The Deshaun Watson trade has been deeply discussed and evaluated from multiple lenses, including numerous times on The 33rd Team. But there is an aspect of the deal that hasn’t been examined, and it could impact every team in the league, especially those with young QBs who will be looking for long term extensions. To explain this, we first have to turn to the CBA and look at the funding rule…
The Funding Rule
The NFL CBA requires owners to fund any future guaranteed money above $15M into an escrow account. For example, because the Browns are already above $15M, they will need to put $184M into escrow for Deshaun Watson based on the structure of his contract (note: that depending on a specific interpretation of Article 26, Section 9 of the CBA, this amount may be reduced to $172.5M, which is 75% of Watson’s total contract compensation).
There are owners in the NFL that either will have a significant problem doing this for financial or philosophical reasons (or both). Interestingly, this could be an issue for some of the teams that will need to extend young, elite quarterbacks in the near future. The only way to avoid that for owners that fall in this category would be for the owner and player to agree to a deal which would lower the amount of funding required.
This issue, of course, will be that any agent and player should insist on the same structure as Watson — five years, fully guaranteed.
Let’s take a look at which quarterback negotiations will be affected by Watson’s guaranteed money and the funding rule in the immediate future…
The Chargers have stadium debt from SoFi and a huge outstanding balance on what they paid the other owners to move the team from San Diego to LA. At this moment, they are also a low revenue team. Coupled with their debt, being a low revenue team makes the Chargers a lower profit team.
When they have to extend Justin Herbert, there are three possible outcomes: either (1) he is going to have to cooperate by taking a shorter deal with less total money than Watson; (2) he takes a deal the same length as Watson with less guaranteed money; or (3) there is a stalemate, and he becomes difficult to extend.
Now, the Chargers are doing the right thing by building a strong roster around Herbert while they still have him on his rookie contract. Not only do they need to maximize their window to win while his contract is low, but they also need to do it when they know he will still be on the team.
The Bengals historically have not been one of the highest spending teams and are one of the lowest profit teams. They could be financially challenged and philosophically opposed to putting such a significant amount of money in an escrow account.
Cincinnati also has very strict rules that they put in every contract. Specifically, they don’t guarantee P5 Base Salary; instead, they give small signing bonuses and roster bonuses. When they extended Andy Dalton for six years and $96M, they didn’t guarantee his base salary in any season. They give him a $12M signing bonus, a $5M roster bonus in the first year, and a $4M roster bonus in year two. The same was true for Carson Palmer in terms of no base salary guarantees, but Palmer got a fully guaranteed roster bonus instead of a signing bonus. He also had an option bonus.
To keep Burrow, they will have to deviate from this and completely change the way they’ve been doing business, at least at the quarterback position.
Baltimore is a middle-of-the-pack team in terms of revenue that won’t be thrilled about funding Lamar’s guaranteed money. Jackson being self-represented makes this extension a bit of a wild card, so it’s hard to pinpoint what he will demand. But we could be looking at a franchise tag, as Jackson will play this season under the Fifth Year Option then become a Free Agent (unless he is tagged). Baltimore might even have to employ the tag multiple times depending on how long it takes them to reach an extension. The question then will be whether Lamar will hold out.
Murray, who has already been very aggressive in going public with demands before the league year even started, seems highly likely to demand something in line with Watson. This will be a situation that we will need to watch closely, as it could be the first deal impacted by Watson’s contract. Murray seems less likely than the others to accommodate what the team is able to guarantee. In this case, the team could be both philosophically and financially opposed to such a contract. Murray will therefore be the first test of how teams and players will deal with Watson’s effect on the market.
It’s not likely, but it’s not impossible that one of these players could become available via trade in the event they can’t reach an agreement on a contract extension. Without the precedent from the Watson contract, that wouldn’t be conceivable under any other circumstance. But the quarterbacks and their agents would be doing themselves a disservice not to demand a fully guaranteed long-term deal. And the teams they’re currently playing for may not have the means to fund the guaranteed money in escrow.
One side will have to give, or we could see multiple franchise tags, holdouts, and even more unprecedented trades.