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Tom Brady: Many Contracts, One Team?

The following is a guest contribution from Benjamin Steinberg, an attorney practicing in the state of New York. He received his B.A. in Political Science from the University of Pennsylvania and his J.D. from the NYU School of Law, where he was the Student Bar Association Social Chair and a member of both the Journal of Intellectual Property and Entertainment Law and the Sports Committee of the IP and Entertainment Law Society. He has been published multiple times on the American Bar Association website and is excited to be a contributor to Sports Agent Blog.

New England Patriots owner Robert Kraft (left) greets quarterback Tom Brady (12) after the AFC Championship Game against the Indianapolis Colts at Gillette Stadium. Mandatory Credit: David Butler II-USA TODAY Sports
New England Patriots owner Robert Kraft (left) greets quarterback Tom Brady (12) after the AFC Championship Game against the Indianapolis Colts at Gillette Stadium. Mandatory Credit: David Butler II-USA TODAY Sports

Love him or hate him, Tom Brady is undoubtedly a future Hall of Famer and one of the best quarterbacks in NFL history. In his 15 NFL seasons, Brady has earned three Super Bowl rings, two Super Bowl MVPs and two regular season MVPs, and may be on his way to his fourth ring this post-season. Brady has meant the world to the New England Patriots franchise, but merely listing his accolades doesn’t really explain the full picture. In order to really appreciate Brady’s time in Foxborough, and also understand the respect for him that the Patriots have, you need to look at his contracts. They demonstrate not only Brady’s willingness to put the team before himself, but also the team’s willingness to let Brady ride off into the sunset gracefully at the end of his career.

2010: The Patriots give Brady a 5 year contract extension, which really adds three more years to his existing contract. Approximately 25% of the value is in the $16 million signing bonus. This is favorable for Brady, who gets guaranteed money up front, but also for the team, who gets to amortize this cost over the 5 years of the extension, which helps the team manage its salary cap. This concept is an essential piece of almost all of Brady’s contract modifications: the league allows clubs to prorate signing bonuses over the entire life of the contract for purposes of the salary cap, thus providing a mechanism for cap relief.

2012: Brady restructures his contract with the team, decreasing his salary in exchange for another restructuring bonus of $10.8 million. Again, this maneuver allows the team to free up cap space in the present by deferring part of the cost of the bonus to future cap years. However, Brady’s hit against the cap is slated to be almost $22 million per year in 2013 and 2014, a huge chunk of the $124 million salary cap (for the 2013 season) imposed by the NFL.

2013: Brady signs another restructuring and extension with the team, adding another three years to his then-current deal and keeping him in a Patriots uniform through 2017. Brady converts his entire salary for the 2013 and 2014 seasons into a $30M signing bonus instead. As a result, Brady’s total salary cap hit over the course of those two seasons is $28.6 million instead of $43.6 million, freeing up significant amounts of money for the Patriots to resign other key players. By continuously restructuring and taking bonuses instead of salary, Brady allows the team to continue to defer large portions of his compensation. All told, Brady’s contract extension is worth $57 million over five years, significantly less than the $15-20 million a year he could earn on the open market. The upside for Brady in exchange for this hometown discount is two-fold: all of his money is guaranteed, and he give the Patriots (and himself) the best chance of winning by leaving money on the table for other players.

2014: Brady restructures his contract again, presumably for the final time. In this case, Brady actually gets a small salary increase, but in exchange, he gives up part of the right to have his salary guaranteed for his last three seasons under contract. Instead of being completely guaranteed, his salary is only guaranteed for injury, meaning if he gets injured he still gets paid. As such, he gave up his “skill” guarantee, meaning if the Patriots no longer think he’s good enough, they can cut him at no cost to the team. Many viewed this maneuver as foolish on Brady’s part, but once again, this decision wasn’t about the money, per se. First, despite having a higher cap hit, giving up the guarantee creates liquidity for the patriots to pay bonuses to other players and retain more of their talent. Second, and more importantly, it frees up Brady himself. It enables Brady to seek greener pastures if (or when) the Patriots decide to move on to another quarterback, without any strings attached. It means Brady will never ride the bench while Jimmy Garoppolo (or anyone else) is under center, because he’s too expensive to keep as a back-up. It means Brady, if necessary, will be able to travel something akin to the Peyton Manning path, finding another team that still thinks he has what it takes to be a champion. If nothing else, this demonstrates the respect that the Patriots organization has for Tom Brady—if they’re not going to use him, they’re willing to cut him loose and let him play elsewhere. This stands in contrast to what is somewhat typical in the NFL—stringing a player along until you cut him with no warning as soon as you don’t have a need for him. The Patriots show respect to Brady by being up front with him, and trusting him to understand that no one, not even him, is bigger than the franchise. It’s a concept Brady appreciates all too well: the team always comes first.

