The financials of Kam Chancellor’s new contract with the Seattle Seahawks are pretty straightforward and do not need yet another analysis added into the countless which have already been authored. Bob Condotta of the Seattle Times had a quality piece on the flexibility the contract for anyone who would like the details filled in. However, there are several other issues the contract does bring up, and that’s what I want to focus on today.
The first item that jumps out about the terms of the deal is that just as the Hawks have done with other players when they have agreed to extensions, the last year of the deal is inflated relative to the other years. This creates flexibility for the team, and while many analysts and commenters have noted it makes it easy to cut Kam and save cap money in the later years of deal, it also gives the team other options. In addition to giving Seattle the ability to cut the player, if Kam continues to perform at a high level, the inflated cap number for 2020 gives the team the ability to convert that base to a signing bonus and extend him yet again, while keeping the cash flow for Kam nearly identical. As noted in this article looking at the contract of Jermaine Kearse, this structure is common in contracts the team has given to many of its players, so there’s no need to rehash that entire thing. However, it is important to note that this contract carries the exact same kind of flexibility for the team in the latter years of the deal.
Now, while many have speculated that this will be Kam’s last contract with the Hawks, as he will only be 32 in the final year of the deal, it is entirely possible that Kam could play for several more years beyond then. Even though Kam plays a physical brand of football, several other safeties have played — and played well — for several years beyond their age-32 season in spite of playing such a physical style. Ronnie Lott retired at 35. John Lynch retired at 36, and he likely would have played for another season if the Patriots hadn’t cut him for Week 1 of the 2008 season in order to avoid guaranteeing his full salary. Lastly, after playing for Pete Carroll in New England in his mid-twenties, Lawyer Milloy called it a career after starting every game of the 2010 season for Carroll at age 37.
Now, an unfortunate note for Seahawks fans regarding these safeties is that despite playing at a high level well into their thirties, all three of them finished their career with a team other than the team they played for in the prime.
The next issue which shows up right away is the amortization of the signing bonus, but not necessarily for the new portion of the contract. When Kam signed his prior contract in April 2013, he received a $5M signing bonus. As he still had a year left on his rookie contract and the extension was for four years, this bonus was amortized over five years. This covered the four years of the extension and the last year of his rookie deal at $1M per season. However, post-extension, the prorated portion of the signing bonus from Kam’s old contract is being reported at $900,000 as opposed to $1M. This likely means that the team forced Kam to pay back $100,000 of the old signing bonus as a penalty for holding out in 2015.
While this $100,000 is only 2% of the total amount of the 2013 signing bonus, and represents an even smaller percentage of the $36M in new money on the new extension, if it does indeed represent a portion of the signing bonus Kam was required to pay back, it sends a clear signal about how the franchise deals with holdouts; Even when the player is a core member of the team. Of note on this is that paying back signing bonus is not quite as simple as the team just keeping the first $100,000 he earns. When signing bonus money is recouped by a team, it must be paid back by the player on an after-tax basis. This means that for someone in the top federal tax bracket, such as Kam, they must earn nearly double the $100,000 in order to be able to pay back the portion of the signing bonus to be returned.
(Author’s note: upon paying back the portion of the signing bonus, the player is able to claim a tax credit for taxes paid upon initial receipt of the signing bonus, but they are not able to claim this until after they have actually returned the money. Yes, the financially savvy may take out a loan in order to pay back the signing bonus, allowing for the use of the increased cash flow generated by the tax credits to help offset feeling the impact of having to pay back the portion of the signing bonus, but this is a different discussion for a different day.)
Lastly, one huge item that flashes like a neon sign not only from Kam’s extension, but looking back at Michael Bennett’s extension and the lack of an extension for Justin Britt to this point is the fact that while the Hawks currently have 14 players under contract for 2020, they have none under contract for 2021. This is in contrast to other teams, as many other teams have players under contract through 2021, or even 2022. For example, the following table lays out how many players each of a handful of teams have under contract for 2021 and 2022.
Players Under Contract for 2020 and 2021 by Team
The importance of not currently having any players under contract past 2020 cannot be understated. While at this point, it is still early enough that any contracts the team enters which would cover 2021 or 2022 would have flexibility built into any potential dead money, it does not change the danger of the fact that the cap situation come 2021 is a risky guess. The reason for this is because the current CBA, and the current revenue allocation method that divides the billions the league generates between the players and the owners, is set to expire after the 2020 season.
Thus, just as when the last CBA expired after the 2010 season, the regular increases seen in the salary cap in recent years could slow, stop, or even move backwards.
For teams, this means that while the likelihood of any particular contract they enter now causing major cap issues in 2021 is probably slim, a perfect storm could force teams to release certain players. It is entirely possible that if in the next round of CBA negotiations the players give up as much as they did in 2011, and if that is combined with a reallocation to increased retirement and health care benefits for the future as opposed to salary payments today, with a corresponding round of minimum salary increases as is typically seen under a new CBA, a situation could arise where tough decisions might have to be made.
Thus, while Kam’s contract says that the team definitely loves Kam and everything he brings to the team, it also shows that the team continues to give itself flexibility while not overcommitting moving forward, and also emphatically stating that there is no reason for holding out.
In all, it’s a great deal for the team and shows a lot more than simply their desire to retain one of their stars.