A Look at the Tebow Contract
I have gotten a few emails about how the Tim Tebow contract works with the Jets and here is the information I have now on it. Let me just preface this by saying it may not be 100% accurate but I believe this to be close to the way the contract works.
Tebow is one of the last QBs remaining on the old rookie contract structure with all types of potential bonuses to be unlocked. The salary advance that was the big topic of debate became a big deal that all teams started to use in 2007 due to a 2006 court ruling that allowed Ashely Lelie to keep an option bonus from the Denver Broncos when he held out from the team. I believe the decision was based on the option bonus being paid to exercise an option not contingent on the player honoring his deal. Being that it was the Broncos back then its something the Jets should have been aware of, but that ordeal is now over.
In 2011 Tebpw saw his first significant playing time by participating in over 70% of the Broncos offensive snaps which unlocked a number of escalators in his salary. He triggered a one time bonus of $472,500 that the Jets will pay him in 2012 at the start of training camp. He also unlocked a $310,000 escalator in 2012 that the Jets are responsible for. His maximum cap charge in 2012 will be $1,100,000 not including the $1,265,940 payment the Jets make to the Broncos this year and next.
The excess playing time earned Tebow two escalators in 2013 and two in 2014. The first was a $425K escalator in 2013 and a $165 escalator in 2014. The added performance placed another additional $5 million and $6.25 million on top of that in those two seasons. That brings his cap charges to $6,055,000 and $7,145,000 the two following years.
Every year Tebow has a number of incentives that he can unlock in his contract:
If he passes for over a certain number of yards and finishes in the top 5 in any passing category he earns a $1 million dollar escalator the following season.
If Tebow plays in 70% of the Jets offensive plays and in 70% of the offensive snaps in a playoff win he earns an additional $250,000 for each win.
If Tebow is named NFL MVP or Super Bowl MVP he will earn an escalator of $375,000
If Tebow is voted into the Pro Bowl he earns a $200,000 escalator.
So the total extra amount he can earn each year is $2,575,000.
The likelihood of attaining anything other than a Pro Bowl nod is minimal so the possibility of further escalation in his contract is minimized. That said I would not expect the Jets to pay a backup over $6 million in 2013 while their starter has a large guaranteed cap figure to stay on the team.
I know the Jets kept saying they were looking for a backup QB who would challenge Sanchez. In the meantime, we have also taken a look at what the Jets cap hit would be should they let Sanchez go; especially after signing this latest contract.
What we have not talked about, however, is the cap situation should the Jets TRADE Sanchez. I see two very young backup QBs, and one not quite as young, two of whom have starter experience. If a team truly has confidence in their first string QB, you don't need to have that caliber of backup QB on the roster; certainly not two nor three of them.
I've seen a few decisions made in the front office that just didn't work out for the Jets, but not once did I ever get the sense that they were aimless in their decisions.
These backup QBs were not brought in to pressure Mark Sanchez. They were brought in to REPLACE him. If Sanchez does not produce this season, his career with the Jets is over. I don't care how much $$$ they are paying him, and I don't care how much of a cap hit they will take. If that it not the case, then I agree, it makes no sense to add Tim Tebow to the roster.
Tebow really needs one more year of grooming anyway, and I believe Stanton and Henne have more to offer than we have seen, too.
Change is in the air. "Aaaaaaaaaaaaah, I love the smell of napalm in the morning."
Am I understanding you correctly that Tebow's cap hit for this year will be $2.365 mil, the $1.1 mil they will pay him + the $1.265 they will dend to the broncos.
Thanks
ret2ski
I've seen in two different places that the Jets believed that they only owe Tebow approximately $3 milion over the next three years. Those numbers are very different from what you have.
What do you think is the cause for the difference?
Ret2ski- the way it is going to work according to Andrew Brandt is that the Jets pay $1.5 this season and the balance next year. I have to assume those go on the cap as an adjustment to team salary rather than a hit to Tebow himself, but I cant see any way they avoid a cap charge.
"Even though he earned performance escalators by beating Pittsburgh in the playoffs, Tebow has a trade friendly contract. In 2012, his contract is for $1.1 million, in 2013 he'll earn $1.055 million and 2014, he'll earn $895,000. If Tebow takes roughly 40 percent of the snaps in 2012, he would make an additional $11.25 million in combined salaries in 2013 and 2014.