Even though Brady’s last contract renegotiation was framed in the media as being about the team, it was really more about him for a change. In an ideal world, the team would like Brady to retire in a Patriots uniform, and I think Brady would prefer that as well. He sacrificed millions of dollars over the course of his career in order to give himself and his team the best chance of winning the Super Bowl, a commendable demonstration of selflessness in a league where many teams have to franchise tag their best players just to keep them around town. Brady’s contracts also demonstrate how teams can game the system to maximize their cap room if they have a superstar like Brady willing to go along for the ride. Now, it appears the Patriots have given Brady a bit of freedom in exchange for his service. Not a bad trade for a few Super Bowl rings.

Closing thoughts: One of the hardest things for a superstar football player is knowing when to hang up his cleats. The age old question of when enough is enough is a difficult one to answer, and some of the best football players in NFL history have taken very different approaches. Some, like Barry Sanders, choose to retire at the top of their game and having played for the same franchise their entire career. Often, however, teams and players wind up on different pages regarding whether a player is still capable of playing at the highest level; sometimes the team is ready to move on before the player is, which makes for a messy and emotional divorce (see: Brett Favre). Brady is one of the lucky few who may be able to start and end his career with the same club, but should he and the Patriot’s ever part ways, he’ll be able to sign with any club he wants, and maybe take another shot at a title. Is Brady’s career as a top five NFL quarterback done after this season? Does he still have what it takes? The jury’s still out, and the court of public opinion will just have to wait and see.

4 replies on “Tom Brady: Many Contracts, One Team?”

how does giving up the skill guarantee allow the Pats to have more liquidity and allow them to pay out bonuses to other players? thanks

Hi Jay, thanks for your question. I thought I replied to this but apparently it didn’t go through, so I’ll try again. The way the NFL requires teams to handle their funds is as follows: for any contract that is guaranteed for both injury and skill, the team must put all the money in an escrow account, meaning they can’t touch it for another purpose. By getting rid of his guarantee, Brady frees up that money, adding liquidity that could be used to sign another player or pay another up front bonus. The team can then pay Brady out of other funds, e.g. revenue earned during the season, when the money comes due. Hope that answers your question.

I agree with the basic facts in this analysis, but my interpretation is completely different. I see no way that Brady can remain in New England under the terms of his agreement as it is currently structured. In my view, it is inevitable that NE must jettison Brady, most probably via a blockbuster trade to a team of Brady’s choosing. Houston would seem to be a viable option.

The contract signed in 2010 was a *new* contract – even though it was an extension on paper. The reason it was new is that the final years of the *original* deal were only tacked on in an earlier negotiation. If you trace it back, Brady has just completed the 2nd of two major contracts. In both cases, the deals were restructured after the first few years in order to create cap room. When the deal was done in 2010, they had to get Brady’s marginal salary to an acceptable level, as the original six year deal signed in 2005 was expiring and the marginal salaries going forward were way below market (similar to now). When the renegotiated once again in ’12 and ’13, they reached the limit to what they can sustain in terms of dead money.

Now, Brady has to get another raise. If you’re Brady, you will look to collect about $70-$75 million over the next 3 years. That is more than what Peyton got the last 3 years ($58MM), but if you consider all of the value-contingent factors, then there’s no way he plays out the deal in NE for $30MM over 3 years. He has to get a new contract.

But they can’t do another deal like the last one, because it would put the dead money risk at a level that no business person would accept. Likewise, the basic cap hit would get close to $30MM within 2 years, and if you’re Brady, you don’t want to be in that position when he could get the same money from Houston and they save $6 MM a year on the cap.

But not so fast, you say – what about the dead money? NE holds the bag, but they just spread the $18 million hit over 2 years and they are done. That is the residual from 11 years and 2 contracts of pushing it to the limit with Brady. If they redo his deal again the dead money will go to $50MM again instantly and it’s not feasible for anybody involved.

The real surprise in all of this is that they took the championship. I don’t think anybody expected the Patriots to be the last one standing this year. And if they hadn’t won it, you would look and say “2 contracts, 0 rings, time to move on”. And that would have been an easy thing to do. That’s why Brady gave up the guarantee trigger for essentially nothing. Either way the writing is on the wall, but coming off a Super Bowl win it’s going to be all the more shocking to Boston fans.

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