Sunday, November 22, 2015

Flacco: Making It Rain Corrections

In our most recent post, we were looking at the potential ways that a contract renegotiation with Joe Flacco could play out.  We presented 3 different scenarios, which had outcomes that covered Flacco taking a reduced salary to stay with the Ravens, and two possibilities under which it would appear to be favorable for Flacco to force his way off of the team, in order to sign a contract with someone else.  Unfortunately, we had a massive brain-fart when we were doing some of the math that compared the money that Flacco would pocket under these different scenarios.

When comparing the "new money" Flacco would receive in Scenario 2 to Scenario 1, and then comparing the same funds in Scenario 3 to Scenario 1, we repeatedly made the same mistake.  We idiotically forgot that the bonus money would be in Flacco's pocket from day one of signing any of these new contracts.  In the initial posting, we were just summing his cumulative annual salary, over a 2 year span, a 3 year span and a 4 years span, without remembering that this bonus money would be his from the very beginning.  This was very stupid of us.

None of this changes the proposed contracts we were discussing, it simply alters the sections of that post which related to year to year comparisons of how much Joe will receive in these different situations.  The numbers have now been corrected, and currently point even more strongly than before to Scenario 3 being the most advantageous route for Flacco and his agent to take.  Over a 2 year span, Scenario 3 gives Flacco 49.7% more cash.  Over a 3 year span, Scenario 3 gives him 33.3% more cash.  Even in year 4, which Flacco possibly wouldn't reach in the Scenario 1 contract that has him staying with the Ravens, Flacco would be receiving 15.5% more cash by going with Scenario 3. 

We apologize for being morons, but we were on a bit of a caffeine high when we wrote that post.

Friday, November 20, 2015

Flacco: Making It Rain

For anyone who has followed the history of the Baltimore Ravens, it is difficult to not have some appreciation for the contributions of Joe Flacco.  Whatever your opinions of him may be, it is hard to deny that prior to his arrival the quarterbacking in Baltimore could best be described as pathetic.

While local fans probably are a bit too biased towards defending him, and outsiders might underrate him, Reilly and I both agreed that it was important to try to resign him back in 2013.  Of course, Reilly and I also tend to be a bit cheap, but we figured retaining Flacco was still a manageable task.  Well, at least until the Ravens won the Super Bowl, and our initial reaction was something along the lines of "Shit!  They're probably going to pay this idiot $20 million per year now."

Yup, it is fair to say that the contract Flacco received scared the hell out of us.  Unfortunately, many of the locals only looked at his cap hit in the first 3 years of the contract, and downplayed the significance of what was looming in the future.  These optimists are the sort of people who you want to have buying you Christmas gifts on their credit card, or perhaps the market targeted for adjustable rate mortgages.  .

Admittedly, our views on a quarterback's worth probably don't align with those of many other people.  Based on comparing Flacco to his peers (those who aren't operating under the terms of a rookie contract), we think it is obvious that this current contract significantly overpaid him.  When looking at passer rating, touchdown to interception ratios or A/NYA, the best estimate of Flacco's value that we could arrive at was a contract which offered $15.5 million per year.  In some categories, our estimates were even lower.  Regardless, the market has spoken, and our worthless opinions on this subject don't really matter anymore.

This doesn't mean we don't like Flacco.  We do.  He's a perfectly respectable quarterback, and far from the only player we feel is being paid too much.  It just means we would have drawn a different line as to how far we were willing to go to retain him.  Some will say that it is unfair to judge Flacco based purely on his statistical performance, and pin some of the blame for his typically middling output on the talent that surrounds him, or perhaps on his coaches.  That is fine, and possibly even true.  All we are saying is that paying Ferrari money, for a quarterback that you drive like a Honda, is kind of a difficult position to defend.

The likelihood that his current contract is at least somewhat hindering the team from achieving success on the field, seems to be reasonably  likely.  As one individual consumes an ever increasing percentage of the team's cap space, it also becomes more imperative than ever that the team compensate through improved drafting.  We've mentioned before how we think this is also an area where the Ravens have actually been in decline over the past several years.  Combining these salary issues, along with a reduced ability to find cheap young talent, probably explains a fair bit about what has gone wrong with the Ravens 2016 season.

