deal is so in line with the market that it would be hard to consider that the case. They paid him as a top tight end and they seemed to use that position as the negotiating blueprint. If anything Gronkowski is the one they looked at as potentially being paid like a wide receiver. Here are comparisons over the anticipated play years of the contracts of the top players at tight end:
Now Hernandez does have the ability to earn a total of $2.5 million in additional compensation over the course of his contract to get closer to Gronkowski’s numbers, but those are dependent on Pro Bowls and it would be pretty unlikely, just based on the way voting occurs, to see two players on the same team at that position make it so I think the numbers you see here are what they will earn.
So who ended up with the better contract? Despite the lower backend totals I think Hernandez got the better contract of the two players. Hernandez is paid like a tight end and, thus, only needs to put up tight end numbers throughout his career to actually see those 4th and 5th year payments. Last year Hernandez had 79 receptions for 910 yards. Those are traditional figures for great players. When you look at the names of the big earning tight ends you see numbers similar to that. Jason Witten averages around 1,000 yards a season since signing his extension. The meat of Gates’ career saw him around 950 or 960 yards. Davis is around 900 yards.
Gronkowski’s contract is based on 1,300 yards and putting up wide receiver like numbers. That is going to be extremely difficult. In a study I did on tight ends while looking at Dustin Keller of the Jets, where I looked at consistent top 15 players and how many years they remained on their post rookie contract its bleak for a tight end. By the 3rd season nearly 40% of these players were off their team and 56% were gone by year 4. Considering the cap and cash consequences of keeping Gronkowski in that 3rd season I’d say he has a very difficult challenge ahead of him. He has to really buck the trends for the position while maintaining WR like numbers to see that 2016 option get picked up. If he doesn’t then it means he will need to renegotiate downward to get back in line with the rest of the market. Considering he will trail Hernandez is cash payment in those first two seasons, he would stand to earn less overall than Hernandez, especially if his numbers come in under 900 yards leading up to the renegotiation.
I guess I like the fact that the Hernandez deal is less risky for the player. He gets paid like a top talent and odds of earning it are really good provided he doesn’t fall off a cliff production wise. If he plays exceptional he will earn even more. Gronkowski just seems like he will have to do a lot more to earn his money and runs the risk of coming out making less than other players at the position. You have to wonder if New England ever offered him a deal like they did Hernandez or if they specifically separated the two by risk when negotiating the parameters of the deal.
Both are good deals for the Patriots. As I said before the TE position tends to fall starting in year 6 with most teams having to hold onto overpriced players due to dead money constraints. They end up paying for past performance rather than future performance. By locking these two players up now they are paying for the present and have easy salary cap outs in the future when the numbers begin to follow the normal patterns and decline. They can cut bait without penalty and move on whenever they want, letting the players get overpaid for declining production by another team. While it can be a gamble to get rid of those early cheap years on rookie deals it also is a very shrewd maneuver for future planning and playing the odds of career production trends.