But only $490,000 in 2012 and $232,500 in 2013 salaries are guaranteed.
Read more: Broncos' trade market for Tim Tebow not looking good - The Denver Post http://www.denverpost.com/broncos/ci_20207104/broncos-trade-market-tim-tebow-not-looking-good#ixzz1pqwGAjr7
Read The Denver Post's Terms of Use of its content: http://www.denverpost.com/termsofuse "
But Cimini reported the Jets only owe Tebow for about 6 million over the next 3 years, including the 2.5 million payout to Denver as well.
Mike- they are included as part of the base salary. All his escalators will be rolled into his base salary when earned
Sanchez is going to have to perform. If not, Tebow will take more of his snaps. If Sanchez stumbles, the coaching staff will not hesitate to move to Tebow if it means making the playoffs.
I beleive the Jets will carve out a few plays, for tebow, perhaps in the role of fullback or tight end and maybe on special teams.
We still have 10 picks and should something happen to Sanchez, Tebow is better than any other QB on the roster. He's here, get used to it. Sanchez needs to get better, the gauntlet has been thrown down.
Though if Sanchez bombs, Tebow is not much of an alternative as a full time QB.
In general, I can see Tebows usefulness, but at what cost?
A 4th round pick?
Well.. Ok.
What I dont like is Tebos salary jumps to 6MM after this year. So of course he will be cut, or renegotiate. This means the Jets traded a 4th round pick, and some money for a 1 year gimick player.
If they were unwilling to keep Brad Smith, then the most they should pay tebow is 2.5MM a year.
I don't think this trade is that big a deal, but I do think the Jets over paid a little.
I sure hope Sanchez improves. Having his 2011 performance or Tebows 2011 performance will equal another lost season. I wish they had blackmailed Peyon Manning into comming
Lets see how Tannenbaum redeems himself in the draft.
I have to think that the Jets organization knows the intricacies of these contracts.
I am worried that who ever handled this doesnt know what they are doing.
What is going on?
I am looking forward to Jasons analysis once he gets the facts.
As for 2013, and 2014, since the performance bonus has not accrued for cap purposes in 2012, I don't understand upon what you base your conclusions for 2013 and 2014. Tebow is currently viewed as the backup to Sanchez so the 55% standard will be viewed as "not likely" to be achieved and unless it is achieved during the season or Tebow becomes the starting QB before the end of the 2012, season, there does not appear to be a basis for making a conclusion on 2013 or 2014 cap assessments.
The revaluation that was just done is something completely different. It looks as if Tebow paid back his salary advances from 2013 and 2014.
The salary advance issue never had any salary cap implications because it was a loan repayable over more than 1 year. The $2.6 million paid by the Jets to the Broncos means that the Jets get to keep 1/2 of the set off amounts which will be deducted from Tebow's salary to repay the advance and the Jets will pay over to the Broncos the other 1/2 as the off-sets are made.
Bonus payments- these are payments that are awarded when earned. For example if Player A has a 250K bonus for the Pro Bowl in every year of his deal once he is voted to the Pro Bowl the bonus becomes LTBE in every year of the contract. The next year where he does not make the PB it goes back to NLTBE
Unlocked bonuses- These are typically reporting and roster bonuses that are usually tied in with a playtime incentive (35% as a rookie, 45% thereafter) but become payable the year after it is earned. This is done to defer the cash payment and give the team the ability to plan better for the cap. As an example Kyle Wilson got his 45% snap count last year so he earned a $1 million or so roster bonus in 2012.
