Managing the Risk in a Contract, Starring Dustin Keller
Keeping with the cap discussions and on the topic of managing dead money and risk management of deals in general I wanted to discuss one of those things I’ve been batting around a little bit which is determining the optimum signing bonus levels to give a player. I had run a bunch of stats on Dustin Keller recently so I’ll use him as an example, plus he’s in the news because he would like an extension.
I think one of the most important things that a GM and salary cap manager need to consider when signing a player is what exactly the shelf life of that player is. Most players get their first crack at free agency in either their 5th or 6th NFL season at an age around 27 or 28 years old. The players are either in their athletic prime or entering it. When the player is signed every fan and media analyst takes the approach that the player is invaluable and cant be lost. The reality is no player escapes father time and the negotiators for the team have to be the people that structure the contract to minimize the penalties that arise when age catches up and the great player is no longer great.
Dead money in the NFL can be a killer. Its money on the books for a player who is not contributing. Most players don’t play through their first big free agent deal. It’s the nature of the game. Age. Injuries. Changes to the team. To look at a 5 year contract, which is becoming the norm for a good player, as a 5 year contract is foolish. Even 4 years might be pushing it. Keeping that in mind we can at least estimate signing bonus money that should be given to a player to manage our risk that the player bombs out.
Looking at Keller we can come up with a list of comparable players to illustrate. In Keller’s 4 years in the NFL he has ranked in the top 15 in yardage three times and in the top 10 two times. He has never been top 5. Going through the salary cap era of football, we can compile a list of players who fit similar criteria. We’ll look at any Tight End with at least 3 or their first 5 NFL seasons in the top 15 or 2 of their first 5 seasons ranking in the top 10. I used the 5 season number because Keller is going to play out his 5 years and because most consider the first 5 the “rookie” years for a player. In addition we will only list players who have played at least 6 years in the NFL.
What I want to first do is determine just how long these players last beyond the initial “rookie” period. The following table lists all of the players, their rankings, and the season the team that held their rights in their 6th season decided it was time to move on from the player.
Most of those players have similar criteria to Keller (it is only from Lewis down where they don’t meet the 3 top 15 and 2 top 10 that Keller currently has) and now we can make some estimates as to how long Keller will likely stay on the team. Assuming that all of those players remain on their teams this season we can come up with these odds for the length of a Tight End contract:
Based on that data we need to plan for the fact that Keller is most likely going to be cut in either the 3rd or 4th season of his extension years on his deal. If he plays out year 4 or especially year 5 he is really beating the odds. To come up with a maximum signing bonus you have to decide on what is the most money you can tolerate in dead money for a player.
For the sake of illustration let’s say that the most the Jets are willing to have in dead money in any given year is $2.5 million for 1 player. Based on the above chart Keller will most likely play years 6 thru 8 with the Jets, if they extend him, and the Jets would release or trade him in year 4. Based on those numbers we can come up with an acceptable signing bonus of $6.25 million for Keller. That leaves the team with their $2.5 million in dead money in year 4.
Of course that does not mean Keller is going to accept that deal. To set a maximum point we can also play the percentages in somewhat of a decision tree.
Based on this (crude) study you would say that the Jets should probably max Keller’s signing bonus at $10.83 million. At that figure the Jets are taking the risk of failure into account as best as possible. It gives the team a pretty broad range to play with by taking into account the fact that he might play out the entire contract or at least make it through 4 years. If he doesn’t the Jets will get stuck with bigger cap hits, but they will have managed the risk as best as possible.
Now none of these cut number take into account that perhaps some players lasted longer on a team because of the cap charges associated with cutting the player. What we now want to do is look at the statistical trail off of players over the course of their careers. This is to give us a basic idea of what the expectations will be for Keller once re-signed. We are just going to look at the categories of receptions per game and yards per game here.
First what we want to do is calculate the average performance in years 3-5 of the players. We will start with RPG. The average of this pool of TE’s is 3.57. The high was Tony Gonzalez at 5.15 and the low was Ricky Dudley at 2.17. We can now calculate each players performance year over year in the category as a percent increase or decrease over their year 3-5 average. In addition we’ll look at the 1 standard deviation range to give an idea of realistic best and worst case scenarios.
Next we will look at YPG in the same manner. The average was 42.5 yards per game with Antonio Gates registering the highest average at 64.2 and Ken Dilger the least at 26.
As you look at the numbers and the normal declines you can see why certain players are not lasting. Beyond year 8 there is an excellent probability that you will see no gain in performance and will no longer approach the numbers you put up on the rookie contract. The downside every year is going to be greater than the upside so clearly you have great risk when you commit to the player.
Looking at Keller’s two year averages of 3.75 receptions for 46.9 yards we can get an idea of just what potential Keller has over the next phase of his contract. Assuming the average growth expected in year 5 we’ll assume that his 3 year average ends up at 3.77 for 47.9 yards per game for the sake of argument (for those who may ask the high end projection would be 1035 yards for him with a low of about 540). The first table is receptions and the second is yards assuming 16 games played.
I would look at those numbers in a few ways. First of all it sets my high and low points for a contract. I know at worst I am getting two years of starting quality play from Keller since the worst yardage totals rank in the top 32 for the position. He moves into backup numbers after that. On the high end I am getting a top 5 player for the first three years of his deal and someone who is around 15 thereafter. If you got consistent performance like that, which isn’t likely, you have a player that is not only going to last 5 years on his contract but may even get a third deal. His average expectation is to rank around 18 or 19 for most of the contract with a few years higher and a few lower.
Secondly I need to determine what I consider acceptable performance for a Tight End. Is 53/584 going to be reasonable based on what the team is going to run? Is 43/496 reasonable? Those are close to Keller’s first two seasons which probably means the need for a second receiving TE on the roster. So I can look at that and get an idea on contract structure. In years 6 and 7 he can take on a cap hit that would be allocated for two players, but beginning in year 8 I want his cap charge to reflect the fact that I might need to spend extra money on another veteran or spend a draft choice on the position. I may look at a deal with higher money on the front end and on the back end with a lower middle portion of the deal. My guess is I can get 4 years out of Keller. I’m probably going to run in year 5 so the cap number is of no consequence that year. My only worry is dead money in that season.
I don’t look at those numbers as dominant by any means. Maybe you get one dominant season out of Keller but most likely they will be around the average. You are better off with a contract structure with limited bonus money but higher guaranteed salary in those first two seasons. Going back to my old Keller valuation, which is probably somewhat valid within the market, I’d probably make a few changes in the structure if I decide to keep him. I’d probably transfer some of the money from the third extension year to the first and second years and money from the fourth to the fifth this way I don’t run into a period where I think I am grossly overpaying on the cap to keep him on the team.
I think doing that best limits my risk. It does expose me more to risks that he busts in year 6 and I’m stuck with guarantees in year 7 that I cant avoid or that he is great in year 9 and Im forced to give him a new deal in year 10 due to the high cap charges. But, since both those events are the least likely, it is probably the safest best to take in structuring a deal that is fair for both sides and wont do harm to the team when the inevitable downtrend occurs.