That the Flacco contract was also significantly back-loaded, and gave Joe a ton of leverage on future (current) negotiations was largely overlooked in the past.  Now, the general consensus seems to be that the Ravens will be forced to renegotiate this contract, prior to the start of the 2016 season, in order to free up cap space, and we have some serious doubts/concerns about how this will proceed.

Like the backseat of a Volkswagen?

It is pretty much impossible to accurately guess what a renegotiated contract with Flacco will really look like.  The numbers can be moved around in an almost endless number of ways.  Still, we thought it might be fun to look at some of the complications that could arise in this situation.  We thought we would start by simply laying out the terms of the contract, for the 3 years that still remain on it.

        Year      Base Salary     Guaranteed       Cap Hit   Dead Money          Age
2016 $18 $10.55 $28.55 $25.85 31
2017 $20.60 $10.55 $31.15 $15.30 32
2018 $20 $4.75 $24.75 $4.75 33

*If it isn't perfectly obvious, all these numbers are in millions of dollars.

While there is a significant amount of remaining guaranteed money ($25.85 million in total) that is already prorated over these remaining 3 years, that is really only relevant to the Ravens, and the people who manage the team's cap.  From Flacco's perspective, this money is already in his pocket, and like most NFL players has probably been squandered on strippers, cocaine and the upkeep of illegitimate children.  Granted, I am partially basing this assumption solely on what would happen if I was handed several millions of dollars, while still in my twenties.  Now, regardless of what some people may think, Flacco has little reason to let this past guaranteed money factor into his thoughts on future negotiations.  He/I/We have future baby-mamas we want to support, and that is all about future earnings.

The only thing that Flacco should be concerned with is preserving as much of the future base salary payments, that this contract originally "promised" to him.  While the Ravens have obvious motivations to lower Joe's cap hit, especially in the 2016 and 2017 seasons, the only theoretical leverage they have is the threat of cutting Joe, or perhaps begging.  For the most part, this threat of being cut is completely preposterous, and it will be interesting to see how seriously Flacco and his agent view any of this.

For 2016, with a dead money hit of $25.85 million, the leverage is obviously tilted in Flacco's favor.  That means he has every reason to expect to retain the $18 million base salary from that year, at least in some renegotiated form.  There is almost no real savings for the team if they cut Flacco, and even if they did, they would still need to find a replacement for him.  Again, I will say that begging for mercy is the Ravens' best option here.

For 2017, things become slightly more interesting.  The balance between Flacco's cap hit of $31.15 million, versus the dead money hit of $15.3 million is a curious situation.  Sure, the Ravens would save $15.85 million by cutting Joe at this point, but they would again need to address the quarterback position, which is something they have historically been dreadful at.  Who really holds the leverage in this year might be a bit debatable, though we suspect that Flacco would win this game of chicken.  We'd probably continue to bet on Joe retaining his claim on the $20.6 million in base salary from this year, at least in a renegotiated form.

For 2018, Flacco pretty much loses all the leverage he might have formerly possessed, as cutting him with a $4.75 million dead money hit would be laughably easy for the team to absorb.  So, we're going to assume that Flacco has no real expectation of retaining the $20 million in base salary for this year, and it won't really factor into any of the negotiations.

Okey-dokey, it's time to start fiddling with the numbers.  First, we'll throw out the suggestion that Flacco will reduce his 2016 base salary by $15 million.  We will then propose that he reduce his 2017 base salary by $16.6 million.  Since we think Flacco has enough leverage to expect to have earned this money, these won't be real reductions in pay, but the money will be converted into guaranteed money, which will be prorated over the length of his contract.  That would total $31.6 million in new guaranteed money.  Yes, it already sounds insane.

We're going to ignore the possibility of putting this money into future "option bonuses", since we don't think they would necessarily do either side any favors in this negotiation.  Flacco, in particular, would probably be the party most likely to get screwed over by such bonuses, and we see no compelling reason for him to accept that form of payment, at least with the leverage he currently possesses.