Contract escalators- These are contractually negotiated escalators to a contracts base salary. They are tied into specific thresholds- 45% playing time, 70% playing time plus team improvement, etc....They are only accrued by the NFL once they are earned. Not when they are likely to be earned. Once earned they are just that earned. For example Mike Devito earned an escalator to his 2012 salary in 2010. He then earned a second escalator to his salary in 2011. Never did they increase his 2012 salary based on the assumption that he would have duplicated his 2010 performance in 2011. It goes on when it is earned. Tebows was accrued. Those numbers are fact. I have seen them. So have various other people. They were official and you can confirm that with a number of other sources. Here is the NFL and LaCanfora on it: http://www.nfl.com/news/story/09000d5d827c664b/article/broncos-trade-tim-tebow-to-jets-jaguars-miss-out-on-bid
Tebows guarantees were originally paid out in his salary advance. The way a salary advance works is as follows:
Say a player has the following salaries: $1 mil, $2 mil, $3 mil, $4 mil all guaranteed. What the team does is advance the player as much salary as possible and reduce those payments to the minimums each year. At that point the contract changes to something like 390K, 450K, 550K, 630K in base salary, all guaranteed, with the difference (in this example 7.98 million) paid up front. That money is not treated as a loan for cap purposes. It is prorated over the life of the contract, up to a maximum of 5 years. The guarantees on the old salaries void when the players earn the basic contract escalators and one time bonuses (the ones tied into 35 and 45% of the snaps).
In Tebows case the Broncos had paid Tebow all his guaranteed salary and whatever remained voided when he earned his one timer last season. Again what it looks like they now did was have Tebow pay back his guarantees from 2013 and 2014 which the Jets will now be responsible for (1.6 million of his 2013 salary and 1.92 million of his 2014 salary) and somehow that reverted those last two years back to stage 1 as if he earned no escalators, not even the 45% playing time ones.
I have mixed feelings about the acquisition, so I like the fact that the Jets management are minimizing their gamble here.
I do embrace Tebow's attitude, however. He looks forward to challenging Sanchez. He obviously believes in his own ability, and perhaps that will carry over to the rest of the team. I would love to see the Jets' swagger back again.
You are correct that my posts are based on 2 articles concerning Tebow's rookie contract that were written at or about the time it was originally signed. I have seen no reports that indicate it was ever modified so unless you can refer me to one, it is the only confirmed information I have on the subject.
I agree that the salary advances covered the guarantees BUT that does not change their characterization for cap purposes. Tebow in effect borrowed against his future guarantees. Assuming he is cut, those salaries still need to be "paid" to Tebow although that payment will be in the form of an offset against the loan. Since a portion of the advance he received was off-set against the salary he received in his rookie season, that portion of his advance was treated as salary and assessed against the Broncos cap in 2010. The larger portion of the advance was to be repaid through the advances to be made throughout the balance of its term. The Broncos off-set appox. $1.6 mil against the amount earned in 2011, leaving a balance of approx. $10.2 mil. The Jets repaid the Broncos 1/2 of that amount which means in effect that Tebow owes the Jets 2.6 mil. from the guarantees and the Broncos $2.6 mil. from the guarantees. The Jets will be able to offset their 1/2 from the guarantees, I do not know whether Tebow will be obligated to pay the Broncos after he receives the other half or whether the Jets will pay the Broncos directly but in either event those guaranteed salaries remain and if Tebow is cut the Jets will be assessed a cap charge for them.
IF the original contract has not been modified, the $11 mil. has NOT been accrued. The amounts you are setting forth for 2013 and 2014 are based on the accrual of that bonus which HAS NOT happened.
Please note, that your cap evaluation is totlly inconsistent with all other reports. How do you explain that?
I'm not sure what bonus you are referring to. A salary advance is money paid in advance. Its a lump sum payment. In Tebows case it was almost $6.3 million in money. Its the same as an option bonus. The name is different because of a court ruling that went against the Denver Broncos in 2006, but for cap purposes it is treated the same. It is a prorated bonus. When a player is removed from the team all that money usually accelerates onto the cap. My assumption is that Tebow paid Denver back to limit Denvers cap charges for trading him which will put the Jets on the hook for those guarantees in 2012 and 2013. That is just an assumption though.
We are getting much closer to agreement.
A portion of the advance Tebow received was to be off-set against a guaranteed amount he was to receive in his rookie season. Accordingly, that advance was treated as a bonus for 2010 cap purposes.
