Analyzing Rob Gronkowski's Extension
I’d expect the full numbers to trickle in on the Patriots Gronkowski on Monday or Tuesday, but PFT’s information on the deal is enough to make an estimation on the deals structure and talk about the contract a little. There has been some pretty good debate on how to really value this deal. At first glance the $54 million number is eye popping. Its huge for a tight end. On second glance there is the other realization that the contract is almost entirely backloaded so you say its all funny money made to make an agent look good that has had a tough time in recent weeks. So lets go over some issues and talk about valuing a contract.
When people report a deal like this the numbers can often be misleading. Gronkowski had 2 years remaining on his current contract when he signed the extension. He was going to earn $570,000 in compensation in 2012 and $660,000 in compensation in 2013. The 6 years are tacked onto that, meaning the deal runs through 2019. So the contract technically contains $54 million in new money that is strictly valued on the years beginning in 2014, meaning all new money earned between today and 2014 counts as a 1 year payout for valuing the deal. So essentially when you look at a contract like this you say its $9 million a year, beginning in 2014 with New England pre-paying some money in 2012 and/or 2013. In reality he is now under contract for about $6.9 million per year for the next 8 seasons.
Due to the length of the contract you really have to look hard at the expected money to be earned in order to put the deal into some context. It’s an intriguing contract based on the PFT report. Gronkowski receives a signing bonus worth $8 million dollars in 2012 and no more new money until he receives a fully guaranteed base salary of $3.75 million in 2014, plus a $250,000 that is going to be protected as well. So he is guaranteed to see $13.23 million over the next 3 seasons. In year 4 he has $5 million guaranteed for injury that will also be guaranteed for skill if the Patriots don’t release him after 2014. That is the first tricky stage for Gronkowski if his play were to decline as it represents the first “out” stage for New England. He would only have a dead cap charge of $3.2 million if cut before the skill guarantee kicks in, which is clearly a reasonable number for a team to carry. But most likely he is going to earn those 4 years.
2015 is also when the deal gets really interesting. New England can pick up an option bonus that kicks in the final 4 years of the deal. The option is worth $10 million. If the Patriots do not pick it up the contract voids and they can not franchise Gronkowski. Based on reports my interpretation is that the option is not paid until 2016, but the proration begins in 2015, similar to how Peyton Manning’s option worked in Indianapolis. It gives the team added incentive to cut him if he is not performing well or the market remains flat. Because New England would have accounted for $2 million in proration in 2015 on a bonus not picked up they receive a $2 million credit in 2016, which more than offsets the $1.6 million in dead money.
In real terms I would say New England gave Gronkowski a 2 year extension worth $8.5 million and he will earn every penny of it. That’s far better than what Jermichael Finley received in Green Bay this offseason. The second part of the contract is 4 years for $37 million none of which is guaranteed. When you consider that the Tight End market is basically around 7.5 million a year the $9.25 million APY on the back end has almost no chance of being earned. There is no protection based on dead money that helps keep a roster spot so its going to be a renegotiation or cut year. Of course that assumes someone like Jimmy Graham doesn’t break the bank, but that has been such a slow growing position it seems unlikely.
Here are the estimated charges for the deal assuming they do not pick up the option followed by the full cap breakdown if they do pick it up. When you look at the difference in the dead money in 2015 and 2016 you can visualize where the breakdown occurs.
There is really no protection for the player on the backend of the deal if my estimates are correct. I would anticipate a roster bonus being there in 2017 to protect from being cut that season if the play fell off since from 2017-2019 the Patriots gain money each year by releasing him.
Based on the numbers I would say its most likely a 2 year deal with an outside chance at a 4 year deal. 2018 and 2019 have almost zero chance of occurring. How does that compare to the new money in some of the bigger tight end deals? Here are some of the big ones and their 2 and 4 year new money totals.
This paints a better picture of the deal. With two low earning years on his previous deal he ends up with a lower real earning than all the other big time players on the list in those early contract years. That is understandable since New England has no reason to renegotiate now. So that’s the giveback right there. If he continues to play well his 3 and 4 year takehome is gigantic compared to everyone else on the list, which is why it’s so unlikely to be earned.
That said most of those players wont earn all 4 years. Miller will likely be gone after 3. Witten has no dead money in year 4. Davis has about $3.3 million in dead money. Gates is the only player that has a good chance of earning his full 4 years of the deal with over $4.5 million in dead cap charges. The big difference is that all of them will get to year 3 while Gronkowski might not. But that the chance you take by signing now instead of later on.
It’s a great deal for New England as they give the player a nice raise and maintain him at low costs for the next few years before making their bigger decision on him in a few years. It also keeps New England playing the “2015 game” as the teams only players with contracts that run beyond that season are Logan Mankins and Jerod Mayo and both easily dumped after 2015. Tom Brady will be 39 in 2016 the Patriots have to realize the strong possibility that he will hang up the cleats by then. When he goes you have to wonder if Bill Belichick, who will have been coaching the team for 16 years at that point, wants to go through what could be a rebuilding phase. When you have that kind of change on the team it is probably best to be cautious with the deals, which clearly the Patriots have been. Even if Gronkowski plays well he may be worth more as a trade piece in a few years than as a Patriot.
This deal gives them all the flexibility in the world to figure things out in a timely fashion. Had they waited to extend him until 2013 not only could it cost more but would definitely drag on into 2016. If they wait until 2014 it goes even longer. It also limits their use of the franchise tag which is going to be a big part of their strategy in the future to keep key players on the team on a year by year basis rather than on long term deals that could extend too far into the future. Gronkowski gets some financial security so that is always a plus. You have to imagine Victor Cruz of the Giants is watching this closely to see if there is now a framework for him to get a new deal in New York.
So while the deal isn’t $54 million good for Gronkowski, he does get his financial security and did get a 2 year payout that is in line with what more proven players received that had a bit more negotiating leverage. That’s not terrible by any means.