Posted by John Vrooman on Sunday, February 4, 2018 in National Football League.

Interview with NY Daily News.

1. Tom Brady is widely regarded as the best player in history at the most important position in all of sports. Yet over 18 seasons, he’s only been the highest-paid QB in the NFL one time (according to salary cap hit). And in six of the past seven seasons, as he’s defied Father Time and continued to be a perennial MVP candidate, Brady has been 12th or lower in QB cap hit. When a player of that caliber continues to take below-market-value contracts, what impact can that have on the overall market? 

 2. Is there any precedent in sports history of a player of that caliber continually taking a salary below his market value? 

 3. One other thing to consider is: why would Brady do this? Is he just the most selfless player in the history of sports? Does having a supermodel wife mean less economic burden for him? Or has Pats owner Robert Kraft offered Brady compensation that we aren’t aware of? In your expert opinion, what could be some motivating factors in Brady being so willing to take less money?   

Compared to his contemporary cohort of recent quarterbacks with similar production for their teams (Brees, Manning, Rivers, Rodgers, Romo, Ryan), Brady has been underpaid by about 35 percent over his career (in terms of pro football reference AV approximate value estimates).

https://www.pro-football-reference.com/leaders/av_career.htm

Alex Reimer (ironically given the nature of his current suspension) estimates that Brady is underpaid by $10 million per season.

https://www.forbes.com/sites/alexreimer/2015/10/02/tom-brady-contract-is-the-biggest-bargain-in-sports/#4960defa4047

The first two of Brady’s restructured contracts (2012 and 2013) simply shifted Brady’s base salary to prorated bonus and created $7 million to $8 million in cap space for 2012, 2013 and 2014. (only the prorated bonus plus base salary counts as a cap hit for that season).

Restructuring and rear-end loading of contracts is now common in the NFL and dates back to the early days of the salary cap when the Dallas Cowboys (and 49ers) infamously defied the cap and restructured contracts of their super-bowl teams (see the triplets) of the early 1990’s. As a result, these cap defiant clubs ultimately drove their teams into salary cap oblivion by the end of the decade. 

It soon became obvious to all clubs at the expense of the Cowboys (and 49ers) that a club can defeat the cap in the short-run but not in the long-run. Any payment over the cap now (bonus) becomes a salary payment (pro-rated dead money) under the cap in the future.

This is why the New England Patriots cap defiant dynasty is all the more remarkable. Furthermore, in spite of all of the now traditional contract restructuring and time value of money, Brady is still a bargain. There is also evidence of other players coming to the Pats for less money just to gain the prospects of playing in the post season.

The Brady bargain is a combination of all of these factors, with more emphasis on the last two: playing to win and deferred compensation. In the age of the salary-cap constraints and max-salaries, players and team owners will naturally seek non-salary compensation. This is true in all capped leagues NFL, NBA, NHL and now even in the more heavily luxury taxed MLB. Players may move for off-field endorsement money, for post-season cash prizes but even the most hardened veteran still plays the game for the ring.

I call this the champion effect and there is clear evidence of postseason rewards affecting regular season performance. The champion effect of the post-season is the core cause of dynasties, but also doormats. In Brady’s case he simply wants to stay and finish what he has started where he started it. At the beginning of the salary cap era, the Pats were less valuable than the Cincinnati Bengals and playing in high school Foxboro stadium. By 2001 the Pats had moved into Gillette Stadium and Brady replaced and injured Drew Bledsoe. In the random mediocrity of the salary cap era it doesn’t take much to create a winning franchise, but the challenge is of course to keep a champion from fragmenting. Brady’s deferred compensation is a significant piece underlying the Pats’ cap defiant dynasty

Most of the restructured contracts by Brady created flexibility for the Pats by simply shifting Brady’s time-equivalent compensation from now into the future. Given all of the altruistically hyped, all-for-one collectivist team-think, it is still likely that much if not all of Tom Brady’s foregone compensation has been deferred in some form until after he retires as a Patriot.

V

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Followups.

1. In that last paragraph, you write that “it is still likely that much if not all of Tom Brady’s foregone compensation has been deferred in some form until after he retires as a Patriot.” Do you mean that Brady will likely be counting against the cap in the future? Or that there’s likely some sort of agreement between Brady and the Pats (i.e. Robert Kraft) that will compensate him after he retires, either in cash or through a stake in the team?

Probably both. Brady’s contracts have usually been restructured with 2 years remaining and his current deal extends through 2019. The current deal was restructured in 2016 to reduce the Pats’ overall cap number for 2016 and 2017 and also reduce Brady’s salary loss from his deflate-gate suspension in 2016. His salary was reduced from $9 million to $1 million allowing a savings of about $2 million on the 4-game suspension.

As a side-effect of the 2016 restructuring, the Patriots cap hit from the Brady deal will jump from $14 million this season (2017) to $22 million in both 2018 and 2019. Brady’s contract will probably be renegotiated after the SB before 2018 to kick the salary cap can down the road. When Brady retires at 45 the salary cap hit will no longer be avoidable for the Pats.

I can’t really speculate on whether there are side deals between the Pats and Brady for his life during and after the Pats, but there is a constant reference to a bond of trust between Brady and Bob Kraft about Tom Brady’s unavoidable salary-cap bubble.

2. As an economist, how surprising is it to you that the best performer in a market would be so willing to consistently take below-market-value contracts?

Most NFL players playing under their rookie contacts are playing well their below market value because of the monopsony power of the NFL as a league and the individual club that drafted them. It  can also be argued that players who have signed long-term non-guaranteed incentive laden contracts like Rob Gronkowski (6 years through 2019) are underpaid, but not by choice.

3. Are there any examples of players doing this in the past in other sports? Or is Brady in a class of his own?

Brady may be in a class of his own as a NFL quarterback, but in his the financial aspects of contract restructuring he has evenly swapped the maybe for the sure (guaranteed/bonus) and less now for more later.

It is hard to judge Brady’s underlying motives (like spy-gate and deflate-gate) but his team has become a frugal cap defying dynasty as a result of his actions. In the end it is easy to see how football can just be a game when Brady’s accumulated wealth of $180 million is doubled by his supermodel wife’s wealth of an estimated $360 million. Pretty soon we’re talking about real money.

V