The remaining potion of the advance (appox. $6.5 mil) was to be off-set against the guaranteed to be received in 2011, 2012, 2013 and 2014. As a result of that structure, the advance was NOT treated as a bonus and assessable against the 2010 cap. Instead, the advance is accountable against the cap in the future years to the extent it is off-settable by the guaranteed amounts which are payable in that year. In 2011, the Broncos guaranteed Tebow approx. $1.5 mil and they off-set that amount againt the $6.5 advance leaving a balance of appox. $5 mil. The Broncos wanted the Jets to repay them the full amount of the advance because they were no longer responsible or had control of the guaranteed amounts for 2012-2014. The parties ultimately agreed to split it so Tebow owes the Broncos $2.5 and the Jets $2.5 which balance will be paid from the guaranteed amounts to be paid for the balance of the term AS THEY BECOME DUE AND PAYABLE. The guarantees have not been extinguished, the advance has not been repaid and if the Jets cut him, the guaranteed amounts which have not yet become due and payable will be assessed against the cap.
Finally, there is no way the $11 mil accrued because the condition for its accrual (2 years of 55% of the snaps) has occurred. The reason for the change in the cap accounting is that once the Broncos acquired Manning the second year of 55% of the snap became "unlikely."
I agree that we have reached the end our exchange.
Tebow had earned those escalators. It was never an estimate on my part. Again please look at LaCanforas report or go to rotoworld even. Those werent made up out of thin air. They existed. They are current. An article from 2010 is not. The part of this article that I was unsure of is the exact method in which he earns the additional escalators which can total 2.575 million a year. But those 6 and 7 million cap hit numbers were fact as of 2 days ago. I do not know what more I can do to explain that to you. They were in an official league database. They were earned. Not some fictional made up guess on my part. They were 100% official. They performed a move with his contract that seems to have invalidated them and the advance he was paid in 2011. I do not, at this time, know what the move was. I will try to find out. But whatever ways he had to earn those escalated base salaries did in fact happen last season.
You are basing all of your assumptions on a news article from a few years ago. Did you ever think that it is possible that the writer did not get all the information? Did you ever consider that perhaps its 70% of snaps in any year with an additional qualifier (such as a playoff win). That happens. The same as it happens here when I get a contract source and do not have all the relevant information on the deal.
In terms of the salary cap I will put my credibility up against any other reporter when it comes to interpreting contracts, understanding the mechanisms of how it works, and the ways in and out of the deal from a cap perspective. The numbers may not always be 100% correct nor my sources as good as others but the manner in which the deals operate is something that I have learned very well over the years.
IF the bonus became earned because he had 70% of the snaps last season and won a playoff game, why is there not some cap consequence this year and instead all of it appears to be deferred until 2013 and 2014?
I am not questioning your source, your position, your knowledge (you talk cap better than anyone I've ever exchanged words with on the subject), I'm simply seeking an explanation that makes some sense to me.
An answer may be the contract was modified to defer the $11 mil bonus until 2013 and 2014. That would make sense to me.
The big money for a player, and agent, even under the old rookie scale comes with the players first and second renegotiations. The earlier a player renegotiates the better chance they have of getting a second negotiation in the prime of their career. Fitzgerald got his first at 25, 2nd at 28 and will possibly get a 3rd when he turns 32 due to the salary structure. Thats about as great as it gets. But if the way his deal worked was to allocate those cap charges over the life of the deal (i.e. a 4 million escalator a year) the team likely never redoes his deal until the final season. Its a calculated risk by both sides and that is why they are structured that way.
Sanchez unlocked some similar things in his deal as well. He earned roster bonus escalators in 2012 and 2013 based on how he played as a rookie. The one in 2012 is one of the reasons the Jets acted when they did in extending his contract.
I think that the accrual of the performance bonus works to the Jets advanatage because there will not be any "controversy" that decisions on who takes the snaps are financially influenced. Also, that the Jets will be facing in 2012, an $8mil payment for Sanchez, a $6 mil payment for Tebow and the maturing of the Revis' contract, compels them to make it a real competition between Sanchez and Tebow, whether there willing to admit it or not.
PS My money is on #15.
PS
I think they extended Sanchez' contract because they had no other meaningful option. Once they decided to pass on Manning's price tag, they were not going to cut Sanchez and once they decided to keep him for at least 2012, they needed to get past his $14mil cap charge for that year so they could participate in free agency. I wonder, in retrospect, whether they would have been willing to roll the dice with Tebow and cut Sanchez had Tebow been available before the Sanchez extension was done.
THANKS FOR ALL YOUR TIME.