NFL fans across the league are awaiting any kind of news about training camp, preseason or the regular season. However, on Monday Patrick Mahomes and the Kansas City Chiefs not only made news, they made history in executing a contract extension that is the largest contract in sports history. The Chiefs, of course, are tight up against the salary cap for 2020, so the questions have become how they could make such a commitment to Mahomes while so tight against the cap, and also whether the extension will impact their ability to compete going forward.
The ten-year, $450M contract, broken down at a basic level looks something like this.
Chiefs bringing Mahomes his money pic.twitter.com/v3PKHYSZy5— PrimeTime KC (@PrimeTime_KC) July 6, 2020
To actually dig into the numbers, here is what it looks like on a year by year basis from OverTheCap.com.
The first key point to make about the contract is that while the extension changed the structure of the next two years for Mahomes in terms of base salary, signing bonus and roster bonus, the cap hits for the two years remain nearly unchanged. Specifically, in 2020 he was slated to have a cap hit of $5.3M, and in 2021 under the fifth year option his cap hit would have been $24,837,000 (the same as a transition tag for a quarterback for 2020).
So, with the extension his $5.3M and $24.837M cap hits for 2020 and 2021 become $5.346M and $24.806M, or virtually unchanged. However, what did change is the amount of cash the Chiefs will actually pay him over the next two years. Prior to the extension the only payment Mahomes was set to receive from the Chiefs over the next two seasons was in the form of base salary. Those base salaries were set to be as follows:
- 2020: $2,704,905
- 2021: $24,837,000
That means over the next two years he would have earned a total of $27,541,905, while with his extension he’ll be paid the following amounts:
- 2020: Signing bonus $10M and base salary of $825k (total of $10.825M)
- 2021: Roster bonus $21.7M, base salary of $990k and a $100k workout bonus (total of $22.799M)
Putting those together, his earnings increase from $27.54M to $33.624M over the next two seasons, while his cap hits remain effectively unchanged during these years. In addition, the structure of the contract is such that the Chiefs, with a twelve year runway within which to manipulate the cap, can easily push the cap hits for Mahomes into future seasons by converting roster bonuses to signing bonuses.
There is effectively no difference to players between roster bonuses and signing bonuses. They are both lump sums that are paid out subject to the terms of the contract under which they are paid, however, their accounting for cap purposes is significantly different. Roster bonuses count against the cap in the season in which they are earned, while signing bonuses are prorated against the cap over the coming seasons of the contract, up to a maximum of five years.
It’s likely no coincidence that the season in which Mahomes’ contract extension carries the largest roster bonus, 2027, also happens to be the final season of the contract during which the roster bonus could be converted to signing bonus and prorated for a full five years. In short, it appears the Chiefs set up the contract knowing they’re going to be pushing cap hits into the future in order to go all in for the next decade. This, of course, means there will likely be a cap reckoning at some point for the team, but just as the Dallas Cowboys did with Tony Romo, the New Orleans Saints continue to due with Drew Brees and the Philadelphia Eagles do annually with large pieces of their roster, that reckoning can be put off for basically as long as a team wishes to do so.
Obviously the wrench in the future plans for the Chiefs could be a 2021 and 2022 salary cap dip from resulting from a loss of revenues due to the pandemic, however, even if that proves to be the case the contract is likely to be a bargain by the time it reaches the final years of the deal. To that point, in 2011, the first year of the previous CBA, the salary cap was $120M, while for 2020, the final year of the prior CBA, it was $198.2M. That’s 65.2% growth over the duration of the CBA.
If, somehow, the NFL is able to continue its revenue growth at the same pace over the next decade through expansion of offerings, increased revenues from television contracts and an increase in the number of games, the cap increasing by 65.2% over the current CBA would put the 2030 salary cap at $327.4M. Mahomes, with a scheduled cap hit of $50.45M that season, would represent 15.4% of the Chiefs salary cap in such a scenario. In comparison, Russell Wilson’s 2020 cap hit for the Seattle Seahawks is slated to be 15.5% of the team’s salary cap.
That might seem like optimistic thinking, however, prior to the pandemic, there were those close to the league who believed the salary cap could hit $300M as soon as 2023 or 2024 on the backs of new tv contracts.
@RealMNchiefsfan sick of hearing about the new CBA? Good me either!— Absolutely Electric (@house4dsoul) February 26, 2020
"And one involved party told me that, depending on how the TV deals are structured, the cap should jump 30-35 percent over the next three years, which would have it creeping closer to $300 million."
Even if the economic impact of the pandemic slows down how long it takes for the salary cap to reach those levels by a season or two, the contract extension could wind up looking like an absolute bargain by the time the latter years of the deal come around. So, while Kansas City will certainly have a more difficult time fielding a team while not enjoying the benefits of a quarterback on a rookie contract, the possibility also remains that if the salary cap explodes over the coming decade, the deal could become a relative bargain if quarterback contracts continue to increase as quickly as they have as well.
For the Seahawks, while they have Wilson under contract for the next four seasons, thing could certainly get interesting three years from now. The team has traditionally extended key players when they have a single season left on their contract, and when that time comes in 2023, Wilson will be entering his age 35 season and looking at an extension that could lock him up through age 39. At that point, simply comping off Mahomes’ extension, Wilson would be looking at a four-year, $183.8M deal ($45.6M average per season), and that’s if no other quarterback resets the market higher between now and then.
In short, things could be interesting in the coming seasons for the Seahawks, the Chiefs or any other other team looking to extend their franchise quarterback.