Using Advanced Analytics and Valuation Concepts Used by Courts to Evaluate NFL Players’ Contract Values
“Show me the money!”[1] This line was immortalized by Cuba Gooding Jr.’s fictional Rod Tidwell, Jr. in Cameron Crowe’s 1996 film Jerry Maguire.[2] In the film, Tidwell and the titular Maguire, his agent, shout the phrase repeatedly over the phone while he and Maguire discuss the wide receiver’s contract negotiations with the Arizona Cardinals.[3] The “show me the money” mentality does not exist only in film, however. In the National Football League, it’s the norm.
The NFL is an undisputed revenue-earning machine. The success and popularity of its on-field product has allowed the NFL’s member organizations to reap these financial benefits. These benefits are enjoyed by the team owners and, of course, the players. League revenues are shared among the teams evenly, with a player salary cap in place to (theoretically) allow for competitive balance and parity across the league. The number is set by the league before each league year and is the same for every team. Of course, teams find a way to circumnavigate the salary cap, restructuring and extending contract to include guaranteed money (usually in the form of prorated bonuses) to increase their pieces of the yearly-divided pie. However, there is a clear correlation between salary cap increases and player salaries. When the salary cap goes up, players get paid more – a lot more.
In 1996, when Jerry Maguire famously (and fictionally) negotiated with the Arizona Cardinals for Tidwell’s contract, the salary cap was set (by judicial injunction) at $40.8 million.[4] The 2023 NFL salary cap is currently set at $224.8 million.[5] Jerry Maguire triumphantly ends when Tidwell, a star wide receiver, is given a 4-year, $11.2 million contract to stay with the Cardinals.[6] In 2022, star wide receiver Davante Adams, wishing to play for his childhood team with his best friend, received a 5-year, $140 million contract extension to play for the Las Vegas Raiders.[7] The takeaway – the NFL and its players make a ton of money year in and year out, and the amount they receive grows every year.
While every player in the NFL from the practice squad to the MVP race benefits from the revenue increases, the NFL is a quarterback’s league – not just on the field, but in the teams’ checkbooks. In 2022, the ten quarterbacks made at least $35 million on average per year, with all but one making at least $40 million per year.[8] Valuing quarterbacks has become increasingly difficult over the years, especially as the league’s best consistently “reset the market” upon each extension they sign. The sheer magnitude of quarterback contracts, not only in relation to teams’ salary caps, but to each other, has made calculating a “fair extension” for the more “fringe” players especially difficult. Teams want to pay these players in question lower, hoping to perhaps build around them and put them in “prove it situations.” “Perform at a high level, receive your reward at your next extension.” Players, of course, want the opposite. They want as much money as they can possibly receive to reflect not only their contributions but reflect the increase of the market-share for quarterback contracts across the league. Fans are divided, with discussions about these players’ contracts often dominating the sports television and radio airwaves.
One such player whose contract negotiations were the biggest topic of conversation for New York sports fans was Daniel Jones.[9] Jones had a difficult beginning to his career. In four years, he played for 3 different coaches, suffered from turnover issues, and led the New York Giants to a measly 12-25 record.[10] However, his and the Giants’ fortunes changed in 2022, as, under new head coach Brian Daboll, Jones led the Giants back to the playoffs, where they earned their first post-season win since Super Bowl XLVI in 2012.[11] The Giants found themselves at an impasse – with Jones’ contract expiring, how much could they (and should they) pay him?
Enter the formulas and concepts used in the world of corporate finance. NFL players are viewed as investments for their teams. Teams invest in their players as people invest in stocks, hoping to build a portfolio of strong performers to outperform the overall market and lead them to ever-increasing returns (wins, statistics and, ultimately, money). Why not attempt to value these investments as companies are valued? Furthermore, players invest in themselves, putting their bodies on the line to make the NFL all its aforementioned money. How can they calculate their own projected contracts?
Using advanced analytics, formulas for projecting growth rate, the law of one price and accounting for the time value of money, teams and player agents can not only find a fair value deal for their players but project their analytical performance metrics over the term of the contract. The analytics in question were developed by Football Outsiders, and include DVOA (a player’s value per play adjusted for their opponents), DYAR (a player’s overall value above a replacement player for that given season, also opponent adjusted), EYAR (efficient yards, taking situations into account and adjusting how many yards the player directly contributed to) and ALEX (Air-Less Expected Yards, which measure air distance of QB passes on average on 3rd downs to show how conservative or aggressive they are on these “money downs”). For Daniel Jones, a mobile quarterback, rushing DVOA, DYAR and EYAR were also analyzed. A more detailed explanation of these statistics is available at footballoutsiders.com.[12]
The first financial concept involves projecting growth rates by using historical data. To calculate growth rate, take the current value, or the value of the year in question and subtract that from the previous value. Then, divide the difference by the previous value and multiply by 100 to find the rate of growth. Once the growth rate is determined, the future “returns” can be projected out to see the potential high and low ends of their returns in the years of their extensions. Then, turn to the “law of one price” – look at the market for a similar “stock” to estimate its value. Once we find this similar “stock’s” value, account for the time value of money. To do so, look to the franchise tag numbers for quarterbacks in each year analyzed, and increase the value of the that quarterback’s contract by the increase in the franchise tag’s increase. The franchise tag is calculated by averaging the salaries of the top five highest-paid players at each position – in this case, quarterbacks.[13] Since 2015, the franchise tag has increased 75% from $18.5 million to $32.4 million.[14] As previously noted, quarterbacks get paid.