Since his current contract only has 3 years remaining on it, prorating this $31.6 million is a bit of a problem, as that would work out to $10.53 million in guaranteed money per year.  That means the team would want to add some more years to Flacco's contract, to allow them to account for this money over a longer period of time (though it would actually go into Flacco's pocket the day he signed his new contract).  The number of years to be added to Flacco's contract is unknowable, but since guaranteed money can only be distributed over a maximum of 5 years, we'll pretend that they will only try to add 2 years to the new contract.

That brings up another complication.  By adding to the number of years that Flacco would be obligated to serve the Ravens, he would probably expect an additional signing bonus, which adds even more guaranteed money to this new contract.  Based on what we are seeing with his peers, who have performed to a similar level, we're going to guess that this would come out to a signing bonus of about $4 million per year that is added to Flacco's original contract, or $8 million in total.  While we find this situation a bit ridiculous, there are actually a number of reasons why we think this could still be a very low estimate, but we'll explain those reasons a bit further on.

Okay, so we now have some sort of basic theory about Flacco agreeing to a 2 year extension, which will take him through the 2020 season, at which point he would be 35 years old.  We also have an estimate of $39.6 million dollars in guaranteed money ($31.6 million from redistributed base salary he was likely to earn, and $8 million in signing bonuses for the extension).  This works out to $7.92 million in new guaranteed money per year, over the course of this 5 year contract.  That makes determining Flacco's numbers for 2016 and 2017 fairly straightforward.  From 2018 onward, we'll just insert a base salary that maintains a fairly steady rate of pay, with some consideration given to Flacco's average annual "new money" payments.  Here's what it looks like so far.

Scenario 1
      Year      Base Salary         Old Guar.    New Guar.        Cap Hit   Dead Money       Age
2016 $3 $10.55 $7.92 $21.47 $65.45 31
2017 $4 $10.55 $7.92 $22.47 $46.98 32
2018 $11 $4.75 $7.92 $23.67 $28.51 33
2019 $15
$7.92 $22.92 $15.84 34
2020 $15
$7.92 $22.92 $7.92 35

*Once again, all these numbers are in millions of dollars.

Now, this is all just bullshit speculation on our part, and we will happily admit that predicting how Flacco's contract will be renegotiated is a bit of a fool's errand.  There are many ways in which the numbers can be moved around, and depending on your proximity to Baltimore, you might find these numbers ridiculous for different reasons.  To some, the concept of Flacco carrying an average annual cap hit of $22.69 million will seem outrageous.  To others, proposing that Flacco will be given $39.6 million in guaranteed money will be the sticking point.  Your perception/tolerance of these figures will invariably be affected by whether you were born with one of Ozzie Newsome's mind control implants.

From the Ravens' perspective, this proposal would give them some significant cap relief.  In 2016, it would save them $7.08 million in cap space.  In 2017, it would save them $8.68 million in cap space.  From that point onward, Flacco's numbers would remain fairly stable (if still outrageous), and not present the likelihood of giving Joe such a ridiculous amount of leverage in the future.  In theory, the Ravens could escape this contract just prior to the 2019 season, albeit with some minor discomfort.

The real problem, from our perspective, is that this might be an overly optimistic best case scenario. We think Flacco could actually push for significantly more money, if he chose to do so.  The leverage he possesses over the Ravens shouldn't be underestimated.

Suitor Number 2

Let's explore how things could all go terribly wrong for the Ravens.

Many fans seem to support the idea that Flacco will reduce his base salary to a lower level in order to "take one for the team", or some other sort of deranged nonsense.  The idea here is that by reducing his demands, the team will have more money to spend on other players, allowing Joe to perform better, and making his remaining years more enjoyable.  We recall hearing that unicorns and rainbows are somehow involved in all of this, but we can't swear to that.

What people seem to be forgetting is that this is the same guy who supposedly turned down a deal, prior to his Super Bowl winning season, that would have offered him $16 million per year, in order to bet on himself.  Joe clearly won that bet, and we wouldn't put it past him or Joe Linta (his agent), to do so again.

Despite the generally accepted idea that Flacco's contract will be renegotiated this off-season, we really don't think he has much incentive to do so.  The Ravens have almost nothing they can threaten him with, and he could easily tell them to piss off, with no real consequences.  Now, prior to the 2017 season, he might be more amenable to discussing his contract, but even then, he still retains a great deal of power in these negotiations.  Leverage, not team spirit/loyalty, should be what determines the outcome of this situation.

