Recent Column in Sports Business Journal

Numbers at the top blow rookie pay issue out of proportion

Published June 02, 2008

This time every year, the outcry about NFL rookies’ pay emanates: How can players who have not played a snap in the NFL make more than proven veterans?
That argument makes perfect sense, although it is fallacious. Compensation to rookies is doing exactly what it is intended to do: moving money to veterans.
Consider the following: The average NFL player earns approximately $1.7 million. Of the 252 players who are part of the 2008 rookie class, approximately 225 of them will average less than that.
This hardly appears to be a major problem. The misperception about rookie salaries is largely due to the top of the draft.
When the Miami Dolphins came to terms with the No. 1 overall pick, Jake Long, the media and industry focus was less on Long’s signing his contract three months before his first padded practice and more about the terms of the contract. The headlines blared: five years, $57 million with $30 million guaranteed!
A couple of weeks later, even more stark numbers were announced with the Atlanta Falcons’ signing of the No. 3 overall pick, Matt Ryan: six years, $72 million with $34.75 million guaranteed!
With those attention-grabbing numbers, the debate began anew about rookie salaries, inequity to veterans, etc.

True numbers

The reality is that these are true numbers only if everything goes swimmingly with the player’s career. That is, if he plays injury-free, makes a Pro Bowl or two or three and has impressive statistical performance. Then, and only then, will he make the total contract numbers that were trumpeted upon the signing of his rookie contract.
And if the player is achieving that kind of performance early in the contract, he will certainly have an upgraded veteran contract in place of those later years, making it highly unlikely that the player will ever receive those rookie contract figures.
The guaranteed portion of the contract is largely received in the early years of the contract, lessening the long-term risk for the team. If these players — these extraordinarily valuable top draft pick currencies — cannot make the team in their first few years, guaranteed money is hardly the teams’ biggest concern.
The reality of compensation to NFL rookies is that it is disproportionately skewed toward the top overall picks, creating the perception of an inequity being foisted upon veterans.
Having usually dealt with picks late in the first round due to the success of the Green Bay Packers in each of the previous seasons, I had a rude awakening when we picked fifth in 2006 without the relative financial comfort of the late first round.
Although the player we selected, Ohio State linebacker A.J. Hawk, and his representative were a pleasure to work with and the contract was completed prior to training camp, the market for a pick that high in the draft was — and continues to be — a shock to the system, as the numbers radically escalate toward the top of the draft.

Rookie cap

The staggering numbers of the Long and Ryan contracts rekindled the debate of a rookie salary cap, although there has been a virtual one in place since the advent of the system in 1993. The NFL allocates an amount of cap room (the rookie pool) to a team to sign its rookies.
Contracts like QB Matt Ryan’s in Atlanta createthe perception of inequity toward veterans.
The NFL teams’ operation of this rookie cap has created the perception of a problem, as teams have allocated a highly disproportionate amount to their first pick and, to a lesser extent, their second pick, leaving the lower picks to divide what is left.
Approximately 55 percent of the teams’ rookie allocations have been spent on their first pick, leaving 45 percent of their cap to be divvied up among the rest, whether that group represents a few or many more players.
Why does this occur? The simple answer is that it does because it did last year, the year before, and so on.
When the CBA was last modified in March of 2006, there were some term limits put on rookie contracts. But any discussion of rookie compensation did not result in appreciable changes.
Those contracts, to conform to rules designed to limit cap room for rookies, are now reaching epic lengths of 50 pages and more.
Money paid to top picks has become so financially disproportionate that the pure football value of these selections has been diminished. No longer gemstones that teams would mortgage their futures to acquire, they may even soon see a day when a team trades a top pick and something else to move back in the draft, rather than vice versa.

NBA model

That is a concept familiar to the NBA, where teams trade players and rights to (retired) players and other valuable assets merely to purge themselves of such financial burdens.
Perhaps it is an NBA model that many desire for the NFL, setting cash limits per pick and taking negotiations out of the process. (Top NBA picks sign within days of being drafted.) This model makes sense and simplifies the process but would, of course, require collective bargaining.
Moreover, top NFL agents rely on these contracts — and the headline numbers — as badges of honor when recruiting the next class.
There is need for a change in the rookie compensation system, but not due to a misplaced focus on the very few. The vast majority of NFL rookies represent a fixed, efficient and reasonably compensated labor cost for the teams to offset the uncertain and expensive cost of the other method to upgrade talent: veteran free agency.
Long, Ryan and their cohorts perched atop the draft are the fortunate beneficiaries of a system skewed to their benefit. Most of their 2008 draft classmates will fall into the category of receiving what is left after the first picks get their share.
Perception about the chosen few has become false reality about the entire group.