For this project, seven quarterbacks’ performances heading into their extensions were analyzed. These players are Kirk Cousins, Blake Bortles, Ryan Tannehill, Cam Newton, Derek Carr, Dak Prescott and Josh Allen. Each has very different credentials – Allen, like Jones, saw his career take off when Daboll took over as offensive coordinator of the Buffalo Bills.[15] Some have had playoff success – some have not. Newton won MVP and led the Panthers to the Super Bowl in 2015.[16] Bortles was out of a starting job one year after he signed his extension.[17] Jones falls somewhere between all these players – the law of one price is now at work.
Below are the league averages for the advanced analytics in question since 2012.
League averages in nearly all categories increased since 2012. In 2022, a common critique of the NFL is that defenses finally figured out how to stop the potent passing numbers, leading to a slight drop in overall yardage, but an increase in per-play efficiency.[18] Jones was an outlier in 2022. Amid a leaguewide drop, his statistics increased drastically in 2022. Below are his statistics since earning the starting job in 2019, as well as his growth rate.
Next, take these statistics and forecast the expected returns over the term of the contract. In this example, a four-year projection will be used.
DYAR
DVOA
EYDs
As you can see, at best, Jones evolves into an MVP caliber quarterback. At worst, he still improves, based on his drastic growth rate. Most likely, he will fall somewhere between the actual projection and the high or low end, as most quarterbacks have. Next, compare Jones’ statistics to those of the quarterbacks in question from their rookie years to the years of their extensions. Next to the quarterback’s name is a breakdown of their extension in the year which they received it. AAV stands for average annual value.
Derek Carr (2017)
5 years, $125 million. $25 million AAV. $70.2 million guaranteed.
Kirk Cousins (2017)
3 years, $84 million. $28 million AAV. $84 million guaranteed.
Josh Allen (2021)
6 years, $258 million. $43 million AAV. $150 million guaranteed.
Ryan Tannehill (2015)
4 years, $77 million. $19.25 million AAV. $45 million guaranteed.
Blake Bortles (2018)
3 years, $54 million. $18 million AAV. $26.5 million guaranteed.
Dak Prescott (2021)
4 years, $160 million. $40 million AAV. $126 million guaranteed.
Note: Prescott has an extra year of data because he played under the franchise tag in 2020.
Cam Newton (2015)
5 years, $103.8 million. $20.76 million AAV. $60 million guaranteed.
As shown, Jones was a true outlier from these quarterbacks. While his statistics ranged from slightly to significantly lower than the rest of these players, his statistical trajectory went in the completely opposite direction than those of most these players. In the year before their extension, most of the quarterbacks in question regressed, aside from Bortles, who similarly led a struggling team back to postseason success in the 2017-18 NFL season.[19] However, most if not all of Jones’ statistics are higher than Bortles, so he is not a true direct comparison. A prudent move would be to average the AAV’s of the quarterbacks in question, adjusted for the increase in the franchise tag numbers from the years they signed the extension to now.
The franchise tag for quarterbacks in 2023 is $32.4 million.[20] In 2021, when Allen and Prescott signed their extensions, the franchise tag was $25.1 million – it increased 29% since then.[21] In 2018, when Bortles signed his extension, the tag was $23.1 million – it has increased 40.25% since then.[22] In 2017, when Cousins and Carr signed their extensions, the tag was $21.268 million – it increased 52.34% since then.[23] Finally, in 2015, when Tannehill and Newton signed their extensions, the franchise tag was $18.5 million – it has increased 75% since then.[24] The chart below reflects the AAV (in millions) of the aforementioned quarterbacks if they signed their contracts today.
Averaging these numbers together would give Jones a “fair value” AAV of $40.34 million. Next, turn to the length of the contract. The average term of these contracts is roughly four years, and the projected returns are for four years. So, the current “fair value contract” is 4 years for $161.36 million. Finally, we’ll look at the guaranteed money. Kirk Cousins signed a fully guaranteed contract in 2017, which is exceedingly rare in the NFL, and something that owners have heatedly debated for the last few years.[25] The average percentage guaranteed in the contracts of the compared quarterbacks is 58%. Therefore, Jones would receive $93.59 million guaranteed if the average is used.
Therefore, the projected “fair value” of Jones’ contract, calculated by using the aforementioned formulas and statistics would be 4 years, $161.36 million with $93.59 million guaranteed in incentives and a prorated signing bonus. Aside from guaranteed incentives, backloading the contract with a higher base salary in the later years would help the Giants sign players to surround Jones with.
On March 7, 2023, after this project began, Jones signed an extension with the Giants.[26] He signed for 4 years, $160 million with $92 million guaranteed.[27] The initial base salary is $9 million, working up to $46.5 million in the final year of the contract.[28] Jones received almost the exact same contract calculated here. Therefore, he received his fair value. Many fans and pundits believed he was overpaid.[29] However, if we are to believe that is formula is fair, then he received a deal that is fair based on his play and the market, reflective of his career thus far and his potential, and is team-friendly considering the backloaded nature and average guarantee.
There are many other players at every position who can utilize this analysis. Former MVP Lamar Jackson tweeted that he turned down a three-year contract with $133 million in guaranteed money.[30] Jones’ teammate Saquon Barkley, who reestablished himself as one of the best running backs in the league in 2022 after years of injury, also turned down an extension offer, and will be playing under the franchise tag in 2023.[31] Agents, players (like Jackson, who represents himself) and teams can utilize this analysis to find a baseline “fair value.” It worked for Jones.
It’s a way to show players the money.
Footnotes