So, let's pretend that the Ravens open negotiations with Joe prior to 2016.  Let's also pretend that the Ravens are in full kamikaze mode, and refuse to accept that Joe has all the leverage, and actually do decide to cut him.  This is extremely unlikely, but let's roll with this lunacy.

This allows us to speculate on what Flacco could draw as a free agent, which is an additional source of leverage he has over the Ravens.  For this imaginary scenario, we will propose that another team would be willing to offer the 31 year old Flacco a 5 year contract worth $80 million in total.  We'll also speculate that the guaranteed portion of this contract would be $44.8 million, since this would be 56% of the total contract, and relatively in line with the percentages we see being given to quarterbacks who are similar to Flacco.  We'll also pretend that the distribution of funds is perfectly flat over the course of these 5 years.  This is what such a contract might look like.

Scenario 2
       Year      Base Salary     Guaranteed       Cap Hit   Dead Money          Age
2016 $7.04 $8.96 $16 $44.8 31
2017 $7.04 $8.96 $16 $35.84 32
2018 $7.04 $8.96 $16 $26.88 33
2019 $7.04 $8.96 $16 $17.92 34
2020 $7.04 $8.96 $16 $8.96 35

Whatever your opinions are of Flacco's abilities as a quarterback, it would be hard to imagine that this wouldn't be a tempting contract to a number of teams.  This imaginary team would be acquiring Flacco for a lower price than what is currently being paid to the likes of piddly old Alex Smith.

It would also present Flacco with some very interesting incentives to depart Baltimore, or at least use the option of departing as leverage.  Despite appearing to be a smaller contract than the previous one we put up in Scenario 1, because of the lower annual cap hits, this actually pays Flacco more actual money.  Let's compare what Joe would be pocketing in "future earnings" with these two different situations.

     Scenario 2
  Scenario 1

              Total         Avg.
           Total         Avg.
2 yr Income $58.8 $29.4
$46.6 $23.3
3 yr Income $65.9 $21.9
$57.6 $19.2
4 yr Income $72.9 $18.2
$72.6 $18.1

In the first 2 years of these contracts, Scenario 2 (which has Joe leave Baltimore for a new team) would give Flacco $12.2 million in additional earnings, compared to what he would receive in Scenario 1.  In the First 3 years, Scenario 2 would give Flacco $8.3 million in additional earnings over the contract in Scenario 1.  It isn't until we get 4 years into these two contracts that the gap really closes, with just a margin of $100,000 to separate them.

Unfortunately, things are still significantly more complicated than that.  While Scenario 1 seems to close the gap after 4 years, this is unlikely to be the case in reality.  In Scenario 1 (where he stays with the Ravens), Flacco's cap hit of $22.92 million, versus his dead money hit of $15.84 million, gives the Raven's some incentive to force Flacco into another renegotiation.  The Ravens would have some leverage here, since they could save $7.08 million by cutting Flacco prior to his 2019 season.

Scenario 2 doesn't present such problems for Flacco.  He would almost certainly receive every penny promised to him through the first four years of this contract, as it would actually cost this new team $1.92 million more to cut him than keep him at this point in time.

Compared to the contract in Scenario 1, Joe actually maintains more leverage in this contract over a longer period of time.  He additionally makes more money per year, and would theoretically be on a team with more cap space, allowing him to be surrounded by more high priced free agents than the Ravens would be able to provide. 

Ah, but this becomes even more complicated.  As we said before, we think it would be borderline suicidal for the Ravens to cut Flacco prior to the 2016 season, even if Flacco refused to renegotiate.  In 2017, however, there is a slightly increased (but still unlikely) possibility that releasing him would be doable.  If Flacco forced his way off the Ravens' roster in 2017 by still refusing to renegotiate, he could pocket the 2016 $18 million in base salary from his current contract, and then pursue the very same free agent contract we proposed in Scenario 2.  Suddenly his overall earnings would gain an additional boost, making departing the Ravens an even more appealing option.

Scenario 3
       Year      Base Salary     Guaranteed        Cap Hit   Dead Money          Age
2016 *$18 *$10.55 *$28.55 *$25.85 31
2017 $7.04 $8.96 $16 $44.8 32
2018 $7.04 $8.96 $16 $35.84 33
2019 $7.04 $8.96 $16 $26.88 34
2020 $7.04 $8.96 $16 $17.92 35
2021 $7.04 $8.96 $16 $8.96 36

*Just remember, in Scenario 3, the 2016 base salary is still being paid by the Ravens, rather than Flacco's "new team".

Let's also again compare how Flacco's earnings compare under these two scenarios, with the "free agent" Scenario 3 receiving the benefit of this additional $18 million from 2016.

     Scenario 3
  Scenario 1

              Total         Avg.
           Total         Avg.
2 yr Income $69.8 $34.9
$46.6 $23.3
3 yr Income $76.8 $26.6
$57.6 $19.2
4 yr Income $83.9 $20.9
$72.6 $18.1
5 yr Income $98 $18.1

Now, departing the Ravens after 2016, rather than prior to it, Scenario 3 becomes an even more appealing option.  In the first 2 years of Scenario 3, Flacco would receive $23.2 million more than he would by staying with the Ravens' Scenario 1 offer.  Over the first 3 years, Scenario 3 would pay Flacco $19.2 million more than Scenario 1.   Over the first 4 years, Scenario 3 would pay Flacco $11.3 million more than Scenario 1, but then we get back to the question of how likely Flacco is to actually reach year 4 in Scenario 1, without being forced to renegotiate.  Under these terms, Flacco would also almost certainly reach year 5 of Scenario 3, which is incredibly unlikely in Scenario 1.

So, Scenario 3 seems like the best option for Flacco. It nets him more guaranteed money, and more leverage, over a greater period of time.  It also puts him on a team that has more cap space, or at least one less burdened by their quarterback's annual cap hit.  This also probably gives Joe a better chance of actually winning games in the future, which probably has some modest value to a professional athlete.

We also shouldn't forget that we are only proposing a fictional free agent contract that pays a mere $16 million per year, to illustrate how cheap it could be for a rival to lure Joe away from the Ravens.  It seems quite likely that another team (perhaps the Texans, Browns or Rams) would be willing to pay more per year than the humble amount we are currently suggesting.  If that is so, it only further strengthens Flacco's motivations to not renegotiate, and to try to get out of Baltimore.  Or, at the very least, it allows Flacco apply significant additional pressure to the Ravens, even beyond his looming cap hit numbers.

Regardless of how you may view all of this, you have to admit one thing.  Whatever Flacco's actual value is, if the Ravens are possibly going to be willing to spend around $22.69 million per year to retain him, it seems reasonable to suggest that some other quarterback needy team would be willing to pay 70.5% of that price, which is what our proposed $16 million per year contract works out to.  If someone else is willing to pay that much, the Ravens should in theory lose this negotiation, as well as their quarterback.  Or, possibly, the Ravens will end up paying a price that nobody else in the league feels it is worth paying for Flacco's services.

Either possibility could be a bit depressing.

The Ravens only have themselves to blame. 

Of course, all of this is just spit-balling.  We really have no idea how this will all work out.  Maybe Joe will take a more significant reduction in salary than we think he should.  Reilly and I certainly have no stake in how any of this unfolds.  Joe isn't going to give us a 10% cut of his new contract, and the Ravens definitely don't take our calls.  All we're saying is that we would try to force Joe Flacco out of Baltimore, if we were his agent.  We're cruel and heartless bastards.  The benefits of leaving seem to outweigh the benefits of sticking around, and we see no reason to believe that Flacco should make his decision based on sentiment or generosity (which is all a bunch of hippie drivel).

If Joe chose to take this path, we certainly couldn't judge him harshly for it, or call him greedy.  It would merely be the result of a poorly structured contract, which gave the player way too much leverage, which is entirely the fault of team management.  Some will say that the Ravens were "forced" to resign Flacco, after the team won the Super Bowl in 2012.  We would just say that any decision you feel "forced" to make has a much higher likelihood of being a bad one.

We'll find out soon enough just how bad their next decision will be.